1. 1 THE ROLE OF ACCOUNTING IN BUSINESS Decision making and information Introduction to business and business enterprises The nature of accounting Accounting standards Fields of accounting activity Internal control

2. 2 OUTCOMES Describe the value of information in the decision making process Describe the value of information in the decision making process Recall the forms of ownership of business enterprises Recall the forms of ownership of business enterprises Describe the nature of accounting and their information needs Describe the nature of accounting and their information needs Discuss the development of accounting standards Discuss the development of accounting standards Explain the importance of internal control Explain the importance of internal control

3. 3 DECISION-MAKING AND INFORMATION Accounting is concerned with the preparation and presentation of financial information needed to make economic decisions Accounting is concerned with the preparation and presentation of financial information needed to make economic decisions A business entity is an organisation that uses economic resources for the primary goal of maximising profit A business entity is an organisation that uses economic resources for the primary goal of maximising profit Users Users Primary and other Primary and other Management Management

4. 4 INTRODUCTION TO BUSINESS AND BUSINESS ENTERPRISES Forms of ownership Forms of ownership Sole proprietorship Sole proprietorship Unincorporated entity Unincorporated entity Partnership Partnership Unincorporated entity Unincorporated entity

5. 5 Forms of ownership... Company Company Incorporated entity Incorporated entity Separate legal entity apart from owners, (shareholders) Separate legal entity apart from owners, (shareholders) Shareholders only have claim on income when declared in the form of a dividend Shareholders only have claim on income when declared in the form of a dividend Types of company Types of company Public, where owners and management are different groups of people Public, where owners and management are different groups of people Private, where owners and management are usually same group of people Private, where owners and management are usually same group of people Impact of Companies Bill (2008) on companies and close corporations Impact of Companies Bill (2008) on companies and close corporations

6. 6 Forms of ownership... Close Corporation Close Corporation Incorporated entity Incorporated entity separate legal entity apart from owners, (members) separate legal entity apart from owners, (members) members only have claim on income when declared in the form of a distribution members only have claim on income when declared in the form of a distribution Draft Companies Bill (2008) does not permit formation of new close corporations Draft Companies Bill (2008) does not permit formation of new close corporations

7. 7 Types of businesses Service enterprise Service enterprise Merchandising enterprise Merchandising enterprise Wholesaler Wholesaler Manufacturer Manufacturer Agent Agent Financial institution Financial institution

8. 8 THE NATURE OF ACCOUNTING The accounting information system The accounting information system Only data with an economic impact is selected Only data with an economic impact is selected Processed through the accounting process Processed through the accounting process bookkeeping v accounting bookkeeping v accounting Select data Process data Produce information

9. 9 The accounting information system... Objective of financial statements is to provide information about the financial position, performance and changes in financial position to a wide range of users in making economic decisions Objective of financial statements is to provide information about the financial position, performance and changes in financial position to a wide range of users in making economic decisions (IASB Framework) Information focuses on Information focuses on Financial position (Statement of financial position) Financial position (Statement of financial position) Performance (Income statement) Performance (Income statement)

10. 10 Users and their information needs Primary and other users Primary and other users Primary users (or capital providers) Primary users (or capital providers) Equity investors Equity investors Ownership interest Ownership interest Lenders Lenders Financial but not ownership interest Financial but not ownership interest Other creditors Other creditors Financial but not ownership interest Financial but not ownership interest Employees, suppliers, customers (by providing capital in the form of credit) Employees, suppliers, customers (by providing capital in the form of credit) Shares up Shares down

11. 11 Users and their information needs... Primary and other users... Primary and other users... Other users Other users Employees, suppliers and customers (when not acting as credit providers) Employees, suppliers and customers (when not acting as credit providers) Government Government Public Public Financial reporting not directed towards these users Financial reporting not directed towards these users Management Management Responsible for preparing financial reports Responsible for preparing financial reports Not a capital provider Not a capital provider

12. 12 Qualitative characteristics Are the attributes that make the information in financial statements useful to users Are the attributes that make the information in financial statements useful to users

13. 13 Qualitative characteristics... Threshold quality Threshold quality materiality materiality Constraints Constraints timeliness timeliness cost / benefit cost / benefit Four principle qualitative characteristics Four principle qualitative characteristics relevance relevance reliability reliability comparability comparability understandability understandability

14. 14

15. 15 ACCOUNTING STANDARDS Background Evolved in an attempt to establish procedures for the communication of accounting information Evolved in an attempt to establish procedures for the communication of accounting information Resulted in development of sets of standards, internationally and locally Resulted in development of sets of standards, internationally and locally IASB publishes standards known as IFRS IASB publishes standards known as IFRS SAICA has harmonised local accounting standards with IFRS and now issues IFRS in SA without amendment SAICA has harmonised local accounting standards with IFRS and now issues IFRS in SA without amendment

16. 16 Application International Financial Reporting Standards manifest themselves as pronouncements labelled International Financial Reporting Standards manifest themselves as pronouncements labelled IAS IAS IFRS IFRS IFRS IAS Numbered series IFRS Numbered series

17. 17 Development of accounting standards IFRS developed through a formal system of due process and international consultation IFRS developed through a formal system of due process and international consultation Involves Involves Accountants Accountants Analysts Analysts Business community Business community Stock exchanges Stock exchanges Academics Academics

18. 18 Fields of accounting activity Financial accounting Financial accounting information for users who are not involved in daily operations information for users who are not involved in daily operations Management accounting Management accounting information for managers information for managers Auditing Auditing to express an opinion on the financial statements to express an opinion on the financial statements adds credibility adds credibility Taxation Taxation assist clients to minimise taxes payable assist clients to minimise taxes payable

19. 19 INTERNAL CONTROL Sound system of internal control ensures that Sound system of internal control ensures that information directors need is available information directors need is available delegated authorities properly exercised delegated authorities properly exercised data available to control costs data available to control costs data available to prepare financial statements data available to prepare financial statements