1 Accounting for Business Decisions Fall 2011 William F. O’Brien, MBA, CPA lsb.scu.edu/~wobrien
2 Session I Introduction to Financial Accounting
MBA 300--FALL Accounting Business Skills “The What” n Business Perspective n Organizational Focus n Bias for Action n Communication Excellence n People Proficiency
MBA 300--FALL Financial Management Guidelines “The How” n Cc n KTT n MBWA n R ƒ R 3 n responsiveness n reliability n relevance
MBA 300--FALL Company F/S Users Economic Decisions Financial Impact (useful & relevant) Financial Accounting Model
MBA 300--FALL Plan Managerial Accounting Model Monitor ImplementAdjust Accounting Information Communication Environment
MBA 300--FALL Financial Statement Content n Balance Sheet n Statement of Income n Statement of Cash Flows n Statement of Owners’ Equity (Retained Earnings) n Footnotes n Management Discussion & Analysis n Management Letter n Auditor’s Report
MBA 300--FALL Financial Statement Relationships Balance SheetIncome StatementStatement of Cash Flows Stmt of Ret.Earnings Current Assets Non- current Assets Current Liabilities Long- term Debt Equity Revenue Cost of Goods Sold (COGS) Gross Margin Operating Exps. Net Income Operating Cash Investing Cash Financing Cash Change in Cash Beginning Cash Ending Cash Beginning R/E Net Income Less: Dividends Ending R/E
MBA 300--FALL Users of Financial Information n Internal n Owners, Managers & Employee n External n Owners n Creditors and Vendors n Public Interest Groups & Regulators n Tax Authorities
MBA 300--FALL SFAC #8 n Statement of Financial Accounting Concepts #8 n The purpose of financial statements n Better information for decision making n Information on future cash flows n Information regarding resources owned and resources owed
MBA 300--FALL Corporate Governance n Strategic direction n Governance oversight n Risk management n Assurance that processes are working
MBA 300--FALL Governance and Risk n Tone at the top n Sarbanes-Oxley Act of 2002 n Reactionary n Major provisions n Public Company Accounting Oversight Board n CEO/CFO sign off n Assessment of reporting controls n Is it working n Shifting focus to overall business risk n Enterprise risk managerment
MBA 300--FALL Sarbanes-Oxley Act of 2002 n Major provisions n Creation of the Public Company Accounting Oversight Board (PCAOB) n Certification of financial statements by CEO and CFO n Limits on non-audit services n Audit partner rotation n Limits on hiring due to conflict of interests n Audit committees hire the external auditor n Section 404: internal control assessment
MBA 300--FALL Ethics and You n You will face an ethical challenge n It could impact n Your job n Your family n Your relationships n Your financial stability n Your physical well-being n You have only ONE reputation...
MBA 300--FALL Standard Setting Process n SEC (Securities and Exchange Commission) n AICPA (Am. Institute of CPA’s) n FASB (Financial Acctg. Stds. Board) n GASB (Govt. Acctg. Stds. Board) n Sarbanes-Oxley Bill of 2002
MBA 300--FALL Standard Setting Flow Chart Pub. Cos. Gov’t SEC FASB -Creates SEC Delegates standard setting -Finances FASB indirectly standards -Lobbies government A Political Circle
MBA 300--FALL Auditors n External Auditing n Audit Reports n Assessment of IAC n Internal Auditing
MBA 300--FALL Enforcement Flow Chart Pub. Cos. PCAOB Reg. Ind. Accts. -Oversees Reg. Indep. Accts. -Audits public companies Finances PCAOB indirectly- -Lobbies government A Political Circle SEC -Created the PCAOB
MBA 300--FALL FASB Codification n Arranged by topic n Primary source of U.S. GAAP n Other sources: rules and interpretations of the SEC
MBA 300--FALL The Perfect Storm n IFRS Adoption: SEC n Convergence: FASB n Private Company GAAP: FAF n All companies will be affected
MBA 300--FALL International Convergence n International Accounting Standards Board (IASB) n IAS mandatory in European Union-1/1/05 n IASB-FASB Convergence Project n Completion target of 2011 n SEC IFRS Adoption Roadmap n IFRS in the U.S. by 2014 n Decision in 2011 n Do you think convergence of standards is good or bad for financial statement users?
MBA 300--FALL Rules v. Principles n Major mindset change n IFRS-2,500 pages n FAS-25,000 pages n Thinking outside the box n Emphasizes the importance of the conceptual framework