Download CHAPTER 3 Introduction to Accounting as a profession

CHAPTER 2 ACCOUNTING
AS A PROFESSION AND ACCOUNTING
INFORMATION SYSTEM
Pr. SAMLAL Zoubida , MBA, CFA & PHD
candidate for HBS program
The Study of Accounting
Information Systems
WHAT IS A SYSTEM?
• A System is an entity consisting of
interacting parts that are coordinated to
achieve one or more common objectives.
SYSTEM
INPUT
PROCESS
FEEDBACK
OUTPUT
INFORMATION SYSTEM
INFORMATION
DATA
INPUT
PROCESS
FEEDBACK
OUTPUT
DATA VERSUS INFORMATION
• Data are raw facts and figures that are processed to
produce information
• Information is data that have been processed and are
meaningful and useful to users. The terms “meaningful”
and “useful” are value-laden terms and usually subsume
other qualities such as timeliness, relevance, reliability,
consistency, comparability, etc.
FUNCTIONAL STEPS IN TRANSFORMING
DATA INTO INFORMATION
• Data collection - capturing, recording, validating and
editing data for completeness and accuracy
• Data Maintenance/Processing - classifying, sorting,
calculating data
• Data Management - storing, maintaining and retrieving
data
• Data Control - safeguarding and securing data and
ensuring the accuracy and completeness of the same
• Information Generation - interpreting, reporting, and
communicating information
FUNCTIONS OF AN INFORMATION
SYSTEM
ENVIRONMENT
Customers
Suppliers
ORGANIZATION
INFORMATION SYSTEM
INPUT
PROCESS
OUTPUT
FEEDBACK
Regulatory
Agencies
Stockholders
Competitors
AIS AS AN MIS SUBSYSTEM
Sales/
Marketing
Production
Info
AIS
Personnel
Finance
RELATIONSHIP OF AIS & MIS
MIS
Finance
Sales/Marketing
Production
AIS
Personnel
Order entry/Sales
Billing/A.Rec.Cash receipts
Purchasing/A. Pay./Cash disb.
Inventory
Payroll
General ledger
Production
EXAMPLES OF AIS SUBSYSTEMS
(MERCHANDISING)
Order entry
Sales
System
Shipping
Revenue
Cycle
Billing/
A. Receivable
Cash Receipts
System
Inventory
System
General
Ledger
System
Purchasing/
A. Payable/
Cash Disb.
System
Receiving
Expenditure
Cycle
Ext/Fin. reporting
Tax & req. reporting
Internal reporting
Human
Resource
Management
(Payroll)
System
OBJECTIVES AND USERS OF AIS
• Support day-to-day operations
– Transaction processing
• Support Internal Decision-Making
– Trend Analyses
– Quantitative & Qualitative Data
– Non-transactional sources
• Help fulfill Stewardship Role
RESOURCES REQUIRED FOR AN AIS
• Processor(s): Manual or Computerized
• Data Base(s): Data Repositories
• Procedures: Manual or Computerized
• Input / Output Devices
• Miscellaneous Resources
ROLES OF ACCOUNTANTS WITH
RESPECT TO AN AIS
• Financial accountants prepare financial information
for external decision-making in accordance with GAAP
• Managerial accountants prepare financial information
for internal decision-making
ROLES OF ACCOUNTANTS WITH
RESPECT TO AN AIS
• Auditors - evaluate controls and attest to the fairness of
the financial statements.
• Accounting managers - control all accounting
activities of a firm.
• Tax specialists - develop information that reflects tax
obligations of the firm.
• Consultants - devise specifications for the AIS.
ETHICAL STANDARDS FOR CONSULTING
•
•
•
•
Professional competence
Exercise due professional care
Plan and supervise all work
Obtain relevant data to support reasonable
recommendations
• Maintain integrity and objectivity
• Understand and respect the responsibilities of all
parties
• Disclose any conflicts of interest
ACCOUNTING INFORMATION
CHARACTERISTICS OF ACCOUNTING
INFORMATION
• Accounting information is composed principally of financial
data about business transactions, expressed in terms of money.
• The recorded data must be sorted and summarized before
significant reports and analyses can be prepared.
• The “basic raw materials” of accounting are composed of
business transaction data.
• Its “primary end products” are composed of various
summaries, analyses, and reports.
USERS OF ACCOUNTING INFORMATION
• Accounting provides the techniques for accumulating and the
language for communicating economic data to :
– Investors in a business enterprise need information about
its financial status and its future prospects.
– The government agencies are concerned with the financial
activities of business organizations for purposes of taxation
and regulation.
– The individuals most dependent upon and most involved
with the end products of accounting are those charged with
the responsibility for directing the operations of enterprises.
