1. Overview of Accounting Environment and Financial Statements

2. WHAT DO ACCOUNTANTS DO?

3. WHY DO THEY DO WHAT THEY DO?

4. WHAT ARE THE OUPUTS?

5. WHO USE THE OUTPUTS?
HOW?

6. Aim of the Accounting Information
accounting is an information system that measures, processes and communicates financial information of an economic entity to the decision makers
measurable
systematic
financial statements and other financial reports
economic entity is an economic organization that acts independently
business entity is an economic entity that sells goods or provides services

7. Environment of a Business Organization
General Environment of Businesses
Task Environment of Businesses

8. Business Language

9. Users of Accounting Information
Internal Users
Top management
Department managers
External Users
Users with direct financial interest
Users with indirect financial interest
creditors ; investors
government ; regulatory agencies ; labor unions; financial advisors; brokerage firms; auditors; lawyers; consumer groups; and academicians
executive officers

10. Objective of Financial Statements
the objective of financial statements is to provide information to users to help them in their economic decisions
the financial statements are expected to provide information about the future cash flows of an entity, its financial structure, profitability and liquidity, and its financial position and changes in financial position
financial statements provide information about assets, liabilities, revenues, expenses and cash flows

11. Business Activities Investing Activities Operating Activities
Financing Activities

12. Financing Activities initially - funds to setup a business
in later periods – funds to run operations and to grow
obtaining such funds either from external or internal sources
Funds obtained: from creditors shareholders
Funds provided to: payment of payment of interest dividends repayment of debts
Cash management

13. Investing Activities
Spending the funds obtained effectively and efficiently
involve purchase and sale of
buildings, machinery or other investment instruments such as government bonds, treasury bills
extending loans to other companies
are expected to contribute directly or indirectly to the profit maximization and solvency goals of the business

14. Operating Activities
involve the daily activities of the entities to run the business
include
sales and marketing of the goods sold and services provided
production
purchasing merchandise and inventory items
managing human resources
effective and efficient management of operating activities needed to achieve profitability and liquidity

15. Financial Statements
All financial statements are interrelated because each statement provides information about a different aspect of the same entity
financial statements :
balance sheet
income statement
the cash flow statement
statement of changes in equity
Notes to the financial statements: accounting policies and explanatory notes about various items

16. Financial Statements
balance sheet provides information about the financial position or the resources available and the claims on these resources
income statement provides information about how well these resources are used to generate income in a given period
cash flow statement provides information about the movement in the cash and cash equivalents in a given period
both the income statement and the balance sheet are prepared on accrual basis
the cash flow statement is prepared on cash basis of accounting
in order to meet the objective of financial statements, certain assumptions and qualitative characteristics are defined in the framework by IASB

17. Balance Sheet
The main objective -to fairly disclose the financial position of a company at a certain date
a balance sheet is made up of assets, liabilities and owners' equity sections
IAS No.1 requires that the balance sheets should give the name of the company, the date it is prepared for, and the monetary unit and the level of precision adopted e.g. stated in thousands of TL.

18. Balance Sheet or Statement of Financial Position
As of a specific date
The amount of resources owned by a company in order to run business and
How these resources were funded
Assets
Liabilities
Owners’ or Shareholders’ Equity – depending on the formation of business

19. Sections of Balance Sheet

20. Assets
Current Assets:Expected to be converted into cash within the normal operating cycle or held for resale purposes
Assets that are kept on hand for a short period and are expected to be converted into cash within the twelve months following the balance sheet date
Assets that are held primarily for the purpose of being traded, and
Unrestricted cash and cash equivalents
Long-term assets: Assets that the entity expects to use longer than one year or the operating cycle; purpose of providing resources for the operations of an entity in the future

21. Assets

22. Liabilities
Any liability for which the amount can reasonably be estimated and with known payment date should be disclosed in the liabilities section of the balance sheet
Any liability with uncertain payment dates and amounts should be disclosed in the notes to the financial statements
Liabilities to various entities or groups such as the creditors, employees and customers should be clearly labeled and disclosed
Classified as short and long-term-
Current liabilities include amounts with determinable amounts and payment dates that are within the next year
Long-term liabilities are usually debts incurred by the entity for the purpose of financing the operations and investments

23. Shareholders’ Equity
includes the amounts invested in the business by the founding owners or investors,
the earnings (losses) that are retained in the business from previous years’ income (losses)
current year income or loss *either separately or within retained earnings

24. Liabilities and Shareholders’ Equity

26. Income Statement
summarizes the revenues and expenses of an entity for a certain period in time
reveals the results of operations during a period
shows whether an entity is successful in achieving the goal of profitability

27. Income Statement
flow statement reflecting the performance of a company in terms of utilizing the resources in a given period
provides information about the revenues and the related expenses in a given period, as well as the losses incurred in the same period
The bottom line figure of the income statement is the profit or income of the period

28. Sections of Income Statement
Revenues from ordinary activities of an entity and the related expenses are reported in accordance with the matching principle
classified according to the function, such as cost of goods sold; or according to the nature of the expense
reported in a separate section that reports the results of the ordinary activities.
The presentation and disclosure of discontinued operations- the post-tax income or loss of the segment until disposition and the post-tax gain or loss of disposing the segment is presented in the income statement as separate line items

30. Cash Flow Statement
deals with cash in-flows and out-flows company resulting from operating, financing and investing activities for a specific period
presents information regarding the goal of liquidity

31. Cash Flow Statement
shows the amount of cash generated through the three main activities of any entity
Financing
Investing
Operating
a cash flow statement has also three sections that parallel the main activities.

