Presentation on theme: "What is Accounting? The language of business - an information / communication system FASB #117 Quote: knowledge is gained by the orderly loss of information;"— Presentation transcript:
1 What is Accounting?The language of business - an information / communication systemFASB #117 Quote: knowledge is gained by the orderly loss of information; that is by taking the great buzzing confusion of numbers and putting it into a form which can be understood and appreciatedOne of the world’s richest men, Warren Buffet attributes his success to being fluent in the accounting, which he calls “the language of business.” When asked by the daughter of a business associate what she should study in college, Buffet replied: “Accounting.” This is because accounting skills help you understand financial information. If you can’t read the scorecard, you can’t tell the winners from the losers, which means you can’t score. Says Buffet: “Financial reporting for Berkshire Hathaway, and for me personally, is the beginning of every decision that we make around here I’m punching out 10-Ks and 10-Qs every single day . . .” [10-Ks and 10-Q are annual and quarterly financial statements, resp.]Buffet: “Unlike God, the stock market does not forgive those who do not know what they do.”
2 Importance of Providing Accurate Financial Info INFORMATION RISKIvar Kreuger
3 Why Accounting is a Popular Career Choice Challenging WorkOn-the-Job ExposureInteresting PeopleTransferrable SkillsIn DemandSee Video on Jennifer de LeonThe stereotypeThe stereotype
4 Having public accounting experience is invaluable in terms of position and advancement This chart is taken from the 2014 NACE Survey and shows that accounting majors and their close cousins (finance majors ) are doing very well indeed well.
5 Did You Know that . . .In 2013 (and prior years as well), accounting was the top undergraduate degree in demand by employers?In 2014, the average entry level salary for accounting graduates ranged $50,000-$60,000, higher than in any other field except engineering and computer science.Women constitute 57% of those receiving bachelor degrees in accounting?Accountants are one of the FBI’s top choice when hiring special agents. Nearly 2000 FBI agents, or about one in eight, have a background in accounting, especially forensic accounting.The CEOs of nearly half of the largest public companies in the UK have accounting backgrounds. The percentage in the US is unknown but could be equally as high.Arthur Blank (founder of Home Depot), Phil Knight (founder of Nike), along with many other executives, got their start as accountants?
6 CPA CertificationThe CPA is a highly-valued designation bringing instant credibility, marketability and superior earningsYou must have bachelor degree PLUS enough college credits to total of 225 qtr credits (150 sem cr), including 36 qtr cr (24 sem cr) of accounting and another 36 of other business classes (economics, finance, business law).The CPA Exam is one of the hardest professional exams. Four parts, 14 hrs long. Pass rates are about 1-in-5 for all parts in one testing window.To get license, must have one year of experience under a CPAMust also take an ethics exam.Continuing Professional Education (CPE) of 40 hours per year (average) is required.Check out WWU grad’s webpage
7 EXAMPLE OF PASS RATES PER WINDOW CPA Exam has four parts (which can be taken separately):1. Auditing and Attestation (AUD) 4 hours; 60% MC, 40% Simulation; Courses: Auditing, Acct Info Systems; Cum. pass rate at one sitting is 46%.2. Financial Accounting and Reporting (FAR) 4 hours; 60% MC, 40% Simulation; Courses: Intermediate, Advanced, Cost & Managerial, Gov’t & Nonprofit; Cum. pass rate at one sitting is 48%.3. Regulation (REG) 3 hours; 60% MC, 40% Simulation; Courses: Personal & Advanced Tax, B-Law, Prof Ethics (Auditing); Cum. pass rate at one sitting is 48%.4. Business Environment and Concepts (BEC) 3 hours; 85% MC, 15% Writing: Courses: Econ, Finance, CIS, Mgmt, Acct Info Systems; Cum. pass rate at one sitting is 56%.Total: 14 hoursThe first two months of each quarter constitute a testing window. Candidates can take 1-4 parts in a testing window and have 18 months to pass all parts.For more info, go toor for state information:
