ACC- 1.1 Identify the forms of business organization and the uses of accounting information.

Sarbanes-Oxley Act (SOX)

Congress passed the Sarbanes-Oxley Act (SOX) to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals. As a result of SOX, top management must now certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Also, SOX increased both the independence of the outside auditors who review the accuracy of corporate financial statements and the oversight role of boards of directors.

Creditors: external users of accounting information

such as suppliers and bankers use accounting information to evaluate the risks of selling on credit or lending money.

taxing authorities: external users of accounting information

such as the Internal Revenue Service (IRS), want to know whether the company complies with the tax laws

Regulatory Agencies: external users of accounting information

such as the Securities and Exchange Commission or the Federal Trade Commission, want to know whether the company is operating within prescribed rules.

Corporation

• A business organized as a separate legal entity owned by stockholders • easy to transfer ownership (sell your stocks) • easy to raise funds • no personal liability. If cooperation is sued only Corp assists are exposed • taxes: higher tax rate, file separate tax returns

Sole Proprietorship

•A business owned by one person • simple to establish • owner controlled • tax advantages: file your proprotiership, usually schedule C, with personal income tax return, don't have to file two • disadvantages: if sued money taken from assets of business and personal to pay off debt.

external users of accounting information

- Investors (owners) use accounting information to make decisions to buy, hold, or sell stock. -Creditors such as suppliers and bankers use accounting information to evaluate the risks of selling on credit or lending money. -Taxing authorities, such as the Internal Revenue Service, want to know whether the company complies with the tax laws. -Customers are interested in whether a company will continue to honor product warranties and otherwise support its product lines. -Labor unions want to know whether the owners have the ability to pay increased wages and benefits. -Regulatory agencies want to know whether the company is operating within prescribed rules.

Internal users of accounting information

- managers who plan, organize, and run a business. - marketing managers, production supervisors, finance directors, and company officers. -Account provides internal reports, such as financial comparisons of operating alternatives, projections of income from new sales campaigns, and forecasts of cash needs for the next year. -companies present summarized financial information in the form of financial statements.

solving an ethical problem

1. Recognize an ethical situation and the ethical issues involved. 2. Identify and analyze the principal elements in the situation. 3. Identify alternatives, and weigh the impact of each alternative on various stakeholders.

Investors (owners): external users of accounting information

Use accounting information to make decisions to buy, hold, or sell stock.

Labor Unions: external users of accounting information

want to know whether the owners have the ability to pay increased wages and benefits

Partnership

• A business owned by two or more persons associated as partners. • simple to establish • shared control • broader skills and resources • tax advantages: your earnings into individual 1040 tax returns. •disadvantages: if sued money taken from assets of business and personal to pay off debt.

Assets

Resources owned by a business.

Stockholders

Shareholders

Accounting

The information system that identifies, records, and communicates the economic events of an organization to interested users.

Customers: external users of accounting information

interested in whether a company will continue to honor product warranties and otherwise support its product lines

Stakeholders

Persons or groups who may be harmed or benefited