After completing this chapter, you should be able to:
1. Definition of accounting.
2. Purposes of accounting, users of accounting information,
fields of accounting, accounting professional bodies,
ethics and regulations
3. Types of business
4. Characteristics of qualitative accounting information
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Objective 1
Explain what accounting is.
Accounting
an information system that provides reports to stakeholders about
the economic activities and condition of a business.
“….it is a process”
• Identifying
• Recording
• Communicating
2
What is Accounting?
is a
Accounting
system that
Identifies
Records
information
Relevant
that is
Communicates
Reliable
Comparable
to help users make
better decisions.
Objective 2
Purposes of accounting, fields of accounting, accounting professional
bodies, ethics and regulations
The stakeholder.
is a person or entity having an
interest in the economic
performance and well-being
of a business.
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Financial accounting is primarily concerned
with the recording and reporting of economic
data and activities for a business.
Managerial accounting uses both financial
accounting and estimated data to aid
management in running day-to-day
operations and in planning future operations.
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Financial versus Managerial
Financial Accounting
Managerial Accounting
• Format – has to follow
established standards of
reporting format
• Management – intended
users are the management
of the entity
• Foreign – the information
(report) is meant for
‘foreign’ users e.g LHDN, SC,
Banks
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Types of Accountants
Private Accountants
Public Accountants
• Accountants employed by a
business firm or a not-forprofit organization
• Accountants and their staff
who provide services on a
fee basis
e.g. Big 4, medium and small
size accounting firms.
Delloitte
Ernst & Young
PricewaterhouseCoopers
KPMG
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Malaysian Institute of
Accountants (MIA)
Malaysian Institute of
Certified Public
Accountants (MICPA)
Accounting
Professional
bodies in
Malaysia
Malaysian Accounting
Standards Board
(MASB)
Financial Reporting
Foundation (FRF)
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Ethics?
….. are the moral principles that
guide the conduct of individuals.
• right or wrong
• acceptable or not
• standards of good or bad behaviour
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Why?
•
our actions are watched and judged
as right or wrong, honest or
dishonest, and fair or bias.
•
it has impact on society and others.
•
communicate credible economic
information activities.
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Objective 3
Describe the types of business
and forms of business
organization
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Types of Businesses
Service Business
Service
Les Copaque
Malaysia Airlines System (MAS)
Maybank Corporation
Seri Malaysia
PWC
Entertainment
Transportation
Financial services
Hospitality and lodging
Auditing
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Types of Businesses
Merchandising Business
Product
Giant
Amazon.com
Toy ‘R’ Us
Pensonic
Cheetah
General merchandise
Internet books, music, video
Toys
Consumer electronics
Apparel
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Types of Businesses
Manufacturing Business
Product
General Motors Corporation
Nokia
Acer
Adidas
F & N Company
Samsung
Cars, trucks, vans
Cell phones
Personal computers
Athletic shoes and apparel
Beverages
Stereos and televisions
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Common Forms of Business
Organizations
 Proprietorship
 Partnership
 Corporation
 Limited liability company
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Proprietorship
 owned by one individual,
 more than 70% of business organizations in
Malaysia are organized by proprietorships,
 easy and low cost of organizing,
 financial resources are limited to the owner’s
resources, and
 commonly used by small businesses such as
hardware stores, laundries, restaurants, and grocery
shop.
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Partnership
 owned by two or more individuals
 about 10% of business organizations in Malaysia
are organized by partnerships,
 combine the skills and resources of more than one
person, and
 like proprietorships, small local businesses such
as automotive repair shops, music stores, beauty
salons, and clothing stores may be organized as
partnerships.
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Corporation
 organized under state or federal statutes as a separate
legal taxable entity
 generates 90% of the total dollars of business receipts
received.
 comprises only 20% of the business organizations in
Malaysia.
 ownership is divided into shares of stock, sold to
shareholders (stockholders)
 able to obtain large amount of resources by issuing
stock.
 is used only by large businesses.
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Limited liability company (LLC)
 combines attributes of a partnership and a
corporation in that it is organized as a corporation.
 can elect to be taxed as a partnership
 a popular alternative to a partnership
 has tax and liability advantages to the owners.
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The process by which accounting provides
information to business stakeholders is as follows:
 Identify stakeholders.
 Assess stakeholders’ information needs.
 Design the accounting information system to meet
stakeholders’ needs.
 Record economic data about business activities and events.
 Prepare accounting reports for stakeholders.
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Relevance
Understandability
Qualitative
Characteristics
of Accounting
Information
Reliability
Comparability
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Understandability…
The information must be readily
understandable to users of the financial
statements. This means that information
must be clearly presented, with additional
information supplied in the supporting
footnotes as needed to assist in clarification.
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Relevance…
The information must be relevant to the needs
of the users, which is the case when the
information influences the economic decisions
of users. This may involve reporting particularly
relevant information, or information whose
omission or misstatement could influence the
economic decisions of users.
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Reliability…
The information must be free of material
error and bias, and not misleading. Thus, the
information should faithfully represent
transactions and other events, reflect the
underlying substance of events, and
prudently represent estimates and
uncertainties through proper disclosure.
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Comparability…
The information must be comparable to the
financial information presented for other
accounting periods, so that users can identify
trends in the performance and financial
position of the reporting entity.
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Who uses the accounting information?
Internal users
 eg. marketing managers, production supervisors,
finance directors, and company officers.
 they need detailed information like financial
comparison of operating alternatives, projection of
income from new sales, and forecasts of cash needs
for the coming year on a timely basis in running the
business.
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Who uses the accounting information?
External users
 Investors – to make decisions whether to buy, hold, or sell their share
in the company.
 Tax authority – check for company’s tax compliance. E.g. LHDN
 Security Commission (SC) – to make sure that company is operating
within the prescribed rules.
 Customers – observe whether company continues to maintain product
quality and warranty and then decide whether to continue supporting
its products.
 Labour union – want to know whether company can afford to give pay
raises or benefits.
 Economic planners – to forecast economic activities.
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