The Accounting Process

Introduction

• Early 21st century brought many changes to corporations

The Accounting Process

• Accounting entails pinpointing, gauging, and conveying financial data about a business for informed decision-making
• Identification focuses transactions impacting an entity's financial standing needing reliable measurement and documentation
• Measurement includes scrutinizing, documenting, and categorizing business dealings
• Communication involves sharing accounting insights through reports like income statements, financial position statements, and cash flow statements
• Decision-making hinges on accounting information for choices by both internal and external parties
• A business transaction alters an entity's financial status and is reliably measured and documented involving a value exchange between at least two entities
• Typical business transactions includes cash withdrawals, salaries, and earnings
• Measuring information involves scrutinizing, recording, and classifying business transactions
• Contribution of capital by owners directly impacts equity
• Assets, expenses, income, equity, and liabilities get grouped to summarise information
• Communication of pertinent data occurs via accounting reports, notably the statement of profit or loss and the financial position statement
• Accounting aids users in allocating funds and investment decisions

Accounting Information and Decision Making

• Accounting information caters to both internal and external users, also referred to as stakeholders
• Internal users are managers
• External users are entities outside the company who use information for decision-making
• Accounting insight benefits an entity's operations or management
• Stakeholders encompass current and prospective shareholders
• Stakeholders incude eployees (including managers), banks, suppliers, customers/consumers
• Stakeholders include government bodies like the ATO and ASIC
• Accounting helps managers/owners in operations, evaluating success, and weighing alternatives for resource investment
• External stakeholders are employees, shareholders, suppliers, banks, consumers, tax bodies, regulators, and lobby groups
• Current shareholders leverage accounting information to judge how well managers oversee the entity's assets
• Prospective investors seek entity reports to assess investment soundness, considering financial structure
• Suppliers and banks assess the entity's debt repayment ability and lending risk, by reviewing cash flow statements
• Employees prioritize the entity's future prospects, expansion potential, and job security, using CEO and director reports.
• Government bodies like the ATO monitor reported annual profit and GST payments to ascertain tax obligations
• ASIC verifies business compliance with the Corporations Act 2001

Stakeholder Information Matrix

• Shareholders want financial data to evaluate an entity's future profitability, cash flow for dividends, and potential capital growth
• Banks need financial insights to determine whether an entity can repay loans
• Suppliers are looking to gauge an entity's capacity to settle debts from purchases
• Employees focus on insights about job security, bonuses, and potential promotions
• Consumers need continuity information and assess its ability to provide goods and serices
• Authorities require information to ascertain the amount of tax that should be paid including future tax liabilities
• Regulators bodies need confirmation from entities that they are abiding by regulations such as the Corporations Act
• Communities review info about entities that are contributing positively to the welfare and economic growth of the community
• Special interest groups want data that helps determine whether or not the entity has considered environmental social and industrial aspects of the organizations

General Purpose Financial Statements

• Statements aiming for a wide range of user’s common information needs include: the income statement, balance sheet, cash flow statement, and changes in equity statement

Accounting Terminology

• Key terms are assets, liabilities, equity, income, and expense

Financial vs Management Accounting

• Financial accounting readies and presents data for decision-makers
• General Purpose Financial Statements meet info needs common to users that can't order reports
• Special Purpose Financial Statements have a specific target and don't account for common needs
• Generally Accepted Accounting Principles (GAAP) govern data and ensure preparation standards
• Financial accounting also follows the Corporations Act and ASX rules
• Financial accounting relies on historical figures, like land purchases reflected in the financial positions
• Financial statements comprise cash flows, financial position, and profit/loss statements
• Statement of cash flows reports on cash inflos and outflows
• Assets alongside liabilities get reported via financial positions
• Management accounting provides data for internal needs around planning monitoring and decision making
• The core of management accounting is used to help management formulate plans and budgets for the future
• Financial and management are related given internal economic data reflects in accounting for external users
• Diversified businesses should disclose segment data in their statements

Financial Accounting vs Management Accounting

• Financial accounting is Governed by GAAP, represented by accounting standards (AASB and IASB), and the Corporations Act
• Management accounting are Less formal without prescribed rules reports get created for the needs of management
• Financial accounting provides information that is often outdated; statements show a historical picture
• Management accounting has reports that can be past historical records and future plans
• Financial accounting focuses on more generalized quantitative data
• Management accounting has highly tailored data, including qualitative data
• Financial accounting prepares to suit its users
• Management accounting is aimed at the owners and management

