Chapter 1 Financial and Managerial Accounting

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

Responsibilities

identifying, analyzing, and managing those risks that pose a threat to the achievement of the organization's objectives.

Risk Assessment

A member in public practice should observe the principles of the code of professional conduct in determining the scope and nature of services to be provided.

Scope and nature of services

Government agency responsible for financial reporting by publicly held companies.

Securities and Exchange Commission

What is the IASB (International Accounting Standards Board)?

Sets the standards for all international accounting entities

What is the AICPA (American Institute of Certified Public Accountants)

The entity that maintains jurisdiction over private company reporting

What is management accounting?

The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.

The public interest

What is the SEC (Securities and Exchange Commission)?

This is an independent Federal Government agency responsible for protecting investors, maintaining fair and orderly functioning of securities markets, and facilitating capital formation.

What are the three components of accounting as an information system?

Users- investors, customers, and owners Financial Information Provided- Profitability, Financial Position, and cash flows Decisions Supported- stock investments, tax strategies, and borrowing

What is an income statement?

a report of net income and expenses to be over a certain period of time

What is a balance sheet?

a statement of the financial condition of a business on a specific date.

what are the five components of internal control?

1) control environment 2) risk assessment 3) control activities 4) information and communication 5) monitoring

Policies and procedures put in place by management to address the risks identified during the risk assessment process.

Control Activities

The foundation for all the other elements of internal control, setting the overall tone for the organization.

Control environment

A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of service, and discharge professional responsibility to the best of the member's ability.

Due care

Private-sector organization that establishes accounting standards.

Financial Accounting Standards Board

The area of accounting that refers to providing information to support external investment and credit decisions.

Financial accounting

What is financial accounting?

Financial information and analyses are generated for people primarily outside the organization.

A broad term that describes all information provided to external users, including but not limited to financial statements.

Financial reporting

Statement of financial position (balance sheet), income statement, statement of cash flows.

Financial statements

The fact that the same information is provided to various external users, including investors and creditors.

General-purpose information

What is IIA(Institute of Internal Auditors)

Helps train internal auditors

The process of capturing and communicating operational, financial, and compliance-related information.

Information and communicationselected answer correct

What is tax accounting?

Information that must conform with the income tax reporting requirements

International organization dedicated to the advancement of internal auditing.

Institute of Internal Auditors

Organization dedicated to providing members personal and professional development opportunities in the area of management accounting.

Institute of Management Accountants

An important quality of accounting information that allows investors, creditors, management, and other users to rely on the information

Integrity

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

Integrity

Procedures and processes within an organization that ensure the integrity of accounting information.

Internal control

The group that creates and promotes International Financial Reporting Standards (IFRS).

International Accounting Standards Board

What are the basic functions of an Accounting System?

Interpret and record the effects of conducting business transactions Classifying the effects of these reports Communicate information to the decision makers

The area of accounting that refers to providing information to support internal management decisions.

Management accounting

A process, involving both ongoing activities and separate evaluations, that enables an organization to evaluate the effectiveness of its system of internal control over time.

Monitoring activities

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

Objectivity and independence

Name some external users of accounting?

Owners, Creditors, Labor Unions, Governmental Agencies, Suppliers, Customers, Trade Associations, and the general Public

What are the objectives of External Financial Reporting?

Provide general info helpful for making investments and credit decisions> Provide info useful in assessing the amount, timing and uncertainty of future cash flows> provide specific info about economic resources, claims to resources, and changes in resources and claims

The body charged with setting auditing standards for audits of public companies.

Public Company Accounting Oversight Board

The segment of the accounting profession that relates to providing audit, tax, and consulting services to clients.

Public accounting

What are the four main categories of careers in accounting

Public accounting Management accounting Governmental accounting Accounting education

What is a CPA

certified public accountant

What are downstream and upstream in accounting?

downstream- from management to employees upstream- from employees to management

What is GAAP (Generally Accepted Accounting Principles)?

gives the general rules for what should be in a financial statement

What is risk assessment?

identifying, analyzing, and managing risks that pose threats to the organizational goals of the business

What is bookkeeping?

recording of accounting transactions

What is the statement of cash flows?

reports inflows and outflows of cash during the accounting period in the categories of operating, investing, and financing

What is PCAOB (Public Company Accounting Oversight Board)

the board that oversees public accounting by the Sarbanes-Oxley Act of 2002 and sets the auditing standards for public trading companies

What is the purpose of control activities?

to address the risks to the business and try to prevent them

What is the purpose of accounting?

to develop and communicate information

What is the primary objective of accounting?

to provide information that is useful for decision-making, and therefore maximizing prosperity and welfare. It is the language of business

What is a CMA

Certified Management Accountant

What is COSO (Committee of Sponsoring Organizations of the Treadway Commission)?

A committee that developed the standards for evaluation internal control

Organization consisting primarily of accounting educators that encourages improvements in teaching and research.

American Accounting Association

Professional association of Certified Public Accountants.

American Institute of CPAs

What is the IMA(Institute of Management Accountants)

An institute that a focuses on good ethics and practices for management and financial accounting

the procedural aspect of accounting that involves keeping detailed records of business transactions, much of which is done today by computers.

Bookkeeping

What is a CIA

Certified Internal Auditor

What is AAA(American Accounting Association)

an association that focuses on improving the quality of accounting education

What is an audit?

an examination of a company's financial records to see if they are accurate

What is the FASB (Financial Accounting Standards Board)?

an independent rule making body that is the most authoritative source of the GAAP

What is the AICPA(American Institute of CPAs)

an institute that provides CPA's with the most relevant knowledge and conducts research