Download Session 1 - Fisher College of Business

Financial Accounting I
Session 1 – March 26, 2001
Professor William F. Bentz
Fisher College of Business
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Agenda for Today
• Introduce myself
• Outline the major global forces shaping
your career opportunities and what we do
in this class
• Outline the primary users of financial
statements and their needs for information
• Distribute syllabus and talk about course
requirements
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Agenda for Today-II
• Complete an information form
• Review subject matter of A&MIS 521
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Who am I?
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Self Introduction
• Education - B.A. (Economics-Cincinnati),
MAcc., Ph.D. (OSU)
• Employed by Hopewell Dairy, Inc., The
Austin Co., Ralston Purina Co.,
Pickerington Creamery, Inc., General
Motors Corp., Ernst & Ernst, University of
Kansas, University of Oklahoma, and The
Ohio State University.
~
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Self Introduction Continued
• Certified Public Accountant
• Active in the American Accounting
Association, Financial Executives
Institute, Institute of Management
Accountants, and other professional
committees.
• Research in linear planning and control
system models
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Some Current Activities
• Board of Columbus Chapter of Financial
Executives Institute
• Past Chair of State Board of
Accountancy Scholarship Advisory
Committee
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Trends in Political Economy
• Technology revolution
• Globalization of business
• Global markets are increasingly
competitive
• Demographic shifts in the work force
and marketplace
• Privatization of large enterprises
• Increasingly democratic institutions
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Implications for Accounting & Finance
• The automation of information systems
has changed the nature of accounting
and the other business functions.
• Even new employees must interact with
many levels of management early in
their careers.
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More Implications for Acct. & Finance
•
•
•
The ability to use technology is now a
required skill.
The mix of accounting and finance
positions has changed.
Consulting & outsourcing continue to
fuel the growth of specialization
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Questions or comments?
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What is an investor?
Invest--to put (money) to use, by
purchase or expenditure, in something
offering potential profitable returns, as
interest, income, or appreciation in value.
Webster’s Dictionary
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Investments
• Is a certificate of deposit at a bank?
• Is a money market checking account an
investment?
• Is a life insurance policy an
investment?
• Is a non-interest bearing account an
investment?
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Investments
•
•
•
•
Is a residence also an investment?
Is an education an investment?
Is a small business an investment?
Is a lottery ticket an investment?
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Invest
“To put (money) to use,by purchase or
expenditure,in something offering
potential profitable returns, as interest,
income, or appreciation in value.”
The Random House Dictionary of the English Language (2nd edition)
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In other words...
• Commitment of resources with economic
value (e.g., cash, land, buildings,
equipment, vehicles, etc.)
• Expected benefits (probability  amount):
– Income (revenues - expenses)
– Gains from appreciation in value (sale value
minus cost)
– Cost savings (current costs - proposed
costs)
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Financial Statement Users
• Equity investors
– Individual investors
• Individual Retirement Accounts
(IRAs)
• Brokerage accounts & mutual funds
• Direct investments in companies
– Venture capitalists
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Financial Statement Users
• Equity investors (continued)
– Institutional investors
• Insurance companies
• Retirement funds (private and public)
• Mutual fund providers
• Real Estate Investment Trusts
• Banks
• Other corporations
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Financial Statement Users
• Debt investors (lenders)
– Individual investors
• Savings accounts and certificates of
deposit
• Individual Retirement Accounts (IRAs)
• Brokerage accounts
• Mutual funds
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Financial Statement Users
• Debt investors (continued)
– Institutional investors
• Insurance companies
• Retirement funds (private and public)
• Mutual fund providers
• Real Estate Investment Trusts
• Banks
• Other corporations
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Other Statement Users
• Customers
– Individuals
– Companies
– Professional service firms
• Suppliers
• Employees
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Other Statement Users
• Government
– Internal Revenue Service
– Federal Trade Commission
– Council of Economic Advisors
– Federal Reserve System
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Learning About Investors
Accounting exists to provide
information to manage the operations
of enterprises and to report the
results of those operations to
interested parties. So let’s consider
some of the basics about different classes
of external investors.
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Stock Investment Styles
• Stock pickers
– Growth stocks
– Value stocks
• Market timers
• Index investors
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Growth Stock Investors
• Look for consistent growth in earning
per share, total net income, revenue or
market share
• Hope to find “growth” stocks before
others do
• Momentum investors looking for
increasing rates of high growth
• Higher growth rates justify higher prices
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Value Stock Pickers
• Look for stocks undervalued by the
market at the moment
• Example--natural resource companies
with valuable assets not valued at
market
• Example--cyclical companies
• Example--stocks of good companies
that may be out of favor for awhile
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Value Stock Pickers (Cont.)
• Measures of value include PriceEarnings Ratios (current price per
share /earnings per share)
• Evidence of unrecorded liabilities
(environmental damage, unfunded
pension plans, tobacco products)
• Cash flows available for expansion,
reinvestment or stock buy-back.