8 The Accounting Profession PUBLIC ACCOUNTINGSize:local firm (Bruce J. Toews, CPA) (Girard Pisauro)Regional firm (Moss Adams)National (McGladrey & Pullen)International or Big 4FirmRevenuesEmployeesRevenue Per EmployeeFiscal YearHeadquartersDeloitte$34.2bn210,400$162,5472014United States (150+ countries)PwC$32.1bn184,000$174,4562013United Kingdom (150+ countries)EY$27.4bn190,000$144,211United KingdomKPMG$23.4bn155,000$150,968Netherlands
9 The Accounting Profession PUBLIC ACCOUNTINGFor a complete 2014 report on CPA firms, see Cooperman-Ranked-25th-Largest-Firm-in-U-S-F/Accounting-Today- Top100Firms2014.aspxServices:Auditing of Financial StatementsAssurance Services (e.g. Grammies, Oscars, Florida vote count)Environmental AccountingForensic AccountingSee Video Rachel BuseInformation TechnologyInternational AdvisoryManagement ConsultingPersonal Financial PlanningTax Advisory Services
10 https://clarknuber.com/people/rhona-kwiram/ The Accounting ProfessionPUBLIC ACCOUNTINGProfessional Staff: Partners or shareholders (owners), managers (supervise 2 or more engagements), seniors (in-charge on one engagement), staff assistants. Here is how it works at E&Y:https://clarknuber.com/people/rhona-kwiram/https://www.thiswaytocpa.com/profession/profiles/ Ben Ellingson PartnerJune, 2014: Erin Sleeth will be admitted as a tax partner based in PwC’s Portland office. She brings over 16 years of experience working with clients in the utilities, manufacturing, forest, paper and packaging, industrial products and retail and consumer sectors. Notably, she has significant experience working with clients on alternative and renewable energy incentives. Her experience includes deep technical knowledge in areas such as accounting for income taxes, public and private companies, partnerships, and federal tax issues. Sleeth earned a bachelor of science degree in accounting from Walla Walla College and a master’s degree in taxation from Golden Gate University. She is a licensed CPA in the states of Oregon and California and a regular speaker at local events, including TEI and PwC roundtables.
11 The Accounting Profession BUSINESS AND INDUSTRYSize:small (e.g. local construction firm)medium (e.g. Key Technology)large (e.g. CostCo)Services:Financial ManagementFinancial ReportingInternal AuditingManagement AccountingTax Planning
12 The Accounting Profession GOVERNMENTFederal:FBI, IRS, GAO, Treasury Dept. (Lynette Williams, FBI agent)State, County, City, School Districts, etc.State TreasuryBond FinancingState & Local UtilitiesCounties and citiesUniversities, Community Colleges, local K-12 school districtsWHAT DO THEY DO?Analyzing a school district's ability to remain viableThe propriety of expenditures for constructing prisonsThe effectiveness of the workers' compensation systemThe regulatory compliance of hazardous waste programs
13 The Accounting Profession NONPROFITSTypes of Organizations:Charities (Goodwill, Gates Fdn, Seattle Symphony, etc.)Education (Whitman’s Controller; WWCC VP of Finance, WWU)Healthcare (lots of connections here)Churches, political parties, cemeteries, museums . . .See Video Debra LockwoodEDUCATIONBecome a professor and torment hopelessly befuddled groups of students with reams of useless data.Accounting professors are in high demand and paid top faculty salariesThe three best reasons for teaching? June, July and AugustBut the non-physical rewards are what really makes it worthwhile – helping students realize their dreams. See Video Kem WashsingtonProf: To Know True Wisdom . . .