Accounting Information in Business Planning

• Accounting helps choose fitting business structures
• Business planning sets clear direction, helping management/staff to reach goals through daily work
• Business plans help evaluate if entity goals are reached
• Accounting in planning has rules on info production and disclosure
• Accounting helps determine if a business is for-profit or non-profit
• Small to Medium Entities (SMEs): Are business entities earning annual revenues of $2 - $10 million
• In Australia more than 98% of entities are SMEs They employ 41% of the workforce
• Larger business entities, like JB Hi-Fi Ltd, are listed on the ASX
• Business plans address intricate tasks
• Accounting informs business plans, especially financial projections, including goals and outcomes

Business Plan Benefits

• Business plans helps management and employees towards defined goals

Business Operations

• Accounting data arms managers/owners with aid for decisions on running, or achieving goals
• Cost-Volume-Profit analysis: Is using understandings between changing sales, volume etc to better understand how a company will operate
• Regular makes invest decisions based on possible returns while meeting cash flow targets

Evaluation of Business Plans

• Accounting data helps management assess the plan while urging reviews
• Evaluations optimize resource use such as staff, equipment, and better coordination plus internal communication

Globalization and Accounting

• Larger entities are increasing in diversity as many smaller entities and SMEs are growing across the board
• The NAB (National Australia Bank) Is showing its segments as Private, Business, New Zealand banking, ETC
• The NAB in 2020 reported profit of $2.6b and assets at $866.6b
• Multinational businesses need more advanced auditing

Digital Disruption and Accounting

• Digital disruption changes existing goods, services, industries, and activities
• Positive or negative changes to the economy may occur through digital disruption
• The Rise of Finetech is occurring through phone technologies, AI, and social media
• Areas of commerce altered are; borrowing, currency exchange, and e-commerce
• AI is one of if not the most important factors in future accountancy
• Data can be made from company reports, or simply ASZ reports
• The Blockchain is a public ledger that distributes entries and doesn't have a controller
• Auditing via overseeing Blockchain is an up and coming profession

Business Sustainability

• Non-financial impacts need new methods to solve, like "Business sustainability"
• Business sustainability considers long-run results of business choices on environments and people
• Economic, environmental, and social (people) Sustainability has Three Pillars
• The typical profits of Return on Capital make up Economic performance All entities need continued adequate return on invested capital
• Environmental performance relates to sustainability in connection to an organizations activities
• Social performance links employee education/wealth with wealth creation by an organization (Elkington, 1998)

Theories of Sustainability

• Corporate Social Responsibility; A Benefit to Profits
• Responsible to all parties, including a general look of society
• English author Elkington introduced Three approaches to sustainability
• Since that point stakeholder audiences have risen in use

Shareholder Value

• Corporations hold stakeholder bodies
• Directors are set to act within the Corporations Act 2001, as well as Companies Act 1993
• Owner acknowledgement occurs through constant contact
• Directors must report to act and make calls for all
• Law requires transparency and disclosure in the event of meetings so shareholders can plan ahead
• Shareholders rely on managers to run their business
• Managers need to provide good stewardship to their organization

Stakeholder, Stewardship, and Legitimacy Theories

• Stakeholder theory's purpose is to do what it can for all parts
• Stewardship theory claims motives are greater than selfish interest
• Legitimacy theories must coincide with the norms of society

Accounting and Reporting/Disclosure for Sustainability

• GPFS, or Generally Accepted Financial Statements, are typically required in all annual releases done by organizations
• The "Environmental Reporting Act 2015" is the foundation of the current law
• The GRI (Global Reporting Initiative), while broadly used, involves universal, economic, and environmental standards
• The general triple bottom line is the economic, environmental, and social structures; also known as the pillars
• Some tradeoffs are the need for balance, environmental dimensions, and financial viability

IASB (International Accounting Standards Board) and sustainability

• The standard is related to development as of reports
• Key aspects are; analysis on value, providing over time, and reporting

Capitals for Organization

• Financial, manufactured, human, and intellectual capital
• Natural and social/relationship capital
• IIRC or International Integrated Reporting Council, has a framework that allows communication over time

Sustainability Accounting Career Paths

• Typical areas for accounting are public, private, government and not for profit sectors
• Criminal accountants help with cyber hacks in a business
• E-commerce systems are constantly changing with the need of sustainability
• Sustainability reporting constantly makes accounting an ever-changing profession