33. Statement of Changes in Equity
shows the amounts invested by the owners in a given period, as well as the movements in the shareholders’ equity accounts
main purpose of the statement is to present all the changes that affected the shareholders’ equity in a period
movements in the reserve accounts are based on the profit appropriation of the prior period
retained earnings column in the statement reflects the net of prior period income and losses

35. Statements of a single company

36. Auditing and Auditors’ Opinion
Independent audit of financial statements:
the examination of the financial statements, accounting system and internal controls, and the accounting records of a company
purpose of an independent audit is to express an opinion on the financial statements-
whether they are prepared in accordance with the generally accepted accounting principles
whether they fairly present the financial position of the company
auditors’ report implies that the financial statements are free of material misstatements

37. Board of Directors
XYZ Corporation
We have audited the accompanying balance sheets of XYZ Corporation as of 31 December 2005 and 2004, and the related statements of income, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Corporation at 31 December 2005 and 2004, and the results of its operations and its cash flows for the years then ended, in accordance with International Financial Reporting Standards as published by the International Accounting Standards Board.
Signature of the Independent Auditor
Date and Place
of the Report

38. Ethics in Accounting
moral principles that an individual bases his/her behavior on
should the project manager give away bribes if the competitors are also bribing?
if an accountant knows that a product is environmentally hazardous although it is not illegal, should she or he report it to the authorities even if s/he knows that she might lose her job?
the ethics committee is working on the professional rules of conduct

39. Regulatory Bodies National International Capital Markets Board (CMB)
Ministry of Finance
Turkish Accounting Standards Board (TASB)
TURMOB (Union of Chambers of Certified Public Accountants of Turkey)
International
International Federation of Accountants
International Accounting Standards Board- International Financial Reporting Standards (IFRS)
Financial Accounting Standards Board (FASB)
Federation of European Accountants (FEA)

40. ACCOUNTING IN TURKEY
Commercial Code of 1850 was a translation of the French Commercial Code
formed the first accounting regulation in Turkey
second Commercial Code was enacted in 1926
code was based on the German commerce and company laws that also regulated the accounting practices
accounting system has been heavily influenced by the American system or Anglo-Saxon system since the beginning of the 1960's

41. Accounting in Turkey
The law of Istanbul Stock Exchange (ISE) in 1984, but full operations started in 1986
Foundation of the Capital Markets Board (CMB) and the Istanbul stock exchange, and the increase in foreign investments advanced the development of the accounting and auditing standards
Increase in joint ventures and foreign trade led to establishment of offices of the then-"Big Eight" accounting firms in Turkey
As a result of these developments, large private enterprises started to report their financial statements in accordance with the International Accounting Standards in addition to national reporting requirements

42. Accounting in Turkey
The first set of financial accounting standards for the publicly owned and/or traded companies was developed in January 1989 by the CMB to be in effect for the fiscal years that start on or after January 1, 1989
However, accounting standards used by the family-owned or small to medium sized companies was, and to some extent still is, treated as identical with tax accounting

43. Uniform Chart of Accounts
In 1992, Ministry of Finance organized a committee to instigate the accounting principles and a uniform chart of accounts that would be used by all companies
The Ministry published the committee's report in a communiqué on December 26, 1992 establishing the principles and the uniform chart of accounts to be in effect starting January 1,1994
All companies except banks, brokerage firms, and insurance companies are required to conform
Banks are subject to accounting rules set by the Central Bank of Turkey and Banking Regulation and Supervision Agency, and brokerage and insurance firms comply with the CMB rules.

44. Turkish Accounting Standards Board
In February 1994, Turkish Accounting and Auditing Standards Board (TAASB) was formed
mission to develop accounting and auditing standards
As of January 1, 2002, TAASB prepared 19 accounting standards under the name of Turkish Accounting Standards (TAS) that were published by TURMOB (Union of Chambers of Certified Public Accountants of Turkey)
standards were not widely applied by the Turkish companies and the Board was dissolved and re-formed as the Turkish Accounting Standards Board (TASB) under the Prime Ministry in April 2002

45. Regulatory Environment
the Ministry of Finance's regulation of 1992, the CMB rules, the Commercial Code and the Procedural Tax Law, Banking Regulation and Supervision Agency and the Central Bank regulations
All profit oriented companies -The Commercial Code and the Procedural Tax Law ; and Uniform Chart of Accounts
Listed companies and financial intermediaries: Uniform Chart of Accounts, Commercial Code and Procedural Tax Law and CMB rules

46. Current Status
New CMB accounting standards in effect starting 1 Jan 2005
Almost same as the IAS/IFRS
Traded companies are required to comply
TASB- officially translated the accounting standards
Turkish Commercial Code – Expected to be in effect mid 2006

47. What is helpful for the decision maker is right for the company.
Or vice versa?