gas 12 - branches of accounting
TRANSCRIPT
Branches of Accounting
Ms. Ma. Irene G. Gonzales, LPT
Fall of Enron
• In 2001, a large American energy company misrepresented its earnings and modified its balance sheet to show favorable performance and it led to its bankruptcy and downfall.
• Forensic accounting played a role in understanding the causes of Enron’s demise.
• This branch of accounting combines accounting, auditing, and investigative skills in conducting investigations.
8 Branches of Accounting
1. Financial Accounting
2. Management Accounting
3. Government Accounting
4. Auditing
5. Accounting Research
6. Accounting Education
7. Tax Accounting
8. Cost Accounting
I. FINANCIAL ACCOUNTING
A branch of accounting primarily handling the recording of financial transactions of a business.
Financial transactions
Standardized accounting
reports
Financial statements
I. FINANCIAL ACCOUNTING
Financial statements should provide information useful to a wide range of users in their economic decisions.
This is the main reasons why accounting standards such as PFRS and PAS are created.
They supply guidelines on HOW companies should prepare their financial statements.
I. FINANCIAL ACCOUNTING
Standardized financial statements allow the users to COMPARE THE RESULTS of different companies regardless of size and nature.
Enhances the COMPARABILITY of different companies
Improve the UNDERSTANDABILITY of the company’s financial statements
Creditors – will be able to assess the RISKINESS of a company
I. FINANCIAL ACCOUNTING
MAIN GOAL To provide the information needs of external users
that have no capability to request information directly from management.
Primary Users of General Purpose Financial Statements
Primary Users of Special Purpose Financial Statements
Investors Creditors Shareholders/Stockholders Government Agencies Auditors other interested outside parties
Top management (e.g., Board of directors of a company, CEO, CFO, COO) Department managers (e.g., sales manager, production manager) other internal parties
used to evaluate the performance of the company
utilized to guide in the decision-making process
II. MANAGEMENT ACCOUNTING
Focuses on the preparation of financial reports used by managers in their day-to-day decision making
Reports generated are for internal users only
Need not to follow accounting standards
MANAGEMENT REPORTS
Can be done daily, weekly, or whenever managers require a specific report
Contain information regarding the ff:
Amount of cash on hand
Level of sales revenue for a particular period
Costs incurred
Comparison of actual results with budgeted amounts
FINANCIAL VS. MANAGEMENT ACCOUNTING
Financial accounting summarizes financial information gathered within a specified period. Thus, provides information that is HISTORICAL.
Management accounting information is FORWARD-LOOKING. It contains forecasted information used by managers in planning.
ROLES OF MANAGEMENT ACCOUNTANTS
According to the Chartered Institute of Management Accountants (CIMA) Advise managers about the financial implication of projects Explain the financial consequences of business decisions Formulate the business strategy Monitor spending and financial control Conduct internal business audits Explain the impact of the competitive landscape Bring a high level of professionalism and integrity to the business
MANANGEMENT ACCOUNTING SKILL SET
Strategic business and management skills:
ANALYSIS. Analyze information and use it to make business decisions.
STRATEGY. Strategies that will increase the company’s wealth and create value for the company’s shareholders.
RISK. Identify risks and give recommendations on how to manage such risks.
MANANGEMENT ACCOUNTING SKILL SET
Strategic business and management skills:
PLANNING. Apply accounting techniques in the planning and budget creation phase of a business.
COMMUNICATION. Identify what information the management needs and explain the numbers to non-financial managers.
ETHICAL CODE
Even though management reports do not follow the requirements imposed by accounting standards like PFRS and PAS, management accountants are still expected to follow the CIMA code of ethics.
III. GOVERNMENT ACCOUNTING
Encompasses the process of analyzing, recording, classifying, summarizing, and communicating all transactions involving the receipt and disposition of government fund and property and interpreting result thereof (Section 109 of Presidential Decree 1445).
OBJECTIVES OF GOVERNMENT ACCOUNTING
1) To provide information concerning past operations and present conditions
2) To provide a basis for guidance for future operations
3) To provide for control of the acts of public bodies and offices in the receipt, disposition, and utilization of funds and property
4) To report on the financial position and the results of operations of government agencies for the information and guidance of all persons concerned
NEW GOVERNMENT ACCOUNTING SYSTEM (NGAS)
It enhances responsibility accounting in all agencies
Responsibility Accounting
Relates financial results to a particular responsibility center
If there is a problem with the handling of funds by the DepEd, people in that agency will be the ones accountable.
