Intro to accountig

• Accounting is a system for recording information about business transactions to provide summary statements of a company‘s financial position and performance to users who require such information
• there are 2 summary statements
• The 2 main sets of books:

  financial accounting

  managerial accounting
• financial accounting:

  standardised reports for external users
• managerial accounting:

  customised reports for internal users
• the users of external financial statements are:

  • investors
  • creditors
• what questions might investors ask that financial statements answer?

  • is X company earning satisfactory income?
  • How does X company compare in size and profitability with y company?
• what questions might creditors ask that financial statements answer?


  will x company be able to pay its debts when they come due?
• Who are the users of internal financial statements ?

  • marketing department
  • management department
  • HR department
• what questions might marketing ask that financial statements might answer?

  • which X produce line is most profitable
  • should any product line be eliminated
• what questions might HR ask that financial statements answer?


  • can X company afford to give its employees a raise this year?
• what are the nature of the reports produced in financial reporting?

  • general purpose reports containing information that will be useful for a range of users
• what is the level of detail in financial accounting ?

  reports provide users with a broad overview of the position and performance of an entity for the period
• what are the nature of the reports produced in management accounting?

  specific purpose reports designed either with a particular decisions or a particular manager in mind
• what is the level of the detail in management accounting?

  reports provide considerable detail to managers to help them with particular operating decisions
• what are the existence of regulations for financial accounting?


  subject to accounting regulations GAAP / IFRS
• what are the existence of regulations for management accounting?

  • no external regulation determining their form and content as reports are for internal use
• what reporting interval is present in financial accounting?

  annually, semi annually, quarterly, according to the regulatory requirements and entity’s discretion
• what reporting interval is present in management accounting?


  as frequently as required by mangers (monthly or weekly)
• what is the time orientation for financial accounting?

  mainly provide information about the performance and position of the entity for the past period.
• what is the time orientation for management accounting?

  reports provide information about future as well as past performances
• what is the range and quality of information in financial accounting?

  focuses on information that can be quantified in monetary terms
• what is the range and quality of information in management accounting?

  financial and non financial information
• how can accounting help users make better economic decsiions?

  • it holds a dual role
  • financial statements have :
  • stewardship: confirm past performance
  • predictive: predicting the future
• who sets the accounting rules?

  GAAP

  FRC

  AAS

  IASB
• a conceptual framework ties rules and regulations together
• CSR is corporate social responsibility concerned with issues relating to a company’s social environment and governance related issues.
• how were accounting rules set in pre Jan 2005?

  external accounting rules would be set by the ASB some would come from company law and some would come from stock exchange rules imposed by the FSA
• ASB: accounting standards board
• how were accounting rules set after January 2005?


  after January 2005:

  • European committee decision :
  • all EU listed companies should use IASs/ IFRSs from the year ending 31st dec 2005
  • IASs & IFRSs are issued by international accounting standards board
  • Other not listed UK companies can follow either international standards or GAAP
• how do companies stay in accordance with the GRI?

  they must report against the following indicators:

  • direct economic impacts
  • environmental impacts
  • labour practices & decent work
  • society
  • product responsibility
• an integrated report concisely communicates how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short medium and long term
• Post Brexit, how have accounting standards changed in the UK?

  After 31 dec 2020, UK firms had to prepare UK adopted international accounting standards

  no change for UK incorporated companies that use UK GAAP.
• people responsible for financial reporting:

  • management
  • audit committee
  • external auditor
  • FRC
• the management’s role in financial reporting:

  • creation of financial reports
• the audit committee’s role in financial reporting:

  • hired by senior management / board
  • oversee the managements process
• what is the external auditors comittees role in financial reporting ?

  express opinion on whether reports present a true and fair view of the company and are prepared in accordance to IFRS
• what is the FRC’s role in financial reporting?

  oversight body
• GRI: Global reporting initiative
• UK GAAP: generally accepted accounting practice