Lecture 1A/1B Introduction to the Module/Accounting Flashcards
(29 cards)
What is the Aim of Accounting?
Is to provide information that will improve the quality of decision making.
What is Accounting? (Financial accounting).
The external publishing of a company’s financial position and performance.
FA information is…. used in making investment decisions and widely used to predict corporate business success and failure.
What is Management accounting?
- Provides info internally to managers to help them measure and control processes within their business in a profitable manner.
Assits managers in:
- Strategy implementation
- Evaluation of the value added by different areas of the business.
What is Accounting? (Auditing and Assurance Services area).
- Monitors and adds credibility to the external reporting disclosures made by companies.
- Assurance services can also add credibility to non-financial information such as sustainability reporting.
Skills of an accountant may include:
- Critical thinking
- Collaboration with others
- Management of budgets and finance.
Financial Accounting and Managerial Accounting key differences…
Users:
FA - External
MA - Internal
Format:
FA - Regulated
MA - Any
Frequency:
FA - normally annual
MA - As required.
Content:
FA - dominated by historic information based on past transactions.
MA - forward looking.
What is the Role of a financial accountant?
- Prepares, reviews or audits the annual report and financial statements.
- Responsible for monitoring financial data, forecasting revenues and costs and prepare accurate statements.
A couple of users of financial statements:
- Potential investors
- Owners
- Employees
- Competitors
- Suppliers
- Lenders
Regulatory and Conceptual Framework:
International Accounting Standards Board (IASB).
Regulation:
- IASB responsible for setting international financial reporting standards (IFRS)
- Exists to harmonise accounting standards all over the world.
Conceptual framework:
- A document which sets out the concepts that underlie the preparation and presentation of financial statements.
- IFRS stems from concepts set out in the conceptual framework.
Conceptual framework in further detail:
Deals with issues such as:
- Qualitative characteristics of useful financial information.
- Concepts of capital and capital maintenance.
6 Characteristics of Good Quality Accounting information:
- Relevant
- Faithful representation
- Comparable
- Verifiable
- Understandable
- Timeliness.
Relevant and faithful representation are …
- Fundamental characteristics per the IASB conceptual framework.
Relevant…
- Info relevant it influences users economic decision making
- Informations relevance is affected by its nature and materiality.
Faithful representation…
FR info means it is:
- Free from material error
- Neutral
- Prudent
- Complete
Verifiable, Understandable, Timeliness, Comparable are…
enhancing characteristics per the IASB Conceptual framework.
Comparable…
- Financial information must be comparable through time (prior to other periods) and to other entities e.g competitors.
Verifiable…
- Info verifiable if there is an agreement between individual observers that the information is reliable
Understandable…
- Reasonable knowledge is assumed.
- Complex matters should not be omitted.
Timeliness…
- Financial statements need to be timely.
Why are financial statements important?
Show us how much profit or loss a business is making.
Revenue - expenses = profit/loss
Also, show us how much a business is worth:
Assets - Liabilities = Equity (worth)
Definition of revenue:
The value of goods or services sold during a period
Definition of expenses:
- Value of goods or services consumed in generating revenue.
3 examples of revenue and 3 examples of expenses:
Revenue:
- Sales
- Royalties
- Dividends received.
Expenses:
- Wages
- Tax
- Electricity.
Definition of assets:
- Resources owned/controlled by the business to give future economic benefit.