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Value Stock Pickers (Cont.)
• Funds invested in other entities that
could be converted to business
uses.
• Assets that have market or
strategic values greatly in excess of
book value.
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Users of statements have
• varied, if not conflicting needs for
information,
• diverse levels of financial expertise,
• widely varying access to
management plans and
expectations, and
• differing cost-benefit ratios for both
public and private information.
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Comments or Questions?
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Today’s Quote
• Nothing in the world can take the place of
PERSISTENCE.
• Talent will not; nothing is more common than
unsuccessful men with talent.
• Genius will not; unrewarded it's almost a proverb.
• Education will not; the world is filled with educated
derelicts.
• PERSISTENCE and DETERMINATION alone are
omnipotent.
_Calvin Coolidge
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Shifting Gears
Now that we have learned a little
something about the needs of different
types of investors, let us consider how we
are going to meet the needs of those
investors. In part, we address those needs
through the financial reporting process.
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Investor Needs
• Access to objective, verifiable
information about investments both
before and after an initial investment.
• Safe place to buy and sell securities
• A “fair” investment process
• Protection from the bad guys
• Access to expert, professional advice
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The “Players”
EXCHANGES
SEC
SEC
Company
FASB
AUDITORS
INVESTORS
& AGENTS
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Roles in Financial Reporting
• Company’s responsibility to report in
accordance with GAAP.
• The auditor provides assurances about
the company’s financial statements.
• Stock exchanges monitor trading in
each security and listing company
compliance with exchange rules.
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Roles in Financial Reporting
• FASB issues new reporting standards
• SEC monitors companies, their
auditors, and the FASB standard setting
process.
• Various professional organizations and
committees issue guidance regarding
emerging issues and interpretation
matters.
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Your Agenda
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•
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Obtain a copy of the syllabus
Hand in completed information forms
Read chapter 1 of text
Activate your OSU e-mail account and
have it pointed to other e-mail accounts
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Questions?
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Agenda: Wednesday, 3/26/2001
•
•
Answer your questions
Discuss the FASB conceptual framework
described in chapter 2
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Objectives of Financial Reporting
• To provide information useful to present
and potential investors, creditors, and
other users for making rational
investment, credit, and similar
decisions.
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Objectives of Financial Reporting
• To provide information about the
amount, timing, and uncertainty of
future cash flows.
• To provide information about enterprise
resources, claims of different investor
groups to those resources, and changes
in those resources.
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In other words,
The objective of financial reporting is
to provide information about the
financial characteristics--including
liquidity, solvency, profitability, risks,
and financial flexibility--of an
enterprise.
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Profession of Accounting
• Organize information systems to
maintain a historical record, to enhance
the integrity of financial information, and
to comply with laws and regulations.
• Improve the communication of financial
information
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Profession of Accounting
• Develop and implement controls to
protect the assets of the enterprise
– Reduce fraud
– Enhance accountability
– Facilitate stewardship
• Professional standards of ethical
behavior assure the integrity of financial
information
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The Professional Model
• Specialized, technical education
• Laws and administrative rules governing
entrance and continued participation in
the profession (to protect the public)
– Education
– Experience
– Professional examinations
• Peer review processes
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Subject Matter of A&MIS 521
• We study the major ideas, concepts and
issues involved in financial reporting
(chapter 1 & 2).
• We study the accounting process
(chapter 3) to better understand the
framework used to organize and report
transactions in business and government.
The accounting model is used world-wide.
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Subject Matter of A&MIS 521
• We study the primary financial
statements used by corporations to report
to public shareholders and other market
participants (chapters 4, 5 & 24)
• We apply fundamental accounting
concepts to the recognition of revenue
and the allocation of selected costs
(chapters 6, 11 & 19)
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Subject Matter of A&MIS 521
• In this context, financial reporting is
concerned with (1) measuring income,
(2) valuing wealth, and (3) reporting
cash flows.
• “Quality” reporting to market participants
is our objective.
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Subject Matter of A&MIS 521
• Only 8+ chapters covered
• Focused coverage
• Topics are interconnected and
overlapping
• Web of ideas, not a step-by-step linear
sequence
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How to Succeed in Accounting
• Get off to a fast start. The end of the
quarter is hectic.
• Always come to class with some
understanding of the topic assigned.
• Ask questions and more questions.
• Work problems and more problems.
• Get the best access to the internet that
you can afford.
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How to Succeed in Accounting
• Many of the problems that I have written
have model solutions included. These
solutions are presented as models for
you to emulate as we cover each topic.
• Work the problems in the sequence
provided: they are progressively more
complex.
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What else can you do?
• Utilize workshop and non-credit learning
opportunities;
• work on skills at every opportunity;
• develop team, spreadsheet, and
communication skills in this course; and
• get involved in student organizations to
develop soft skills.
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