Financial Accounting Financial Accounting
Including International Financial Reporting Standards (IFRS)
Williams Haka Bettner Carcello Lam Lau
Accounting:
Accounting:
Information for Decision Making Information for Decision Making
Chapter 1
Accounting Information The
Accounting Process
Decision Economic
Activities
Accounting links decision makers
with economic activities and with the results of
their decisions.
Reported Results of
Actions
Types of Accounting Types of Accounting
Information Information
Financial
Management
Tax
Accounting Systems Accounting Systems
An accounting system consists of the personnel, procedures, technology, and
records used by an organization to develop accounting information and to communicate this information to decision
makers.
Information Users
Investors
Creditors
Managers
Owners
Customers
Employees
Regulators Information
Users
Investors
Creditors
Managers
Owners
Customers
Employees
Regulators
Decisions Supported
Performance evaluations
Equity investments
Tax strategies
Labor relations
Resource allocations
Lending decisions
Borrowing Decisions Supported
Performance evaluations
Equity investments
Tax strategies
Labor relations
Resource allocations
Lending decisions
Borrowing
Information System Information System
Financial Information
Provided
Profitability
Financial position
Cash flows Financial Information
Provided
Profitability
Financial position
Cash flows
Although much accounting information clearly is essential to business operations,
management still has many choices as to the types and amount of accounting
information to be developed.
Determining Information Determining Information
Needs
Needs
Basic Functions of an Basic Functions of an
Accounting System Accounting System
Summarize and
communicate information to
decision makers.
Classify similar
transactions into useful
reports.
Interpret and record
business
transactions.
Components of Internal Components of Internal
Control Control
Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring
External Users of External Users of
Accounting Information Accounting Information
• Owners
• Creditors
• Potential investors
• Labor unions
• Governmental agencies
• Suppliers
• Customers
• Trade associations
• General public
Provide specific
information about assets, liabilities, equity, income and expenses, including gains and losses,
contributions by and distributions to owners in their capacity as owners, and cash flows..
Provide information useful in predicting amount, timing and uncertainty of future cash flows.
Provide general information useful in making
Objectives of External Objectives of External
Financial Reporting
Financial Reporting
Objectives of External Objectives of External
Financial Reporting Financial Reporting
The primary financial statements.
Balance Sheet
Statement of Cash
Flows
Income
Statement
Characteristics of Characteristics of
Externally Reported Externally Reported
Information Information
A Means to an End
A Means to an End
Broader than Financial Statements Broader than
Financial Statements
Historical in Nature Historical in
Nature
Results from Inexact and Results from Inexact and Based on General-
Purpose Assumption Based on General-
Purpose Assumption Usefulness Enhanced via
Explanation Usefulness Enhanced via
Explanation
Users of Internal Users of Internal
Accounting Information Accounting Information
Board of directors
Chief executive officer (CEO)
Chief financial officer (CFO)
Vice presidents
Business unit managers
Plant managers
Store managers
Line supervisors
Typical Simple
Organization Chart
Plant Plant Managers
Plant Plant Managers Business
Unit Managers
V.P.
Human Resources
V.P.
Information Services
Chief Financial Officer (CFO) Chief Executive
Officer (CEO) Board of Directors
Owners
V.P.
Ethics
Controller Treasurer
Objectives of Objectives of
Management Accounting Management Accounting
Information Information
To help achieve goals and
missions
To help achieve goals and
missions
To help evaluate and reward decision makers To help evaluate
and reward decision makers
Characteristics of Characteristics of
Management Accounting Management Accounting
Information Information
Timeliness Timeliness
Identify Decision Maker
Identify Decision Maker
Oriented Toward Future
Oriented Toward Future
Measures of Efficiency and
Effectiveness Measures of Efficiency and
Effectiveness A Means to an
End
A Means to an End
Institutional Features Institutional Features
Generally Accepted Accounting Principles (GAAP)
International Accounting Standard Board
Financial Accounting Standards Board
International Federation of Accountants
Securities and Exchange Commission
Public Company Accounting Oversight Board
Audits of Financial Statements
Legislation
Professional Organizations Professional Organizations
American Institute of Certified Public Accountants
Institute of Management Accountants
Institute of Internal Auditors
American Accounting Association
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
Competence, Judgment Competence, Judgment
and Ethical Behavior and Ethical Behavior
Certified Public Accountant (CPA)
Certified Management Accountant (CMA)
Certified Internal Auditor (CIA)
Ethical behavior is the cornerstone of the
accounting
profession.
Careers in Accounting Careers in Accounting
Public Accounting
Management Accounting
Governmental Accounting
Accounting Education
What About Bookkeeping?
What About Bookkeeping?
Bookkeeping is the clerical side of accounting—
the recording of routine transactions and day-to- day record keeping.
Professional accountants are involved more with the interpretation and use of accounting
information than with its actual preparation.
I’m Not An Accounting I’m Not An Accounting
Major Major
Accounting is the language of business, and trying to run a business without understanding accounting information is analogous to trying to play sports without
understanding the rules.
Ethics, Fraud & Corporate Ethics, Fraud & Corporate
Governance Governance
Corporate governance entails corporate structures and processes for overseeing
the company’s affairs to ensure that the company is being managed with the best
interests of shareholders in mind.
Dennis Kozlowski, the former CEO of Tyco, was sentenced to 8 1/3 to 25 years in prison for his
conviction for conspiracy,
securities fraud, and falsifying records.
