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Accounting
Theory - Conceptual Issues in
a Political and
Economic Environment
Rationale
Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.[1] The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.
Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. Management accounting provides accounting information to help managers make decisions to manage the business.
In short, Financial Accounting is the process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benefit of people outside the organization.
Financial accountancy is governed by both local and international accounting standards.
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Learning Objectives and Outcomes
This is a non-taught unit designed for self-directed study by those intending to enhance their professional or managerial competence, knowledge, understanding, and skills in business finance.
Knowledge
After completing the course, students will understand
1. the principles of accounting theory and accounting research
2. financial reporting regulations
3. the FASB's conceptual framework
4. usefulness of accounting information to investors and creditors
5. principles based accounting standards
6. the financial statements
7. the concepts of accounting for inflation and changing prices
8. intercorporate equity investments
9. issues in international accounting
Skills
After completing the course, students will be able to
1. prepare returns for income taxes and reports financial accounting
2. advice on pensions and other postretirement benefits issues
3. advice on fixed and equity related issues
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Teaching and Learning Resources
Introduction
- An Introduction to Accounting Theory
- Accounting Theory and Accounting Research
- Development of the Institutional Structure of Financial Accounting
In finance and economics, an Accounting Identity is an equality that must be true regardless of the value of its variables, or a statement that by definition (or construction) must be true.The term is also used in economics to refer to equalities that are by definition or construction true, such as the balance of payments. Where an accounting identity applies, any deviation from the identity signifies an error in formulation, calculation or measurement.
The term accounting identity may be used to distinguish between propositions that are theories (which may or may not be true, or relationships that may or may not always hold) and statements that are by definition true. Despite the fact that the statements are by definition true, the underlying figures as measured or estimated may not add up due to measurement error, particularly for certain identities in macroeconomics.[4]
- Accounting, Balance sheet, Du Pont Identity
- Balance of payments, National income and product accounts
- References
What Exactly Is The Financial Accounting Theory?
Accounting is the basis on whether companies will make it in the business world or not. The accounting of a business is the way to record all of the financial transactions that are in the business so that there can be control over the comings and goings of the money. It is a means to record the types of profit that has been achieved along with the loss of the business. Without accounting, businesses have no stability. There are several types of financial accounting – normative theory processes that can be used by businesses which depends on the size of the business, the control that is needed, and the sophistication.
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This financial accounting – normative theory is basically just a theory that is chosen for the business on how the accounting process should be done within that business. Normative theories are theories that are based on true income. They work on a measurement system and are very prescriptive. There are so many different forms of accounting and most of these forms are used within every business that there is just at different levels. The theories of accounting have been put into three main categories which include the normative or prescriptive theory, inductive theory, and predictive theory.
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Frameworks and Concepts
Tutorials
- The Economics of Financial Reporting Regulation
- Postulates, Principles, and Concepts
- The Search for Objectives
- The FASB's Conceptual Framework
Readings
Financial accountants produce financial statements based on Generally Accepted Accounting Principles of a respective country. In particular cases financial statements must be prepared according to the International Financial Reporting Standards.
Financial accounting serves following purposes: 1. producing general purpose financial statements 2. provision of information used by management of a business entity for decision making, planning and performance evaluation 3. for meeting regulatory requirements
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The accounting equation (Assets = Liabilities + Owners' Equity) and financial statements are the main topics of financial accounting.
The trial balance which is usually prepared using the Double-entry accounting system forms the basis for preparing the financial statements. All the figures in the trial balance are rearranged to prepare a profit & loss statement and balance sheet. There are certain accounting standards that determine the format for these accounts (SSAP, FRS, IFS). The financial statements will display the income and expenditure for the company and a summary of the assets, liabilities, and shareholders or owners’ equity of the company on the date the accounts were prepared to...
Assets, Expenses, and Withdrawals have normal debit balances (when you debit these types of accounts you add to them), remember the word AWED which represents the first letter of each type of account.
Liabilities, Revenues, and Capital have normal credit balances (when you credit these you add to them).
The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles (GAAP) within the United States in the public's interest. The Securities and Exchange Commission (SEC) designated the FASB as the organization responsible for setting accounting standards for public companies in the U.S. It was created in 1973, replacing the Committee on Accounting Procedure (CAP) and the Accounting Principles Board (APB) of the American Institute of Certified Public Accountants (AICPA).
