Business Essentials, 13e (Ebert/Griffin)

Chapter 15 The Role of Accountants and Accounting Information

*Accounting Equation
– Assets = Liabilities + Owners’ Equity
– used by accountants to balance data for the firm’s financial transactions at various points in the
year

*Financial Statement
– any of several types of reports summarizing a company’s financial status to stakeholders and to
aid in managerial decision making
– balance sheet, income statement, statement of cash flows

1) Discuss the purpose of the CPA Vision Project.

Audit
– systematic examination of a company’s accounting system to determine whether its financial
reports reliably represent its operations
• Generally Accepted Accounting Principles (GAAP): accounting guidelines that govern the
content and form of financial reports

Tax Services
– assistance provided by CPAs for tax preparation and tax planning

Management Advisory Services

– assistance provided by CPA firms in areas such as financial planning, information systems
design, and other areas of concern for client firms

Core Competencies for Accounting

– the combination of skills, technology, and knowledge that will be necessary for the future CPA

A. To eradicate fraud in public companies

B. To increase the role of CPAs in providing consulting services to corporate managers
C. To better identify core competencies needed for noncertified public accountants in the public
sector
D. To better define the role of accountants in the world economy
E. To lobby for laws that better support the accounting field and eliminate fraud

2) Discuss the provision of the Sarbanes-Oxley Act of 2002 (Sarbox).

Hint: Federal regulations, primarily the Sarbanes-Oxley Act of 2002 (Sarbox or SOX), have
been enacted to restore and maintain public trust in corporate accounting practices by imposing
new requirements on financial activities in publicly traded corporations.
-The financial wrongdoings associated with firms such as ImClone Systems, Tyco, WorldCom,
Enron, Arthur Andersen, and others have not gone unnoticed in legislative circles. Federal
regulations, in particular the Sarbanes-Oxley Act of 2002 (Sarbox or SOX), have been enacted to
restore and maintain public trust in corporate accounting practices.
1
Copyright © 2022 Pearson Education, Inc.
3) Give three examples of management advisory services. (tư vấn quản trị)
- Financial Management
- information systems design
- Strategic planning

4) Identify the potential users of accounting information.

• Business managers use it to develop goals and plans, set budgets, and evaluate future
prospects.
• Employees and unions use it to plan for and receive compensation benefits.
• Investors and creditors use it to estimate returns to stockholders, determine growth prospects,
and decide whether a firm is a good credit risk.
• Tax authorities use it to plan for tax inflows, determine the tax liabilities of individuals and
businesses and ensure that correct amounts are paid on time.
• Government regulatory agencies rely on it to fulfill their duties toward the public.

5) Discuss the role of a private accountant within large and small firms.
An accountant performs finanial functions related to the collection, accuracy, recording, analysis
and presentation of business, organization or company's financial operations. The accountant has
variety of administrative roles within a company's operation. In smaller business, an accountant
role may consist of primarily financial data collection, entry, and report generation. Large firms
utilize their accountants as an adviser and financial entrepreneur, who may present the company's
financial data to people within and outside the organization.

6) Describe the importance of current assets.

CURRENT ASSET
– asset that can or will be converted into cash within a year
– Typical current assets include cash and cash equivalents, short-term investments, accounts
receivable, inventories and the portion of prepaid liabilities which will be paid within a year.
– Current assets contribute to your business's financial stability because they represent your
liquidity and how much money you have available to use.

7) Explain fixed assets and how accountants spread the cost of an asset over the years of its
useful life.

Hint FIXED ASSETS (such as land, buildings, and equipment) have long-term use or value,
but as buildings and equipment wear out or become obsolete, their value decreases.

Accountants use DEPRECIATION to spread the cost of an asset over the years of its useful life.

2
Copyright © 2022 Pearson Education, Inc.
8) What is the statement of cash flow required by the SEC and why is it required?

Statement of Cash Flows

– financial statement describing a firm’s yearly cash receipts and cash payments

The statement of cash flows represents a critical piece of a complete picture of an issuer’s
financial health and operations. The information presented in the statement of cash flows helps
investors assess the issuer’s potential to generate positive future net cash flows, meet its financial
obligations, and pay dividends or otherwise return cash to investors. Investors also may use cash
flow information to evaluate an issuer’s need for external financing, to determine the reasons for
differences between net income and associated cash receipts and payments, and to understand the
effects of both its cash and noncash investing and financing transactions on an issuer’s financial
position. In addition, cash flow information is often used as a proxy to understand earnings
quality

9) Why is activity timing important in revenue recognition?

The timing of revenue recognition affects the matching of revenue and expenses, which is
fundamental to determining profitability.

10) Explain what is covered by GAAP and why it is important to use these standards.

- Balance sheet
Asset, Liabilities, equity
- Income statement
Revenues and expenses
- Statement of cash flows
Indirect method
- Notes to financial statements

GAAP covers such topics as revenue recognition, balance sheet classification, and materiality.
The ultimate goal of GAAP is to ensure that a company's financial statements are complete,
consistent, and comparable.

11) Discuss the principle known as full disclosure.

FULL DISCLOSURE
– guideline that financial statements should not include just numbers but should also furnish
management’s interpretations and explanations of those number

Nguyên tắc trọng yếu (Full Disclosure Principle): Nguyên tắc kế toán này được hiểu là Báo cáo
tài chính phải trình bày đầy đủ những thông tin mang tính chất trọng yếu, còn những thông tin
không trọng yếu thì có thể bỏ qua.

3
Copyright © 2022 Pearson Education, Inc.
12) Why are efforts to standardize global accounting practices important?

• Investor understanding and confidence is improved.

• Investor decision making is improved.

• Capital is allocated more efficiently around the world.

• Financial risk and cost of capital are reduced.

• Strategic decision making in mergers and acquisition is improved.

*International Accounting Standards Board (IASB)

– organization responsible for developing a set of global accounting standards and for gaining
implementation of those standards

4
Copyright © 2022 Pearson Education, Inc.