© 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, 9781119979678 1 Chapter 1 Introduction to Accounting.

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Presentation transcript:

© 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Chapter 1 Introduction to Accounting

Overview © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Accounting and accountability Functions of accounting Short history of accounting Roles of financial and management accounting Recent developments affecting accountants and non-financial managers

Accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, ‘the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information’ ‘the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information’ American Accounting Association American Accounting Association Accounting as a process Capturing, recording, summarising, reporting, interpreting Economic information Financial & non-financial Decision usefulness Broad spectrum of users

Accountability © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Accountability to: Accountability to:  S  Shareholders & financiers  Stakeholders Customers, suppliers, employees, government, society

Functions of accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Scorekeeping Attention-directing Problem-solving Planning Decision-making Control

Accounting history © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Ancient Egypt Maritime trade from Italian city-states First book on accounting Industrial Revolution Separation of ownership from management Exercising control over managers by absent owners Decentralisation & divisionalisation Financial accounting & management accounting Information revolution Growth of service industries Knowledge-based economy

Financial accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, the recording of financial transactions, aimed principally at reporting performance to those outside the organization, with a primary focus on shareholders Annual Report to shareholders, which comprises the Statement of Comprehensive Income (or Income Statement; the Statement of Financial Position (or Balance Sheet); the Statement of Changes in Equity; and the Statement of Cash Flows

Financial accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Legislation accounting standards, and independent audit limited decision usefulness for managers because the financial information is produced only once per year, highly aggregated and provides no comparison to target

Management accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Provides financial and non-financial information to develop and implement strategy by planning for the future (budgeting); make decisions about products, services, prices and what costs to incur (decision-making); ensure that plans are put into action and are achieved (control).

Financial accounting & management accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Managerial decisions, whether they relate to planning, decision making or control, involve decisions that will ultimately be reported in financial statements and affect shareholder reaction in stock markets. The accounting system that produces financial reports is the same system that managers use for planning, decision making and control

Recent developments in financial accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, International Financial Reporting Standards (IFRS) Large corporate failures Increased complexity of business transactions Emphasis on reporting short-term financial performance to satisfy stock market investors rather than improving the value-added capability of organizations to be successful in the longer term

Some recent developments in management accounting © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Value-based management; 2. Non-financial performance measurement; 3. Focus on horizontal business processes, rather than hierarchical reporting; 4. Quality management and environmental management; 5. Strategic issues beyond the boundaries of the organization and the annual reporting cycle; and 6. Lean methods of producing goods and services.

Changes affecting accountants and non-financial managers © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Improvement in information and communications technologies has eliminated many routine accounting processes and expanded information systems beyond accounting to ERPS changed the role of accountants and changed the role of non-financial managers.