The National Association of Insurance Commissioners (NAIC) is an Internal Revenue Code Section 501(c)(3) non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. The NAIC was formed in 1871. Its current president is West Virginia Insurance Commissioner Jane Cline. [1]
The NAIC acts as a forum for the creation of model laws and regulations. Each state decides whether to pass each NAIC model law or regulation, and each state may make changes in the enactment process, but the models are widely, albeit somewhat irregularly, adopted. The NAIC also acts at the national level to advance laws and policies supported by state insurance regulators. The NAIC also is responsible for creating the statutory accounting principles (SAP) upon which insurance accounting is based. SAP is often contrasted with Generally Accepted Accounting Principles (GAAP) and is notable for its very conservative valuation methods. Additionally the NAIC promulgates the NAIC annual statement which incorporates SAP and must be filed with the department of insurance in every state in which an insurance company writes business.
The NAIC is not a regulator; while its members are the insurance commissioners (i.e., the chief insurance regulators) of each state and territory, the NAIC is a non-governmental organization that concerns itself with insurance regulatory matters but does not actually regulate. The states have not delegated their regulatory authority to the NAIC.
Although the NAIC's mandate is to benefit state regulators and insurance consumers by promoting uniform laws and regulations, by promoting uniformity of regulation among the states, it also makes it easier for insurance companies to comply with the laws and regulations in all states in which they do business.
Its central office is in Kansas City, Missouri where it is in the Crown Center complex but in 2010 announced plans to move to the Town Pavilion.[2] Its executive offices are in Washington, DC.[3]
See also
External links
- NAIC Official Website
- NAIC's Research Quarterly, free full-text for 1995-2005 of discontinued publication.
Newly compliant NAIC Model Regulation non public insurance companies can glean information about material weaknesses in internal controls over financial reporting by analyzing the results of publicly held insurance companies. The following is a summary of ALL of the adverse 404 reports that were issued from companies in the Insurance industry with years ended in 2004 through 2008. These were all publicly held insurance companies reporting material weaknesses in internal controls over financial reporting. The management assessments were gathered using the online research tool called Audit Analytics, an Ives Group, Inc company. Since SOX assesses internal controls over financial reporting similar to AFRMR, this data represents likely deficiencies to be found with companies undertaking AFRMR.
The following table is a summary of the material internal control weaknesses and the accounting weaknesses reported in the ten adverse SOX Section 404 Self Assessments.
The following illustrates the departures from GAAP
Accounting Information
Tutorials
- Usefulness of Accounting Information to Investors and Creditors
- Uniformity and Disclosure: Some Policy-Making Directions
Readings
An accounting information system (AIS) is a system that first collects and stores data and then processes it into information used by decision makers (investors, creditors, and managers). This information generated from an AIS can ultimately help decision makers manage organizations more efficiently and strategically. Though an accounting information system can simply be a paper-and-pencil-based manual accounting system, today, the term AIS is most commonly referred to as a complex computer-based system combining the resources and capability of information technology with traditional accounting methods and controls.[1]
Accounting information systems are composed of six main components:[2]
- People: users who operate on the systems
- Procedures and instructions: processes involved in collecting, managing and storing the data
- Data: data that is related to the organization and its business processes
- Software: application that processes the data
- Information technology infrastructure: actual physical devices and systems allowing the AIS to operate and perform its functions
- Internal controls and security measures: what is implemented to safeguard the data
- History
- Software architecture of a modern AIS
- Advantages and implications of AIS
- How to effectively implement AIS
External links
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Accounting Information for Decisions, 3e Ingram,
Robert W. Albright,
Thomas L. Baldwin,
Bruce A. Hill,
John Check
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Financial Statements
Tutorials
Readings
Inflation, Income Tax, Pensions and Leases
Tutorials
- Accounting for Inflation and Changing Prices
- Income Taxes and Financial Accounting
- Pensions and Other Postretirement Benefits
- Leases
Readings
Intercorporate and International Issues
Readings
Recommended Texts
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Accounting
Theory - Conceptual Issues in a Political and Economic
Environment
Check the availability and buy your books from our Bookshop. |
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Modern
Advanced Accounting in Canada,
4/e
Murray
W. Hilton, University of Manitoba ISBN:
0070930376
Check the availability and buy your books from our Bookshop. |
Resources
- Introduction to Financial Management
- Valuation
- Tools of Financial Planning and Analysis
- Working Capital Management
- Investment in Capital Assets
- The Cost of Capital, Capital Structure and Dividend Policy
- Intermediate and Long-term Financing
- Special Areas of Financial Management
- Glossary
- Oil and Gas Accounting