Financial Accounting Including International Financial Reporting Standards (IFRS)

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

COMPILED BY AL KHADASH

Accounting: Information for Decision Making

Chapter 1

1-2

1-3

Accounting

Information

The

Accounting

Process

Decision

Makers

Economic

Activities

Actions

(decisions)

Accounting links

decision makers

with economic

activities and

with the results of

their decisions.

Reported

Results of

Actions

(decisions)

1-4

Types of Accounting Information

Financial

Management

Tax

1-5

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.

1-6

Information

Users

Investors

Creditors

Managers

Owners

Customers

Employees

Regulators

Decisions

Supported

Performance

evaluations

Equity

investments

Tax strategies

Labor relations

Resource

allocations

Lending

decisions

Borrowing

Information System

Financial

Information

Provided

Profitability

Financial

position

Cash flows

1-7

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 Needs

1-8

Basic Functions of an Accounting

System

Summarize

and

communicate

information to

decision

makers.

Classify

similar

transactions

into useful

reports.

Interpret

and record

business

transactions.

1-9

Components of Internal Control

Control

Environment

Risk

Assessment

Control

Activities

Information and

Communication

Monitoring

1-10

External Users of Accounting

Information

• Owners

• Creditors

• Potential investors

• Labor unions

• Governmental agencies

• Suppliers

• Customers

• Trade associations

• General public

1-11

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

economic decisions.

Objectives of External Financial

Reporting

1-12

Objectives of External Financial

Reporting

The primary financial

statements.

Balance

Sheet

Statement

of Cash

Flows

Income

Statement

1-13

Characteristics of Externally

Reported Information A Means to an

End

Broader than

Financial

Statements

Historical in

Nature

Results from Inexact and

Approximate Measures

Based on General-

Purpose

Assumption

Usefulness

Enhanced via

Explanation

1-14

Users of Internal Accounting

Information Board of directors

Chief executive officer (CEO)

Chief financial officer (CFO)

Vice presidents

Business unit managers

Plant managers

Store managers

Line supervisors

1-15

Typical

Simple

Organization

Chart

Plant

Accountants

Plant

Managers

Plant

Accountants

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

1-15

1-16

Objectives of Management

Accounting Information

To help achieve

goals and

missions

To help evaluate

and reward

decision makers

1-17

Characteristics of Management

Accounting Information

Timeliness

Identify

Decision Maker

Oriented Toward

Future

Measures of

Efficiency and

Effectiveness

A Means to an

End

1-18

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

1-19

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)

1-20

Competence, Judgment and

Ethical Behavior

Certified Public Accountant (CPA)

Certified Management Accountant (CMA)

Certified Internal Auditor (CIA)

Ethical behavior is the

cornerstone of the

accounting

profession.

1-21

Careers in Accounting

Public Accounting

Management Accounting

Governmental Accounting

Accounting Education

1-22

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.

1-23

I’m Not An Accounting 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.

1-24

Ethics, Fraud & Corporate

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.

1-25

End of Chapter 1