Ex. 1.7 c.
g
.
g
Financial accounting
Management accounting
c. Examples of the kinds of decisions that are supported by management accounting
information are:
How to more efficiently manage the enterprise’s resources.
Ex. 1.13 a.
b.
c.
Ex. 1.14 a.
b.
Ex. 1.15
Accountants must rely upon their professional judgment in such matters as
determining (1) how to record an unusual transaction that is not discussed in
accounting literature, (2) whether or not a specific situation requires disclosure,
Acosta, who entered public accounting, is likely to find herself specializing in
auditing financial statements, in doing income tax work, or in providing
management advisory services. With any of these specialties, she will be
People use accounting information to make economic decisions. If the economy
is to function efficiently, these decision makers must have confidence in the
information.
An audit is an independent investigation of each item and disclosure
contained in a set of financial statements. The purpose of this investigation is
An audit is performed by a firm of Certified Public Accountants that is
its mana
g
ement.
The purpose of an audit is to provide users of financial statements with
independent, expert assurance that the financial statements present fairly the
financial position of the company, and the results of its operations, in
possibility of error. Over many years, however, audited financial statements
have accumulated an excellent track record of reliabilit
y
.
Education.
Ex. 1.16 a.
forecasting, income taxes, or internal auditing. He also may have moved into a
management career, such as controller, treasurer, chief financial officer, or
chief executive officer.
Martin, who joined a governmental agency, may find herself specializing in
management accounting functions similar to those available to Nakao. Or, she
administrative
p
osition.
Mandella, who became an accounting faculty member, probably will specialize
in teaching and research. He may direct his efforts toward those topics which
he finds of greatest personal interest. Like many other faculty members,
Mandella also may engage in management consulting, write textbooks, or
spend some time serving within such organizations as the AICPA, the IMA,
the IIA
,
or the AAA.
Consolidated Balance Sheets
15 Minutes, Easy CASE 1.1
FANNIE MA
E
If personal integrity is not sufficient to deter such an act of fraud, the federal securities laws
provide for criminal penalties as well as financial liability for all persons engaged in the
preparation and distribution of fraudulent financial statements. All that would be necessary for
the SEC to launch an investigation would be a “tip” from but one individual within the
company’s organization or its auditing firm. An investigation also would be launched
automatically if the company declared bankruptcy or became insolvent shortly after issuing
financial statements that did not indicate a shaky financial position.
Next, there is the audit of Fannie Mae’s financial statements by a firm of independent CPAs.
These CPAs, too, would have to participate in a criminal conspiracy if the company were to
supply creditors and investors with grossly misleading financial statements.
SOLUTIONS TO CRITICAL THINKING CASE
S
Several factors prevent a large publicly owned corporation such as Fannie Mae from issuing
misleading financial statements, no matter how desperately the company needs investors’
capital. To begin with, there is the basic honesty and integrity of the company’s management
and its accounting personnel. Many people participate in the preparation of the financial
statements of a large corporation. For these statements to be prepared in a grossly misleading
manner, all of these people would have to knowingly participate in an act of criminal fraud.
RELIABILITY OF FINANCIAL STATEMENT
S
OBJECTIVES OF FINANCIAL ACCOUNTIN
G
a.
b. As an external investor or creditor, your primary concern is the security of your investment
and the return you are making on permitting another to use your money rather than your
to each
g
rou
p
of users of accountin
g
information.
CASE 1.2
15 Minutes, Medium
Describing financial accounting as being useful for decision making by investors or
creditors and as the language of business are very consistent. For information to be used
by decision makers—whether internal or external—that information must be
communicated. The process of communicating the information is why accounting is
sometimes referred to as the lan
g
ua
g
e of business.
Communication involves a sender and a receiver. The message between the two is
monetar
y
information to be meanin
g
ful.
CASE 1.3
A
CCOUNTING SYSTEMS
a.
b.
c.
15 Minutes, Easy
The purpose of an accounting system is to provide information needed by the
organization, and to do this in an efficient manner. The basic functions of an accounting
s
y
stem are to:
An accounting system is everything that it takes to produce reliable and accurate
knowled
g
e, etc.
The design and implementation of an accounting system varies from situation to situation,
CASE 1.
4
Credibility means that you should communicate information in a fair and unbiased manner,
Integrity refers to your need to avoid conflicts of interest by doing something that would
30 Minutes, Medium
Among the things you would learn in studying the Statement of Ethical Professional Practice of
the IMA is that the code includes requirements in the following areas: competence,
confidentiality, integrity, and credibility. While these may sound like “lofty” terms, they will
have direct relevance to you in your job, starting on the very first day.
Competence refers to the quality of having the skills, knowledge, and background to be able to
Confidentiality refers to the fact that some of the information you will deal with may be
ETHICS, FRAUD & CORPORATE GOVERNANCE
CODES OF ETHICS
CASE 1.5
ACCESSING INFORMATION ON THE INTERNE
T
b.
c.
d. At the time this book went to press, the IASB had 16 board members: Hans Hoogervorst, Ian
Mackintosh, Stephen Cooper, Philippe Danjou, Martin Edelman, Jan Engstrom, Patrick
Finnegan, Amaro Luiz de Oliveira Gomes, Gary Kabureck, Prabhakar Kalavacherla,
Patricia McConnell, Takatsugu Ochi, Darrel Scott, Chungwoo Suh, Mary Tokar, and Wei-
Guo Zhang. Biographical sketches of these 16 individuals are available on the IASB’s web
site.
INTERNET
30 Minutes, Medium
a.
The PCAOB’s four major activities are: registration and reporting, standards, inspections,
and enforcement.
At the time this book went to press, the seven members of the FASB were: Leslie Seidman,
Daryl Buck, Russell Golden, Thomas Linsmeier, Harold Schroeder, Marc Siegel, and
Lawrence Smith. Seidman is the FASB’s chairman and prior to joining the FASB she was
formerly vice president of accounting policy at J.P. Morgan. Buck was formerly CFO of a
private company. Golden was formerly the FASB’s technical director. Linsmeier was
formerly a professor at Michigan State University. Schroeder was formerly a partner at a
money-management firm. Siegel formerly led the accounting research and analysis team at
Risk Metrics. Smith formerly served as a senior FASB staff member.
Deloitte’s service lines are: audit and enterprise risk services, consulting, financial advisory
services, tax, and growth enterprise services. Ernst & Young’s service lines are advisory,
assurance, tax, transactions, and specialty services. KPMG’s service lines are: audit, tax, and
advisory. PwC’s service lines are: audit and assurance, consulting, deals, forensic services,
human resource services, private company services, risk assurance, IFRS reporting, and tax
services.