Discourages misappropriation and misuse of public funds
GOVERNMENT ACCOUNTING PROCESS
It started after the declaration of the General Appropriations Act (GAA).
The GAA is the enacted budget of the country for the upcoming year.
The GAA has a force of law and it states how much an agency can spend for the year.
GOVERNMENT ACCOUNTING PROCESS
Commission on Audit (COA)
Department of Budget and Management (DBM)
Bureau of Treasury (BTr)
GOVERNMENT ACCOUNTING PROCESS
COA • Responsible for keeping the government’s general accounts
• Disseminates accounting rules to be used by all agencies
DBM
• Formulation and implementation of the National Budget with the goal of attaining our national socio-economic plans and objectives
• Efficient utilization of government funds and revenues
BTr • Safekeeping of the national funds
• Management and control of the disbursements of funds
IV. AUDITING
It is an unbiased examination and evaluation of the financial statements of an organization.
Includes steps to determine whether or not a company’s financial statements are presented truthfully.
IV. AUDITING
Auditors must be independent from the company being audited.
TAKE NOTE
An audit of the financial statements improves their credibility.
Audited financial statements – financial statements that underwent the process of auditing
IV. AUDITING
Audited financial statements are accompanied by the author’s opinion.
Author’s opinion will be the basis whether or not the financial statements are prepared truthfully and without material errors.
V. ACCOUNTING RESEARCH
Deals with the creation of new knowledge
Deciding and implementing new accounting and auditing standards
Presenting unusual economic transactions in the financial statements
Learning how new tax laws impact clients and employers
Discerning how the accounting professions affects the capital markets through academic accounting research
VI. ACCOUNTING EDUCATION
Bachelor of Science in Accountancy (BSA)
Accounting
Audit
Administration
Business laws
Taxation
Banking and finance
Government
Non-profit organizations
Academe
VI. ACCOUNTING EDUCATION
Requirements
High school graduate
College entrance examination
Aptitude test for BSA
Interview
English proficiency examination
VI. ACCOUNTING EDUCATION
Board Exam
CPA Licensure Exam
7 subjects; 3 hours each subject
General average of 75% with no rating below 60% in each of the seven subjects
VII. TAX ACCOUNTING
Enables the taxing authorities to collect taxes
Produces tax returns to be filed to the appropriate government agencies
Follows the guidelines of the National Internal Revenue Code (NIRC)
It adheres to some guidelines in the PFRS and PAS, but it is not required to implement everything
Illustrative Example • Starbucks offer its customer a card that you can use to pay
for your orders. The process is simple. You ask the cashier to load the card; you pay for the amount of load; and then your card will reflect the balance available for you to use. You can use the card for future transactions with Starbucks.
• Under PFRS and PAS, Starbucks will not recognize the amount you paid as a revenue until you use the balance in your card in the future.
• Under NIRC, Starbucks recognizes the revenue when the company received the payment from you. Thus, if Starbucks recognizes the revenue, it is taxable.
VIII. COST ACCOUNTING
Provides information for management accounting and financial accounting
For example, cost accounting helps measure the cost of a bicycle-selling company.
This information supports management in deciding how many bicycles to produce, the selling price of the bicycle, or valuing the inventory of bicycles in the company’s financial statements
TERMS USED IN COST ACCOUNTING
COST – the resource sacrificed to achieve an objective (e.g., money, resources, time, etc.)
COST OBJECT – anything that you wish to find the cost of (e.g., cost of materials, cost of labor, cost of rent, etc.)
COST DRIVER - an activity that is a cause of the incurrence of costs (e.g. number of working hours, number of hours for over time, etc.)
TERMS USED IN COST ACCOUNTING
DIRECT COST – costs that can economically be traced to a cost object (e.g., materials, labor, etc.)
INDIRECT COST – costs that cannot be traced to a cost object (e.g., costs of supplies used in the factory)
FIXED COST – costs that do not change within a relevant range of activity (e.g., rent of a factory building, insurance costs, etc.)
VARIABLE COST – costs that change as the level of activity or production increases (e.g., electricity and water bill, labor cost, etc.)