Introduction To Accounting

1. Introduction To Accounting

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4. Outline • The nature of firm; • The value of accounting; • The Evolution of accounting; • Accounting: A bird view

5. Opening Story • Everyone here is supposed to know the Outlaws of the Marsh; • Question I: • Who plays the role of “CFO” of the Marsh Mountain Liang? • There are two;

6. Opening Story • Some other positions related to accounting;

7. Opening Story • Question II: • Why does the Marsh Mountaion Liang need such positions as CFO and Chief Controller? • We must know that the title of SHUIHUZHUAN is also translated as All Men are Brothers.

8. Why does accounting exist in every organization? I explain this question in another way: what kind of unique value does accounting possess? The value must be fundamental and the society could not go without; Another way to explain: Darwinism; Natural selection and the fittest survive; The Value of Accounting

9. Although every organization needs accounting, we just talk about enterprise accounting for simplicity; What is the nature of firm? We discuss about human nature first; The Nature of Firm

10. The Nature of Man • Ethic Man; • Human Nature: Virtue vs. Evil; • Confucis vs. Hsun Tzu • Economic Man; • There is no ethics concept in Economists’ dictionary; • It is not from the benevolence of the butcher, the brewer, or the baker that expect our dinner, but from their regards their own interest. (Adam Smith);

11. The Nature of Man • We need a compound analytical tool; • Maslow and the Hierarchy of Needs: the most common tool; • Michael Jensen and William Meckling • REMM • Resourceful, • Evaluator, • Maximizer, • Model.

12. Classical theories; A device to capture transaction costs; A nexus of contracts; Agency theory; Economic Darwinism; ,,,, REMM perspective: A coalition of economic men; The Nature of Firm

13. On the coalition of economic men: Why does REMM join a firm? Maximization of his own interests; When does REMM quit from a firm? Seek different chance to maximize his own interests; When we define human being as REMM, we have to solve the fundamental issue: How does REMM trust each other? The Nature of Firm

14. The Value of Accounting • Without trust, we could not have even a family, let alone a firm; • REMMs have to find efficient ways to develop and maintain trust; • They know that they have to; • The problem is how;

15. The Value of Accounting • Historically, REMMs have created and experimented numerous ways; • Accounting is proven to be cost-effective; • It is suitable to all kinds of firms, • No matter of their size, • No matter of the geographic locations; • No matter of ownership;

16. The Evolution of Accounting • Now that accounting is connected with human nature and trusting issue, we may trace the history of accounting to the early days of human beings, or Primitive Society; • the Incas and Quipu;

17. Sumer and CUNEIFORM • Phoenician and ALPHABET

18. Why do our ancestors invent Alphabet? To build trusting via enhanced memory; This is the right value of Accounting. Chronology of spelling by Steve Bett; 3200 BC Writing developed as an extension of the accounting system in Babylon; A British accounting scholar claimed: Phoenician invented ALPHABETfor the sake of accounting. The Evolution of Accounting

19. The Evolution of Accounting • The primitive stage of accounting; • A tool to help to maintain the trusts; • Alphabet, numeric and organizational control;

20. The birth of double-entry bookkeeping; A. C. Littleton on the birth of DEB; Another story The Crusaders (1095-1270); Italian commodity economy, developed bank business; DEB: the symbol of accounting science; The Evolution of Accounting

21. From Bookkeeping to Financial Accounting Capital market: accounting information is widely circulated; The most common users: outside of the reporting entity; GAAP: the symbol of the conversion; Financial Accounting is also called External Accounting; The Evolution of Accounting

22. Industrial revolution and modern mass manufacturing process; Business profiting model is changed; Originally, buy low, sell high; Now, buy raw materials, manufacture into products and sell out; The determination of the cost of manufactured products is essential in profit determination; Cost Accounting is “invented”; The Evolution of Accounting

23. From cost accounting to management accounting; More complicated business activities; Dynamic and keep-changing environment; Much larger business scale; Decision making:much more complicated; Management Accounting is“invented”; The Evolution of Accounting

24. From commodity market to capital market; The developing of capital market raises two issues: Effective ways to raise and allocate capital; Trust crisis; We have Corporate Finance and Auditing subjects respectively. The Evolution of Accounting

25. Firm Financial statements investors Financial Accounting Auditing Management Accounting Finance Accounting Firms Corporate Finance and Auditing

26. Accounting will evolve with the development of economy and technology; The invention of computer and its adoption into accounting practice; Reduces time, effort and cost of record-keeping; Improves clerical accuracy; Changes the way we store, process and summarize large masses of data; The Evolution of Accounting

27. The Evolution of Accounting • Website and Internet; • dissemination of accounting information: easy and no increment cost; • Internet based financial reporting system; • Extensible Business Reporting Language (XBRL) was developed to provide users with an efficient and effective means of preparing and exchanging financial information over the Internet. • Extensible Assurance Reporting Language (XARL) was designed to enable assurance providers to report on the integrity of information distributed over the Internet and help users and companies place warranted reliance on such information • Events accounting: may be re-introduced under internet environment;

28. SOX and its impact on accounting; Enron filed for bankruptcy protect in December 3, 2001; WorldCom reported billions of false profit in June, 2002; Sarbanes-Oxley Act of 2002 was signed by President Bush and becamea law in June 30, 2002; It mainly focuses on accounting; The Evolution of Accounting

29. Accounting: a boundless discipline; What should accountants supposed to do? For instance, the job description of CFO; The job description of chief controller; No definite definition; No generally accepted principles; The Boundary of Accounting

30. You may use knowledge freely as soon as you find the underlying regularity;

31. The nature of firm: contemporary interest coalition of REMM; REMMs have to find cost-effective ways to build trust; Accounting is proven cheap and reliable; Accounting is evolving with economy and technology, etc; Four main branches: Financial accounting, management accounting, corporate financeand auditing; Computer and internet: already changedaccounting significantly; Summary

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