Learning Outcomes At the end of this chapter you should be able to: Explain the meaning and purpose of accounting; Describe the role of accounting as an information system; Describe how ethics and governance relate to accounting; and Assess the impact of external environmental factors on accounting.

Lesson Outline What is accounting The accounting process Accounting as an information system Accounting as the language of business The users of accounting External environmental factors influencing accounting Accounting as a profession Role of ethics and governance in Accounting

What is Accounting?

Definitions on Accounting What accounting does. Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof. (AICPA,1941).  Purpose and functions of accounting. Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. (AAA,1961).

Definitions on Accounting (Contd.) Define with reference to the concept of information. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic activities that is intended to be useful in making economic decisions. (AICPA, 1970). The term ‘quantitative information’ is wider in scope than financial or economic information of previous definitions.

Definitions on Accounting (Contd.) In general, accounting can be defined as a process of identifying, measuring, recording and communicating information to facilitate decision making of users of information. Responsibility of the management of an entity to prepare and present financial statements to meet the information needs of users.

Accounting Process First Stage The identification of transactions and events (economic events of an organization) Second Stage Expression of these transactions and events in a common denominator- usually in money Third Stage Recording, classifying and summarizing transactions and events in the accounting records Fourth stage Presenting of the information generated through the processing of transactions and events in the financial reports.

Accounting as an Information System

Accounting Information System Transactions and Events (Input) Accounting Process Financial and other reports (Output)

Accounting as the language of business Symbols Numerals and words, debits and credits Unique to the accounting discipline Rules General set of procedures followed in creating financial information of an entity

Activity 1.1 A business entity applies to a bank to obtain a loan to purchase a motor vehicle. Identify the items of information that a loan officer of the bank would consider in deciding whether to approve the loan.

Users of Accounting Information Internal Users Parties that make decisions directly affecting its internal operations. The Management External Users Parties other than management that make decisions concerning their relationship to the organization. Diverse groups Management Accounting Financial Accounting

Activity 1.2 State the differences between financial accounting and management accounting in terms of users of reports, types of reports, frequency of reports and content and format of reports.

Accounting Environment

External Environmental Factors influencing Accounting Political environment Economic environment Social environment Technological environment Legal environment

Activity 1.3 Identify the environmental factors that would influence a software development company.

Accounting as a Profession

Accounting Profession: Different Roles Offer their professional services to the public for a fee e.g. Auditing and assurance services Taxation services Advisory services Public Accounting (Accountant in public practice) Employed in business entities e.g. Financial accounting, Management accounting Development of accounting information systems Business Accounting (Accountant in business)

Activity 1.3 Identify the fields or career paths in Accounting

Ethics and Governance in Accounting

What is ethics? How we act in order to make the ‘right’ choice and produce ‘good’ behavior.

The ethics and its importance Principles of professional conduct Integrity Objectivity Professional Competence and Due care Confidentiality Professional Behavior International Ethics Standards Board of International Federation of Accountants (2013)

What is Corporate Governance? The term ‘corporate governance’ is usually defined as the system by which companies are directed and controlled (Cadbury Report, 1992).

Corporate Governance Controlling & Directing the Directors Role of shareholders and stake holders Transparency & Accountability

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