Accounting: Information for Decision Making

1. Accounting: Information for Decision Making Williams HakaBettnerCarcello Fifteenth Edition

2. AccountingInformation for Decision Making Chapter 1

3. The Accounting Process Accounting links decision makers with economic activities ¾ and with the results of their decisions. Accounting Information Economic Activities Reported Results of Actions (decisions) Decision Makers Actions (decisions)

4. Types of Accounting Information Financial Tax Management

5. Accounting Systems An accounting system consists of the personnel, procedures, technology, and records used by an organization to develop accounting information and to communicate this information to decision makers.

6. Information System • Information Users • Investors • Creditors • Managers • Owners • Customers • Employees • Regulators -SEC • -IRS • -FTC • Financial Information Provided • Profitability • Financial position • Cash flows • Decisions Supported • Performance evaluations • Stock investments • Tax strategies • Labor relations • Resource allocations • Lending decisions • Borrowing

7. Determining Information Needs Although much accounting information clearly is essential to business operations, management still has many choices as to the types and amount of accounting information to be developed.

8. Classify similar transactions into useful reports. • Summarize and communicate information to decision makers. Basic Functions of an Accounting System • Interpret and record business transactions.

9. Components of Internal Control Control Environment Risk Assessment Control Activities Information and Communication Monitoring

10. External Users of Accounting Information • Owners • Creditors • Potential investors • Labor unions • Governmental agencies • Suppliers • Customers • Trade associations • General public

11. Objectives of External Financial Reporting Provide specific information about economic resources, claims to resources, and changes in resources and claims. Provide information useful in assessing amount, timing and uncertainty of future cash flows. Provide general information useful in making investment and credit decisions.

12. Objectives of External Financial Reporting The primary financial statements. Balance Sheet Income Statement Statement of Cash Flows

13. Characteristics of Externally Reported Information A Means to an End Usefulness Enhanced via Explanation Broader than Financial Statements Based on General-Purpose Assumption Historical in Nature Results from Inexact and Approximate Measures

14. Users of Internal Accounting Information • Board of directors • Chief executive officer (CEO) • Chief financial officer (CFO) • Vice presidents • Business unit managers • Plant managers • Store managers • Line supervisors

15. Owners Typical Simple Organization Chart Board of Directors Chief Executive Officer (CEO) Business UnitManagers V.P. Human Resources V.P. Information Services Chief FinancialOfficer (CFO) V.PEthics Plant Plant Controller Treasurer Managers Managers Plant Plant Accountants Accountants 1-15

16. Objectives of Management Accounting Information To help achieve goals and missions To help evaluate and reward decision makers

17. Characteristics of Management Accounting Information Timeliness Identify Decision Maker A Means to an End Measures of Efficiency and Effectiveness Oriented Toward Future

18. Institutional Features • Generally Accepted Accounting Principles (GAAP) • Financial Accounting Standards Board • International Accounting Standards Board • Securities and Exchange Commission • Public Company Accounting Oversight Board • Audits of Financial Statements • Legislation

19. Professional Organizations • American Institute of Certified Public Accountants • Institute of Management Accountants • Institute of Internal Auditors • American Accounting Association • Committee of Sponsoring Organizations of the Treadway Commission (COSO)

20. Competence, Judgment and Ethical Behavior • Certified Public Accountant (CPA) • Certified Management Accountant (CMA) • Certified Internal Auditor (CIA) Ethical behavior is the cornerstone of the accounting profession.

21. Careers in Accounting • Public Accounting • Management Accounting • Governmental Accounting • Accounting Education

22. What About Bookkeeping? Bookkeeping is the clerical side of accounting—the recording of routine transactions and day-to-day record keeping. Professional accountants are involved more with the interpretation and use of accounting information than with its actual preparation.

23. I’m Not An Accounting Major Accounting is the language of business, and trying to run a business without understanding accounting information is analogous to trying to play sports without understanding the rules.

24. Ethics, Fraud & Corporate Governance Corporate governance entails corporate structures and processes for overseeing the company’s affairs to ensure that the company is being managed with the best interests of shareholders in mind. Dennis Kozlowski, the former CEO of Tyco, was sentenced to 8 1/3 to 25 years in prison for his conviction for conspiracy, securities fraud, and falsifying records.

25. End of Chapter 1