Chapter 1 accounting

Financial reporting

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

Sarbanes-oxley Act

A landmark piece of securities law, designed to improve the effectiveness of corporate financial reporting through enhanced accountability of auditors, audit committees, and management.

Scope and nature of services

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

Objectivity and independence

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

Due care

A member should observe the professionals 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.

Committee of sponsoring organizations of the Treadway commission (COSO)

A voluntary private sector organization dedicated to improving the quality of financial reporting through enterprise risk management, effective internal control, and fraud deterrence

Control activities

All the policies and procedures that management puts in place to address the risks identified during the risk assessment process Ex.approvals, authorization, verifications, reconciliations, reviews of operating performance, physical safeguarding of assets, and segregation of duties

Accounting system

Consists of personal, procedures, technology, and records used by an organization (1) to develop accounting information and (2) to communicate this information to decision-makers

Financial position

Describes an entity's financial resources and obligations at a point in time

Results of operations

Describes its financial activities during the year

Monitoring activities

Enabled the company to evaluate defectiveness of its system of internal control over time

Interim financial statement

Financial statements prepared for periods of time shorter than one year for example, for three months one month.

General-purpose information

If we were to treat each potential group of external uses separately and prepare different information for each group. This approach is impractical, however, and we instead opt for preparing what is referred to as general purpose information that we believe is useful to multiple user groups that is "one size fits all"

Responsibilities

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

Corporate governance

Includes the Corporate structures and processes for overseeing a companies Afairs, for example, the Board of Directors and the company's internal control processes.

External users

Individuals and other enterprises that have a financial interest in the reporting enterprise but that are not involved in the day-to-day operations of the enterprise (example owners, creditors, labor unions, supplies, customors)

Institute of internal auditors

International organization dedicated to the advancement of internal auditing

Information and communication

Involves developing information systems to capture and communicate operational, financial, and compliance related information necessary to run the business.

Risk assessment

Involves identifying, analyzing, and managing those risks that pose a threat to the achievement of the organizations objectives.

Management accounting (managerial accounting)

Involves the development and interpretation of accounting information intended specifically to assist management and operating the business -The area of accounting that refers to providing information to support internal management decisions.

Securities and exchange commission (SEC)

Is a governmental agency with the legal power to establish accounting principles and financial reporting requirements for publicly owned corporations. -Government agency responsible for financial reporting by publicly held companies

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 its operations in an efficient and effective manner. -procedures and processes within an organization that ensure the integrity of accounting information

American Institute of CPAs (AICPA)

Is a professional association of certified public accountant's. It's mission is to provide members with the resources, information, and leadership to enable them to provide valuable services in the highest professional manner to benefit the public, employers, and clients

Public Company accounting oversight Board (PCAOB)

Is a quasi-governmental body charged with oversight of the public accounting profession. The board was created as a result of the sarbanes oxley act of 2002 -The body charged with setting auditing standards for audits of public companies

Income statement

Is an activity statement that shows details and results of the company's profit related activities for a PERIOD OF TIME for example, a month, quarter which is three months, or a yeat.

Statement of cash flow

Is an activity statement that shows the details of the companys activities involving cash during a PERIOD OF TIME.

Financial accounting standards Board (FASB)

Is an independent rulemaking body, consisting of seven members from the accounting profession, industry, financial statement uses, and accounting education -private sector Organization that establishes accounting standards

Audit

Is an investigation of the company's financial statements designed to determine the fairness of the statements

Financial statement

Is simply a monetary declaration of what is believed to be true about an enterprise -statement of financial position( balance sheet), income statement, statement of Cash flows.

Bookkeeping

Is the clerical side of accounting the recording of routine transactions and day today record keeping.

Control environment

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

The public interest

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

American accounting association (AAA)

Membership in the American accounting association is made up primarily of accounting educators, although many are practicing at cartons of members as well. The mission of the AAA is advancing accounting education and research, as well as influencing accounting practice. -Organization consisting primarily of accounting educators that encourages improvements in teaching and research.

Financial accounting

Refers to information describing the financial resources, obligations, and activities of an economic entity ( either an organization or an individual ). -The area of accounting that refers to providing information to support external investment and credit decisions

Integrity

Refers to the following qualities: complete unbroken, unimpaired, sound, honest, and sincere -to maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity An important quality of accounting information that allows investors, creditors, management, and other uses to rely on the information

Balance sheet

Statement of financial position, is a position statement that shows where the company stands in financial Terms at a SPECIFIC DATE

Internal Revenue Service (IRS)

The IRS handles the millions of income tax returns filed annually by individuals and business organizations and frequently performs auditing functions to verify data contained in these returns.

General-purpose assumption

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

Government accountability office (GAO)

The federal government agency that audits many other agencies of the federal government and other organizations that do business with the federal government and reports it's findings to Congress

Cash flow prospects

The likelihood that an enterprise will be able to provide an investor with both a return on the investmentor's investment and the return of that investment.

Institute of management accountants (IMA)

The mission Is to provide a forum for research, practice development, education, knowledge sharing, and the advocacy of the highest ethical and best business practices in management accounting and finance. -Organization dedicated to providing members personal and professional development oppertubities in the area of management accounting.

Tax accounting

The preparation of income tax returns is a specialized field with in accounting -although Tax information is important for a company successful operations and is related to financial management accounting information, it results from a different system and compiles with specialized legal requirements that relate to a company's responsibility to pay an appropriate amount of tax

Return OF your investment

The repayment to an investor of the amount originally invested in another enterprise. return to you at some future date of amount you had invested or loaned

Public accounting

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

Certified public accountant's (CPAs)

These auditors are experts in the field of financial reporting and are independent of the company issuing the financial statements. CPAs are licensed by the state's, in much the same manner as states license physicians and attorneys.

Certified management accountant (CMA) or citified internal auditor (CIA)

These certifications are issued by the IMA in the IRA, and signify competence in management accounting and internal auditing, respectively. -A professional designation issued by the Institute of internal auditors signifying expertise in internal auditing

Generally accepted accounting principles (GAAP)

These principles provide the general framework for determining what information is included in financial statements and how this information is to be prepared and presented

Return ON your investment

When you would expect the company to pay you something for the use of your funds, either as an owner or a creditor. -The payment of an amount (interest, dividends) for using another's money

Institute of internal auditors (IIA)

With more than 175,000 members and over hundred countries dedicated to the promotion and development of the practice of internal auditing.

International accounting standards Board (IASB)

as a result of increasing cross-border activities, efforts are underway to harmonize accounting standards around the world. IASP is playing a leading role in the harmonization process -A group that creates and promotes international financial reporting standards (IFRSs)