week 1 l accounting information & role

7/25/2019 Week 1 L Accounting Information & Role

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Week 1

The Role of Accounting Information inBusiness Organisations

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The Role of Accounting Information inBusiness Organisations

Aim

To introduce students to the purpose and scope of FinancialAccounting

Learning outcomesAfter studying this session, you should be able to:-

(1) Define accounting and the information it provides

() !dentify users of financial accounting information

(") !dentify the desirable #ualities of accounting information($) %nderstand the differing roles of the accounting profession


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Accounting

What is accounting? Or

What do you do as an accountant?

Why do you do that?

&ecording, analysing and summarising thetransactions of an entity to provide information fordecision ma'ing

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The scope and objectives of financial accounting

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The Purpose of Accounting:

Why do you keep accounting records?

o* much profit or loss has the business made+

o* much money do ! o*e+

ill ! have sufficient funds to meet my commitments+


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Accounting as an information system

Accounting is an information system *hichprovide useful information to the decision ma'ers

ainly, there are t*o types of accounting systemaccording to their users:

To the e.ternal usersFinancial

accounting system

To the internal usersanagerialaccounting system

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Types of information

Financial accounting 0

&ecording the day to day activities of business

roducing periodic summaries

2nd result is for e.ternal usersrepared in accordance *ith la* and accounting

standards

istorical nature

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Financial accounting system

Financial accounting is an information system *hichprocesses financial transactions to provide useful financialstatements to

4urrent and prospective investors,

Financial analysts and

All the public interests

Financial accounting system:

Inputs!et of

financialtransactions

"rocessingRecording#

summari$ing data

Outputs!et of financial

statements

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%anagement accounting - The supply of accountinginformation to internal management in order that

!t can attempt to plan and control its future business

activities

!nternal %sers

6ot a legal re#uirement

istorical and future planning

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&ifferences 'et(eenFinancial and %anagerial accounting

Financial accounting %anagerialaccounting

Type of information )istoricalinformation

Forecasting for thefuture

Type of users *+ternal users Internal users

Outputs Financial statements Budgets

Type of figures ,uantitati-e only ,uantitati-e and.ualitati-e

Why (e pro-ide them %andatory Optional

)o( could (e preparethem

According to IFR! ornational accountingstandards

According to themanagement re.uest/

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Financial management 0

4oncerned *ith raising finance and

4ontrolling financial resources,

For e.ample:- Dividend payment decision

- 9an' loans

- 4redit anagement

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Auditing

;imited company accounts must be audited by anindependent, #ualified e.ternal auditor

The auditor reports on *hether the accounts sho* atrue and fair vie*

!nternal auditors have a role defined bymanagement, usually reporting on the effectiveness

of controls

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0sers of accounts

2#uity !nvestor


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*+ternal users Internal users

1 !nvestors

9an's"


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haracteristics of useful information

!nformation that is most useful for decision ma'ing

"rimary .ualities

1- &elevance

- &eliability!econdary .ualities

"- 4omparability

$- %nderstandability /- Timeliness> 4onsistency

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"rimary .ualities1/

1/ Rele-ance

!nformation must be relevant to the decision-ma'ingneeds of users

&elevance is closely related to timely informationFor e.ample:

A potential investor to predict future profitability anddividend levels *ill be at least partly based on the

financial statements


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"rimary .ualities13

2/ Relia'ility

3a4Faithful representation 0 information provided must representfaithfully

3' 4 5eutrality6o'7ecti-ity

!nformation must be neutral, that is free from bias and provided in anob?ective manner

3c4 "rudence

- Assets or income are not overstated and

- ;iabilities or e.penses are not understated

3d4 ompleteness!t must be complete *ithin the bounds of materiality and cost

An incomplete information can cause to be false or misleading and thusunreliable


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!econdary .ualities15

8/ ompara'ility

%sers need to be able to compare financial statements

of a business through time to identify trends in itsfinancial position and performance

%sers also need to be able to compare one business

*ith another


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9/ 0nderstanda'ility

!nformation provided to users must not be so comple.

that a user *ith a reasonable 'no*ledge of accounting,*ould not be able to understand it

To ensure that all information relevant to users is

given to them even though it may be comple.


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:/ onsistency

The presentation and classification of items in thefinancial statements should stay in the same form

from one period to the ne.tFor e.ample:

Depreciation method

=toc' valuation method

6ote: A change is allo*ed if there is a significantchange in the nature of the operation or a change isre#uired by !F&=


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Business organisations

=ole traders

artnerships

4ompanies - private and public

4lub>=ociety4harities

!dentify the basic characteristics in your group

2n?oy drag and drop activity

week 1 l accounting information & role

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