USERS OF ACCOUNTING INFORMATION
– In the conduct of day-to-day operations, management
relies upon accounting to provide the amount owed to
each creditor and by each customer and the date each
payment is due.
– The accountant is able to establish an information
network to assist each group in forming judgments and
making decisions regarding future actions.
ACCOUNTING AS A PROFESSION
RELATIONSHIP OF ACCOUNTING TO
OTHER FIELDS
• Everyone engaged in business activities, from the youngest
employee to the manager and owner, comes into contact with
accounting.
• The higher the level of authority and responsibility, the
greater is the need for an understanding of accounting
concepts and terminology.
• The importance of understanding accounting is not limited to
the business world.
• Many employees with specialized training in non-business
areas also make use of accounting data and should understand
accounting principles and terminology.
PROFESSION OF ACCOUNTANCY
• Accountancy is a profession with stature comparable to that
of engineering or law.
• Accountants who render accounting services on a fee basis,
and staff accountants employed by them, are said to be
engaged in public accounting.
• Accountants employed by a particular business enterprise or
not-for-profit organization, as chief accountant, controller, or
financial vice-president, are said to be engaged in private
accounting.
PUBLIC ACCOUNTING
• The practice of public accounting is generally restricted to
licensed CPA’s.
• This act created the Board of Accountancy which was given
the power among other, to issue the certificate of Certified
Public Accountant, abbreviated as CPA.
PRIVATE ACCOUNTING
• The scope of activities and duties of private accountants varies
widely. Private accountants are frequently called management
accountants.
•
If they are employed by a manufacturing concern, they may
be call industrial or cost accountants. The chief accountant in
a business may be call controller. Various governmental units
and other not-for-profit organizations also employ accountants.
• Internal auditors are accountants who review the accounting
and operating procedures prescribed by their companies.
Accountants who specialize in internal auditing may be granted
the Certified Internal Auditor (CIA) certificate.
RELATIONSHIP OF ACCOUNTING TO
OTHER FIELDS
•
For example, an engineer responsible for selecting the most
desirable solution to a technical manufacturing problem may
consider cost accounting data to be the decisive factor.
•
Lawyers use accounting data in tax cases and in lawsuits
involving property ownership and damages from breach of
contract.
• Governmental agencies rely on accounting data in
evaluating the efficiency of government operations and for
appraising the feasibility of proposed taxation and spending
programs.
FIELDS OF ACCOUNTING
SPECIALIZED ACCOUNTING FIELDS
FINANCIAL ACCOUNTING
It is concerned with the recording of transactions for a
business enterprise or other economic unit and the periodic
preparation of various reports from such records.
Corporate enterprise must employ such principles in preparing
their annual reports on profitability and financial status for
their stockholders and the investing public.
SPECIALIZED ACCOUNTING FIELDS
AUDITING
It is a field of activity involving an independent review
of the accounting records. In conducting an audit, public
accountants examine the records supporting financial
reports of an enterprise and express an opinion regarding
their fairness and reliability.
COST ACCOUNTING
It emphasizes the determination and control of costs. It
is concerned primarily with the costs of manufacturing
processes and of manufactured products, but
increasing attention is being given to distribution costs.
SPECIALIZED ACCOUNTING FIELD
MANAGEMENT ACCOUNTING
It employs both historical and estimated data in assisting
management in daily operations and in planning future
operations. It deals with the specific problems that
confront enterprise managers at various organizational
levels.
TAX ACCOUNTING
It encompasses the preparation of tax returns and the
consideration of the tax consequences of proposed
business transactions or administrative courses of action.
SPECIALIZED ACCOUNTING FIELDS
ACCOUNTING SYSTEM
It is the special field concerned with the design and
implementation of procedures for the accumulation and
reporting of financial data. The systems accountant must
devise appropriate “checks and balances” to safeguard
business assets and provide for information flow that will be
efficient and helpful to management.
BUDGETARY ACCOUNTING
It presents the plan of financial operations for a period and,
through
records and summaries provides comparisons of
actual operations with the predetermined plans.
SPECIALIZED ACCOUNTING FIELDS
INTERNATIONAL ACCOUNTING
It is concerned with the special problems associated with the
international trade of multinational business organizations.
NOT-FOR-PROFIT ACCOUNTING
It specializes in recording and reporting the transactions of
various governmental units and other not-for-profit organizations
such as church, charities, and educational institutions.
BOOKKEEPING AND ACCOUNTING
BOOKKEEPING is the recording of business data in a
prescribed manner. A bookkeeper may be responsible for
keeping all the records of a business or only a minor segment,
such portion of customer accounts in department store.
ACCOUNTING is primarily concerned with the design of the
system of records, the preparation of reports based on the
recorded data, and the interpretation of the reports.
Accountants often direct and review the work of bookkeeper.
CASE STUDY- Price Waterhouse
Coopers