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University of Toronto St. George
Rotman Commerce
John Oesch

Chapter 14 Accounting: a comprehensive information system for collecting, analyzing, and communicating financial information o It measures business performance and use those information for management decisions Bookkeeping: recording accounting transactions (only a part of accounting; accounting is much more than just bookkeeping) Accounting information system (AIS): an organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports (system includes all the people, reports, computers, procedures and resources for compiling financial transactions) Users of accounting information are o Business managers: use accounting info to set goals, develop plans, set budgets and evaluate future prospects o Employees and unions: use accounting info to get paid and plan for a and receive benefits o Investors and creditors: use accounting info to estimate returns to stockholders and to determine a companys growth prospects o Tax authorities: use accounting info to plan for tax inflows and to determine tax liabilities o Government regulatory agencies: rely on accounting info to fulfill their duties (i.e. govt regulation makes sure that firms file accurate financial disclosure for investors, etc) Controller: the individual who manages all the firms accounting activities (is the head of the AIS) o Controllers activities require both the field of financial and managerial accounting Financial accounting system: is concerned with external users of information such as consumer groups, unions, shareholders, and govt agencies and they are kept informed about the financial condition of a firm (all of the information focus on the activity of the company as a whole, rather than on individual departments or divisions) o Financial accountants must conform to standard reporting formats and procedures imposed by both accounting profession and govt regulatory agencies o The information is mostly historical, that is, it shows the financial transactions that have occurred during past accounting periods Managerial (or management) accounting: serves internal users and it alerts managers to problems and aid them in planning and decision making o Managers at all levels need info to make decisions for their departments, to monitor current projects and to plan for future activities o Engineers need to know costs for materials and production o Purchasing agents use the info on material costs to negotiate terms with suppliers o Managerial accounting focuses on companys individual units, departments, divisions, etc o The information is used as projections and forecasts and they are forward-looking, rather than historical in nature Chartered accountant (CA): to achieve this designation, you must earn a university degree, complete an educational program and pass a national exam. About half of all CAs work in CA firms that offer accounting services to the public and the other half work in govt or industry o CAs focus on external financial reporting, that is, certifying for various interested parties (shareholders, lenders, etc) that the financial records of a company accurately reflect the true financial condition of the firm Certified general accountant (CGA): to achieve this designation, you must complete an education program and pass a national exam. Most CGAs work in private companies but few work in CGA firms or even CA firms o CGAs also focus on external financial reporting and emphasize the use of computer as a management accounting tool o Formerly, CGAs were not allowed to audit financial statements of publicly held companies, but this is rapidly changing and now in most cases, they can do it Certified management accountant (CMA): to achieve this designation, you must have a university degree, pass a 2 part national entrance examination and complete a strategic leadership program whiling gaining practical experience in a management accounting environment o CMAs work in organizations of all sizes and focus on applying best management practices in all the operations of a business o CMAs bring a strong market-focus to strategic management and resource deployment o CMAs emphasize the role of accountants in the planning and overall strategy of the firm in which they work Audit: an accountants examination of a companys financial records to determine whether it used proper procedures to prepare its financial reports o Companies normally must provide audited financial reports when applying for loans or when selling stock and auditors must be able t o detect errors or possible fraud o CAs and CGAs perform this service Forensic accountant: an accountant who tacks down hidden funds in business firms, usually as part of a criminal investigation Generally accepted accounting principles (GAAP): standard rules and methods used by accountants in preparing financial reports (procedure developed and monitored by the CICA, Canadian Institute of Charted Accountants) o Auditor must ensure that the clients accounting system adheres to GAAP o By 2011, Canadian companies will adopt the International Financial Reporting Standards Accountants can help with tax services, including preparing tax returns and tax planning because tax laws are complex o CAs advice can help a business structure its operations and investments and save lots of money in taxes o CAs and CGAs perform this service Management consulting services: specialized accounting services to help managers resolve a variety of problems in finance, production scheduling and other are
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