Accounting Discussion Questions

The three primary financial statements that are the means of communicating financial accounting information are:

1. Statement of financial position (balance sheet)—A statement that shows where the company stands at a point in time. 2. Income statement—A statement that details the results of the company's profit-seeking activities during a period of time. 3. Statement of cash flows—A statement that presents details of the company's cash balance—how it increased, how it decreased, and how the ending balance compares with the beginning balance—for a period of time.

Accounting (language of business)

Accounting is a way of communicating the results of business activity and, therefore, is sometimes described as the language of business. Among the important accounting measurements that communicate business activity and justify describing accounting as the language of business are costs, prices, sales volume, profits, and return on investment.

What is an audit and how does it add to the integrity of accounting information?

An audit is an examination of a company's financial information, including financial statements, by an independent expert (e.g., a Certified Public Accountant) who, in turn, renders an opinion that indicates the findings of that examination. It adds assurance for investors, creditors, and other users that the information provided by the company is accurate and reliable, and that the information is in accordance with generally accepted accounting principles.

What is meant by the professional designations CPA, CMA, and CIA and how do these designations add to the integrity of accounting information?

An audit is an examination of a company's financial information, including financial statements, by an independent expert (e.g., a Certified Public Accountant) who, in turn, renders an opinion that indicates the findings of that examination. It adds assurance for investors, creditors, and other users that the information provided by the company is accurate and reliable, and that the information is in accordance with generally accepted accounting principles.

Generally accepted accounting principles and how do these priciples add to the integrity of financial accounting information?

Generally accepted accounting principles are agreed-upon ways that economic activity will be captured and reported in monetary terms. They are important in insuring the integrity of financial accounting information and being able to compare the information of one enterprise with that of another enterprise.

Is internal accounting information primarily historical or future-oriented? How does that compare with financial accounting information?

Internal accounting information is primarily oriented toward the future. While some management accounting information is historical, the purpose of management accounting information is to facilitate current and future decision making that is in the best interest of the company and that is consistent with the company's mission. Financial accounting information, while also used for current and future decision making, is generally more historical in nature than is management accounting. Financial accounting information deals primarily with the financial activities of the enterprise during recent past periods.

What is the definition of internal control and what are the five components of COSO's internal control framework

Internal control is a process designed to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts operations in an efficient and effective manner. The five components of internal control per the COSO framework are the control environment, risk assessment, control activities, information and communication, and monitoring activities.

What is the Financial Accounting Standards Board and what is its role in external financial reporting?

The FASB is the primary standard-setting body in the United States that is responsible for establishing generally accepted accounting principles to guide the preparation of financial statements by companies. It works closely with the Securities and Exchange Commission, which is a government body, to develop standards that promote integrity, improve the quality of information reported to external users, and result in financial information that is comparable from one time period to another and from one reporting entity to another.

What is the International Accounting Standard Board and what are its objectives?

The IASB is the organization that creates and promotes International Financial Reporting Standards (IFRS). Its goals are to create a single set of global accounting standards and bring about convergence to those standards. IASB standards are increasingly mandatory throughout the world (e.g., their use is required by companies in the European Union, Australia, and Canada, among other countries), and are acceptable for foreign companies that are cross-listed in the U.S.

What is the Securities and Exchange Commission (SEC) and what is its role in external financial reporting?

The SEC is a government body that has the legal authority to establish generally accepted accounting principles for publicly held companies. Generally, however, the SEC has permitted the process of establishing GAAP to be carried out in the private sector and has accepted the work of the FASB rather than being directly involved in the process of determining GAAP.

Why was the Sarbanes-Oxley legislation passed in 2002? and what are implications for accountants?

The Sarbanes-Oxley Act was passed largely in response to several major financial frauds that occurred in 2001 and 2002. It is generally viewed as the most important legislation affecting the accounting profession since the securities acts were passed in the 1930s. It places increased responsibilities on auditors, boards of directors, audit committees, chief executive officers, and chief financial officers of public corporations to take specific steps to insure the integrity of the company's financial reports.

What is the role of the Public Company Accounting Oversight Board (PCAOB) in the audit of financial accounting?

The primary role of the PCAOB with respect to audits of financial statements is its involvement in establishing auditing standards that are used by the Certified Public Accountants who conduct audits of public companies. The PCAOB also has a number of different roles, including providing oversight of the public accounting profession.

Return on investment vs Return of investment Explain.

The return of your investment is the repayment to you of the amount you invested earlier. The return on your investment is what the company pays you for having the use of your money while it was invested as opposed to you having use of the money while it was invested.

General to specific- 3 primary objectives of accounting:

The three primary objectives of financial reporting, from general to specific, are to provide: 1. Information that is useful in making investment and credit decisions. 2. Information useful in assessing the amount, timing, and uncertainty of future cash flows. 3. Information about economic resources, claims to resources, and changes in resources and claims on them.

Is externally reported financial information always precise and accurate?

While financial information has an appearance of precision, it often requires judgment and estimation and, thus, is less precise than one might think. For example, to determine certain information about a company for a certain year, or at a certain point in time, it may be necessary to make estimates about the future. Those estimates may or may not turn out, in the long term, to be precisely correct. This causes information about the current year to be less precise and accurate than would otherwise be the case.