Ch: 1 Accounting- Information for Decision Making – Flashcards
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Discuss accounting as the language of business and the role of accounting information in making economic decisions.
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Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Many different users have a need for accounting information in order to make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. Because the primary role of accounting information is to provide useful information for decision-making purposes, it is sometimes referred to as a means to an end, with the end being the decision that is helped by the availability of accounting information.
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Discuss the significance of accounting systems in generating reliable accounting information and understand the five components of internal control.
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information systems are critical to the productions of quality accounting information on a timely basis and the communication of that information to decision makers. while there are different types of information systems, they all have on characteristic in common--to meet the organization's needs for accounting information as efficiently as possible. Per the COSO framework, the five elements of internal control are: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, (5) monitoring.
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Explain the importance of financial accounting information for external parties-primarily investors and creditors- in terms of the objectives and the characteristics of that information.
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-The primary objective of financial accounting are to provide information that is useful in making investment and credit decisions; in assessing the amount, timing, and uncertainty of future cash flows; and in learning about the enterprise's economic resources, claims to resources, and changes in claims to resources. Some of the most important characteristics of financial accounting information are: It is a means to an end, it is historical in nature, it results from inexact and approximate measures of business activity, and it is based on general-purpose assumption.
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Explain the importance of accounting information for internal parties-primarily management- in terms of the objectives and the characteristics of that information.
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-Accounting information is useful to the enterprise in achieving its goals, objectives, and mission; assessing past performance and future decision making performance. some of the important characteristics of internal accounting information are its timeliness, its relationship to measuring efficiency and effectiveness, and the fact that it is a means to an end.
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Discuss elements of the system of external and internal financial reporting that create integrity in the reported information.
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-integrity of financial reporting is important because of the reliance that is placed on financial information by users both outside and inside the reporting organization. Important dimensions of financial reporting that work together to ensure integrity in information are institutional features (accounting principles, internal structure, audits, and legislation); professional organizations (the AICPA, IMA, IIA, AAA); and the competence, judgement, and ethical behavior of individual accountants.
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Accounting System:
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-The personnel, procedures, devises, and records used by an organization to develop accounting information and communicate that information to decision makers.
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Discuss the importance of personal competence, professional judgement, and ethical behavior on the art of accounting professionals.
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-Personal and professional judgement are, perhaps, the most important factors in ensuring the integrity of financial informations. competence is demonstrated by one's education and professional certification (CPA, CMA, CIA). Professional judgement is important because accounting information is often based on inexact measurements, ad assumptions are required. Ethical behavior refers to the quality of accountants being motivated to "do the right thing"
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Describe various career opportunities in accounting.
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-Accounting opens the door to many career opportunities. Public accounting is the segment of the profession where professionals offer audit, tax, and consulting services. Management, or managerial, accounting refers to that segment of the accounting profession where profession where professional accountants work for individual companies in a wide variety of capacities. Many accountancies work for government agencies. Some accountancies choose education as a career and work to prepare students for future careers in one of the other segments of the accounting profession. while keeping detailed records (that is bookkeeping) is a part of accounting, it is not a distinguishable characteristic of a career in accounting; in fact, many accounting skills are important to non accounting majors and to all students i their personal lives.
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Identify and discuss several professional organizations that play important roles in preparing and communicating accounting information.
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-The FASB, IASB, PCAOB, and SEC are important organizations in terms of standard setting in the United States. The FASB and IASB are private-sector organizations that establish accounting standards for public and private companies. The PCAOB sets auditing standards. The SEC is a governmental entity that oversees U.S. public companies and the capital markets.
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American Accounting Association:
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-A professional accounting organization, consisting primarily of accounting educators, that is dedicated to improving accounting education, research, and practice.
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American Institute of CPAs:
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-A professional accounting organization of certified public accountants that engages in a variety of professional activities, including establishing auditing standards for private companies, conducting research, and establishing industry-specific financial reporting standards.
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Audit:
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-An investigation of financial statements designed to determine their fairness in relation to generally accepted accounting principles.
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Balance sheet:
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-A position statement that shows where the company stands in financial terms at a specific date. (also called the statement of financial position.)
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Bookkeeping:
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-The clerical dimension of accounting that includes recording the routine transaction and day-to-day record keeping of an enterprise.