14 WHAT IS FINANCIAL REPORTING? Timely Relevant & User Friendly Objective WHAT IS FINANCIAL ACCOUNTING? Involves preparation/interpretation of financial statements (covered in 1st two qtrs of Principles, & in Intermediate & Advanced Acctg)On the other hand, managerial accounting focuses on decision-support (covered in the last quarter or Principles and Cost & Mngrl Acctg).WHAT IS FINANCIAL REPORTING?Financial Statements and Auditors' Report PLUS Management Discussion & Analysis (MD&A) PLUS Other Info (pretty pictures, investor info, list of board members, other fluff & stuff, etc.)WHAT QUALITIES SHOULD FINANCIAL REPORTS HAVE? Comparable Accurate and Reliable Fully-DisclosedTimely Relevant & User Friendly Objective
15 WHY HAVE ACCOUNTING STANDARDS? Comparability and Efficiency – apples compared to applesReport True Economic Results (measure profits properly) Force Adequate Disclosure (warts and all) Provide Objective, Unbiased, Auditable FiguresWHO SETS ACCOUNTING STANDARDS in US? --SEC has ultimate authority but usually lets profession self-regulate : AICPA's Committee on Accounting Procedures (CAP) ARBs : AICPA's Accounting Principles Board (APB) Opinions now a) Private Sector: Financial Accounting Standards Board (FASB) – SFASs, (7 members, full-time, well-paid, well-represented); FASB Codification (http://asc.fasb.org/home) b) Public Sector: Gov’t Accounting Standards Board (GASB) Future? IASB will establish IFRS or iGAAP.
16 FASB Accounting standards, interpretations, and bulletins Standard SettingBusiness EntitiesCPAs andAccounting FirmsFinancialCommunityAICPA (AcSEC)FASBPreparers (e.g., FEI)AcademiciansGovernment (SEC, IRS, other agencies)Investing PublicIndustryAssociationsAccounting standards, interpretations, and bulletins
17 Securities and Exchange Commission Established by federal governmentAccounting and reporting for public companiesSecurities Act of 1933Securities Act of 1934Encouraged private standard-setting bodySEC requires public companies to adhere to GAAPSEC Oversight and Enforcement AuthoritySarbanes-Oxley Act of 2002 (SarbOx or SOX) created the SEC’s Public Companies Accounting Oversight Board (PCAOB) which is charged with establishing auditing standards for public companies and monitoring the audit firms.
18 HOW IS A STANDARD SET?Need Identified Discussion Memorandum (DM) out for at least 60 days Public Response (much lobbying) Exposure Draft (ED) or rough draft out for at least 30 days (usually longer) Public Response (again much lobbying) FASB votes (majority of 4/7 needed)
19 Generally Accepted Accounting Principles GAAP DocumentsMost authoritative document start at the bottom
20 Generally Accepted Accounting Principles FASB CodificationGoal in developing the Codification is to provide in one place all the authoritative literature related to a particular topic.Creates one level of GAAP, which is considered authoritative.All other accounting literature is considered non-authoritative.FASB has developed the Financial Accounting Standards Board Codification Research System (CRS). CRS is an online real-time database that provides easy access to the Codification.LO 6
21 Generally Accepted Accounting Principles Illustration 1-5FASB CodificationFrameworkLO 6
22 Challenges Facing Financial Accounting Nonfinancial Measurements: Ignores key performance measures used by managers, such as customer satisfaction, backorder info, product quality rates, etc.Forward-looking Information: Financial statements primarily contain historical info, which isn’t always relevant in a fast-moving worldSoft Assets: The balance sheet ignores certain intangibles until they have been turned into cash, such as superior managers, strategic location, product domination, etc. (Which gets recorded by accountants: purchase of a paperclip or hire of a new CEO?)Timeliness: Little real-time data is provided. This is changing.Understandability: Complexity is overwhelming to many investors.
23 WHY ARE INTERNATIONAL STANDARDS IMPORTANT? Application (rules)-based Differences Between Countries Create Inefficiencies Globalization of Financial Markets Requires Cross-Border Investment IASB may eventually replace the FASB for public companies. Convergence is planned within the next decade but major hurdles remainInternational Financial Reporting Standards (IFRS or iGAAP) will eventually replace U.S. GAAP for public companies. Private companies will likely still follow “small GAAP” set by FASB.Principle-basedApplication (rules)-based