8.4 Accountability The most important use for accounting data is to provide information for the financial statementsThe most important use for accounting.

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Presentation transcript:

8.4 Accountability The most important use for accounting data is to provide information for the financial statementsThe most important use for accounting data is to provide information for the financial statements

Users of Financial Statements 1.Managers – They use financial statements more than anyone else in order to improve results and efficiency and to eliminate weaknesses 2.Owners – to evaluate performance 3.Creditors – to stay informed and make sure businesses can pay their loans

Users of financial statements 4. Shareholders – the law requires that corporations provide the shareholders with financial statements regularly 5. Investors and brokers – Shares of public corporations are traded by stockbrokers through stock exchanges. People need to stay informed about how the companies are doing.

AUDIT An audit is a critical review by a public accountant of the internal controls and accounting records of a companyAn audit is a critical review by a public accountant of the internal controls and accounting records of a company

GAAP – The consistency principal Requires that a business must use the same accounting method and procedures from period to periodRequires that a business must use the same accounting method and procedures from period to period If there is a change the financial records must indicate itIf there is a change the financial records must indicate it Prevents people from manipulating figures on financial statementsPrevents people from manipulating figures on financial statements

GAAP – The materiality principle Requires accountants to include any information that could be important in the financial statementsRequires accountants to include any information that could be important in the financial statements You may only leave out information if neither the net income or the financial position of the firm are impacted in any significant wayYou may only leave out information if neither the net income or the financial position of the firm are impacted in any significant way Ex. If you have finished and printed your financial statements and realize you made a $20 error, it is not materialEx. If you have finished and printed your financial statements and realize you made a $20 error, it is not material

Gaap – the full disclosure principle All information needed for a full understanding of the company’s financial affairs must be included in the financial statementsAll information needed for a full understanding of the company’s financial affairs must be included in the financial statements If important items do not affect the ledger you must put them in accompanying notesIf important items do not affect the ledger you must put them in accompanying notes Ex. Tax disputes, company takeoversEx. Tax disputes, company takeovers