Ch3 lesson pp

Editor's Notes

• #4: When it comes to identifying the different types of accountants we must first recognize that although Bookkeepers have no formal designation or degree in accounting, they perform many of the services as licensed accountants such as preparation of financial statements, tax returns and maintaining payroll records. Many of these people have worked in the field for many years but, do not have formal certification in the industry. It used to be that only Chartered Accountants could perform an audit; typically, this group worked in public accounting. Certified General Accountants typically worked as the Controller or Chief financial officer for a corporation while Certified Management Accountants typically worked in Industry for a manufacturing concern as a Cost Accountant; however, since CMA’s and CGA’s have now earned the right to perform audits of public companies in many provinces in Canada, there are more and more CGA’s and CMA’s now working in public accounting as a partner in a firm. All 3 bodies require their members to have obtained a university degree, complete an intense program of study in accounting plus meet strict practical experience requirements before membership is accepted; as a result, many feel that there are many similarities between the groups and talks of a merger between all 3 bodies are currently taking place. Students considering a career in accounting should focus on following the path leading to the designation that best suits their personal situation. For example students enrolled in a college accounting program tend to follow the path that leads to obtaining their CGA as they will obtain credits that can be transferred to the CGA and then obtain their university degree after graduating through various college/university articulation agreements. Students studying accounting at a university typically choose to follow either the CA or CMA path as both of these programs require students to have a university degree before entering their program of study. A degree is required to graduate from the CGA program where as with CA or CMA a degree is required to enter their program. If you would like more information about any of the above pathways you should contact Kerry Hendricks, Coordinator of the Business Accounting Program at Fanshawe.
• #5: As mentioned, Generally Accepted Accounting Principles are the standards and acceptable ways in which accountants report financial transactions. It is important to note that these rules are offered as guidelines and are subject to interpretation. Pages 63 and 64 of the text offer further explanation of the characteristics of the information, relevance, reliability, understandability and comparability
• #6: Pages 65-67 in the text include explanations for each of the 12 Generally Accepted Accounting Principles listed on this slide. While you are not expected to memorize and be able to recite each principle in its entirety, you should be able to identify which principle is either being followed or violated in a given scenerio. AP questions 4 and 5 are good to do as ‘matching’ questions and 6 and 7 provide an opportunity to identify which principles are being violated. You should try to obtain a good understanding of these principles as they will appear throughout the text. Business Entity Principle -A business must be kept separate from the personal affairs of any other business or owners. The Going Concern Principle - Assumes that a business will continue to operate, unless it is known that such is not the case. The Monetary Unit Principle – Transactions are recorded using a single currency such as the Canadian $The Objectivity Principle - Different people looking at the evidence should arrive at the same values for the transaction. Accounting entries will be based on fact and not on personal opinion. The Cost Principle – Basically states that purchases of assets and other items must be recorded at the value that was paid and not “market values” where differentThe Conservatism Principle -Accounting for a business should be fair and reasonable. The opposite of conservative, is aggressive accounting. The Time Period Principle–Accountingtakes place over specific time periods known as fiscal periods. These fiscal periods are of equal length, and are used when measuring the financial progress of a business. 12 months is said to be a “fiscal year” while transactions can also be reported for other periods such as one month, quarter and 6 months. Revenue Recognition Principle- Revenue must be taken into account (recognized) at the time the transaction is completed (when the service is provided). Matching Principle- Requires accountants to use GAAP except when doing so would be expensive or complicated, and where it makes no real difference if the rules are not followed. Consistency Principle- Requires that accountants apply the same methods and procedures from period to period to provide readers with greater understandability and comparability. Full Disclosure - Any and all information that affects the full understanding of a company's financial statements must be included with the financial statements. For example: outstanding lawsuits, tax disputes, and company takeovers must be written in the notes. If you view a public company’s financial statements online, you will find notes to further explain amounts that are reported as well as any events similar those mentioned above.
• #7: While you may not have heard of IFRS before now, if you plan to be involved in business on a global scale or pursue a career in the field of accounting, you will receive much more information than the basic introduction provided in this course. At the introductory level you are expected to understand the similarities between IFRS and GAAP which are basically that, both use relevance, reliability, understandability and comparability as the characteristics financial information must have in order to be useful.The other similarity is that the basic principles of GAAP are also found in IFRS with a few differences in names. For example; Conservatism is referred to as Prudence under IFRS.
• #8: As this may be the first time you have heard the term IFRS, we do not expect you to become an expert on this complex topic; however, we do expect that you have a general understanding of what IFRS represents and in that context be able to identify the advantages and disadvantages. Basically IFRS will provide for more streamlined reporting of multinational corporations as companies will all be following the same reporting standards meaning statements will be easier to prepare and read. Comparability of amounts prepared in two different countries can be made easier and finally, Investors may be encouraged to invest in a foreign business as they understand the information contained in the financial statements prepared in different countries.
• #9: As with other areas in business, a lack of controls over the accounting process will result in errors being made, inefficient operations and possible theft of assetsInternal controls may be defined as the measures, procedures, performance indicators, and other methods used to check and regulate business operations systematically.They help to identify problems and help to control business operationsThere are different controls applicable to each area of accounting. We will focus on those relevant to the topics covered in each chapter.
• #10: With recent events involving the unethical behavior of those in charge of the accounting records of Enron and Worldcom, ethics have become increasingly important when it comes to how to record and report accounting transactions. Each chapter will provide examples of both ethical and unethical practices in the area being discussed.