Introduction to Accounting and Business LO 1b – The role of accounting and ethics in business.

The Role of Accounting in Business LO 1 The Role of Accounting in Business Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. What is the role of accounting in business? Accounting provides value for managers and other users to assist in assessing the economic condition of the business.

The Role of Accounting in Business LO 1 The Role of Accounting in Business The process by which accounting provides information to users is as follows: Identify users. Assess users’ information needs. Design the accounting information system to meet users’ needs. Record economic data about business activities and events. Prepare accounting reports for users. Accounting is considered the “language of business” because it is the means by which financial information is communicated to users. There are five steps in this process including the identification of users, assessing their informational needs, designing an accounting information system to meet those needs, recording the economic data of the business, and preparing accounting reports for the users.

Managerial Accounting LO 1 Managerial Accounting The area of accounting that provides internal users with information is called managerial accounting or management accounting. Managerial accountants employed by a business are employed in private accounting. Managerial accounting is the area that provides reports to internal users about the economic activities and condition of a business. The objective of managerial accounting is to provide relevant and timely information for managers’ and employees’ decision-making needs.

LO 1 Financial Accounting The area of accounting that provides external users with information is called financial accounting. The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business. General-purpose financial statements are one type of financial accounting report that is distributed to external users. Financial accounting is the area that provides reports to external users about the economic activities and condition of a business. The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside the business. 5

Role of Ethics in Accounting and Business LO 1 Role of Ethics in Accounting and Business The objective of accounting is to provide relevant, timely information for user decision making. Accountants must behave in an ethical manner so that the information they provide users will be trustworthy and, thus, useful for decision making. Ethics are moral principles that guide the conduct of individuals. Accountants must behave in an ethical manner so that the information they provide will be trustworthy. Managers and employees must also behave ethically, or no one would be willing to invest in or loan money to a business.

Role of Ethics in Accounting and Business LO 1 Role of Ethics in Accounting and Business The answer to “What went wrong for these companies?” involves one or both of these factors. (Exhibit 2) Failure of individual character Firm culture of greed and ethical indifference Unfortunately, managers, employees, and accountants sometimes behave in an unethical manner. A review of Exhibit 2 in the text identifies several companies engaged in accounting or business fraud. The root cause of fraud is either the failure of individual character or a culture of greed and ethical indifference that permeates an organization. 7