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Cash flow prospects:
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-The likelihood that an enterprise will be able to provide an investor with both a return on the investors investment and the return of that investment.
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Certified Internal Auditor:
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-A professional designation issued by the Institute of Internal Auditors signifying expertise in internal auditing.
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Certified Management Accountant:
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-A professional designation issued by the Institute of Management Accountants signifying expertise in management accounting.
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Certified Public Accountant:
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-An accountant who is licensed by a state after meeting rigorous education, experience, and examination requirements.
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Committee of Sponsoring Organizations of the Treadway Commission (COSO)
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-A voluntary private-sector organization dedicated to improving the quality of financial reporting thorough business ethics, effective internal controls, organizational governance, and enterprise risk management.
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Control activities:
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- Policies and procedures that management puts in place to address the risks identified during the risk assessment process.
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Control Environment:
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-The foundation for all the other elements of internal control, setting the overall tone for the organization.
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Corporate Governance:
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-includes the corporate structures and processes for overseeing a company's affairs, for example, the board of directors and the company's internal control process.
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External Users:
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-Individuals and other enterprises that have a financial interest in the reporting enterprise but that are not involved in the day-to-day operations of that enterprise (e.g. owners, creditors, labor unions, suppliers, customers)
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Financial accounting:
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-Providing information about the financial resources, obligations, and activities of an economic entity that is intended for use primarily by external decision makers- investors and creditors.
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Financial Accounting Standards Board (FASB):
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-A private sector organization that is responsible for determining generally accepted accounting principles in the United States.
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Financial Statement:
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-A monetary declaration of what is believed to be true about an enterprise.
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General-Purpose information:
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-Information that is intended to meet the needs of multiple users that have an interest in the financial activities of an enterprise rather than tailored to the specific information needs of one user.
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Generally accepted accounting principles (GAAP):
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-Principles that provide the framework for determining what information is to be included in financial statements and how information is to be presented.
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Government Accountability Office:
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-A federal government agency that audits many other agencies of the federal government and other organizations that do business with the federal government and reports its findings to congress.
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Income Statement:
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-An activity statement that shows details and results of the company's profit-related activities for a period of time.
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Information and communication:
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-The organization's process for capturing operational, financial, and compliance-related information necessary to run the business, and communicating that information downstream (from management to employees), upstream (from employees to management), and across the organization.
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Institute of Internal Auditors:
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-A professional accounting organization that is dedicated to the promotion and development of the practice of internal auditing.
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Statement of Financial Position:
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-Also called the balance sheet
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Institute of Management Accountants:
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-A professional accounting organization that intends to influence concepts and ethical practice of management accounting and financial management.
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Statement of cash flow:
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-An activity statement that shows the details of the company's activities involving cash during a period of time.
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Integrity:
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-The qualities of being complete, unbroken, unimpaired, sound, honest and sincere.
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Securities and Exchange Commission (SEC):
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-A governmental organization that has the legal power to establish accounting principles and financial reporting requirements for publicly help companies in the United States.
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Internal control:
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-A process designed to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner.
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Sarbanes-Oxley Act:
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-A landmark piece of securities law, designed to improve the effectiveness of corporate financial reporting through enhanced accountability of auditors, boards of directors, and management.
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Internal Revenue Service:
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-A government organization that handles millions of income tax returns filed by individuals and businesses and preforms audit functions to verify the data contained in those returns.
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Risk assessment:
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-A process of identifying, analyzing and managing those risks that pose a threat to the achievement of the organizations objectives.
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Internal users:
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-Individuals who use accounting information from within an organization (for example, board of directors, CFO, plant managers, store managers)
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Return on Investment:
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-The payment of an amount (intrust, dividends) for using another's money
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Management Accounting:
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-Providing information that is intended primarily for use by internal management in decision making required to run the business.
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Monitoring:
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-The process of evaluating the effectiveness of an organization's system of internal control over time, including both ongoing management and supervisory activities and periodic separate evaluations.
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Public Company Accounting Oversight Board (PCAOB):
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-A quasi-governmental body charged with oversight of the public accounting profession. The PCAOB sets auditing standards for audits of publicly traded companies.
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Return of Investment:
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- The repayment to an investor of the amount originally invested in another enterprise.
