ASSIGNMENT 1 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 5: Accounting Principles (5038)

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Student name Nguyen Tuan Anh Student ID BH00313

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ANH

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1 Table of Contents
1. Introduction 1
2. The role of accounting in an organization 2
2.1. Definition of accounting and general role of accounting in an organization. 3
2.2. Different types of accounting and the main users of accounting information. 4
2.3. Career opportunities in accounting 5

3. The context and purpose of financial and management accounting 6

3.1 The roles and importance of accounting as an information system. 7
3.2 The difference between financial accounting and management accounting 8
3.3 The organisational constraints and threats following the concepts of accounting regulations (GAAP, IFRS
from FASB) and principles as well as ethics in accounting. 9
4. Conclusion 10
5. Reference 11

1. Introduction

As a Graduate Intern at PricewaterhouseCoopers (PwC) Vietnamese SME unit, this is the blog for
marketing and promoting PwC accounting services to new and existing clients. This blog is divided into
two parts: The first section goes into greater detail on the organization's accounting function, including the
definition and general role of accounting in an organization, distinct types of accounting and the primary
users of accounting information, and accounting career opportunities. The second portion discusses the
context and purpose of financial and management accounting, as well as the role and importance of
accounting, the distinction between financial and management accounting, organizational restrictions and
threats, and accounting rules (GAAP, IFRS from FASB) and principles as well as ethics in accounting.
 by Unknown Author is licensed under

2. The role of accounting in an organization

2.1 Definition of accounting and general role of accounting in an organization
Definition

According to Atrill and MacLaney (2018), accounting is described as the measurement, collection,
analysis and distribution of financial data about business and economic management of the business,...
Person who performs the measurement, collection, staff analyze and check and communicate data called
accounts.

Purposes

The purpose of accounting is to accumulate and report on financial information about the performance,
financial position, and cash flows of a business. This information is then used to reach decisions about
how to manage the business, invest in it, or lend money to it (Atrill and MacLaney, 2018)

2.2 Different types of accounting and the main users of accounting information
Types of accounting
 Financial accounting
The primary purpose of financial accounting is to track, record, and ultimately report on financial
transactions by generating financial statements.

This must be done using the standardized guidelines found in Generally Accepted Accounting Principles
(GAAP) rules. These rules are set by the Financial Accounting Standards Board (FASB) and are designed
to promote consistency in the reporting process, so Company A will use the same reporting methodology
as Company B.

Financial accounting always looks at past performance, and does not look ahead like management
accounting.

Instead, financial accounting provides an accurate look at business performance over a specified period of
time in the form of financial statements. The completed statements are provided to outside stakeholders
such as investors and financial institutions.

by Unknown Author is licensed under

 Management accounting
Managerial accounting (also known as cost accounting or management accounting) is a branch of
accounting that is concerned with the identification, measurement, analysis, and interpretation of
accounting information so that it can be used to help managers make informed operational decisions.

Unlike financial accounting, which is primarily concentrated on the coordination and reporting of the
company’s financial transactions to outsiders (e.g., investors, lenders), managerial accounting is focused
on internal reporting to aid decision-making.

Managerial accountants need to analyze various events and operational metrics in order to translate data
into useful information that can be leveraged by the company’s management in their decision-making
process. They aim to provide detailed information regarding the company’s operations by analyzing each
individual line of products, operating activity, facility, etc.

 Tax accounting

Tax accountants help businesses stay in compliance with the Internal Revenue Code when they file their
tax documents each year. They also assist companies in planning for future tax returns, such as avoiding
certain tax burdens and understanding the implications of specific tax decisions. Usually, larger
organizations will hire a tax accountant to navigate the complexities of financial records.
  Cost accounting

Cost accounting is a form of managerial accounting that aims to capture a company's total cost of
production by assessing the variable costs of each step of production as well as fixed costs, such as a lease
expense.

 Tax accounting

Tax accountants help businesses stay in compliance with the Internal Revenue Code when they file their
tax documents each year. They also assist companies in planning for future tax returns, such as avoiding
certain tax burdens and understanding the implications of specific tax decisions. Usually, larger
organizations will hire a tax accountant to navigate the complexities of financial records.

 Forensic accounting

Forensic accounting is used to investigate the financial records of individuals or businesses. It can require
accountants to recreate financial information when some information is missing or not available to review.
The goal of forensic accounting is to gather all available documentation and accurately and
comprehensively account for all transactions in financial statements. These professionals often work on
legal cases involving fraud, claims and disputes.

 Public accounting

Public accounting refers to businesses that provide accounting advice to clients based on their needs. They
can work in auditing, assist with tax returns, consult on procedures tailored to the installation of
technology or computer programs and provide legal advice.

 Governmental accounting

Governmental accountants manage the financial planning and allocation of resources to departments
within a local, state or federal government. This type of accounting has standards that must comply with
the Governmental Accounting Standards Board (GASB), which is responsible for developing consistent
accounting procedures for local and state governments. Federal employees will comply with the Federal
Accounting Standards Advisory Board (FASAB). Governmental accountants will also monitor a
government's budget and allocate funds appropriately.

 Auditing

External auditing is the action of a company providing financial documents to a third party for financial
feedback. In this instance, a third party is a reliable source in describing if a company's financial statement
is a representation of GAAP. External auditing is conducted by a Certified Public Accountant (CPA).

Internal auditing determines the effectiveness of internal accounting processes. An internal auditor can
review employee departmental responsibilities, management policies and approval procedures on related
projects. In turn, they provide useful feedback that can help a company to become more profitable and
efficient. Qualifications for internal auditors will vary as this is an internal role. An accountant can
become a Certified Internal Auditor (CIA), and some public companies and governmental agencies may
require their internal auditors to hold this certification.

The main users of accounting information

 External users:

Public: The public is impacted by businesses in a number of different ways. For instance, businesses may
have a significant positive impact on the community’s economy through their employment of locals and
the use of their suppliers. Financial statements can help the public by informing them of recent changes
and trends that have affected the enterprise’s success and the scope of its activities.

Government and their Agencies: The allocation of resources and, consequently, business activities are of
interest to the government and its agencies. They also need the information to set tax policy, control
business activity and calculate various indicators, like GDP and National Income.

Creditors: Creditors or lenders use the accounting information to find out the ability of the borrower to
repay the loan, the number of assets and liabilities of the borrower, evidence of income, economic
position, etc. before he or she lend the money to the economic entity.

Tax Authorities: To determine an enterprise’s tax liabilities, tax authorities need information. In order to
compare the information on tax returns with the supporting accounting records, tax authorities
occasionally audit the returns filed by firms. The accounting records of suppliers and customers are also
cross-checked by tax authorities to spot suspected tax evasion.

Customers: Customers are curious about an organisation’s future, especially if they depend on it or have
a long-standing relationship with it. Accounting information increases or decreases a firm’s goodwill
amongst its customers.

Suppliers: Just like lenders, suppliers need accounting information to assess the credit-worthiness of its
customers before offering goods and services on credit. Some suppliers only have a handful of customers.
These customers could be very large businesses themselves. Suppliers need accounting information of its
key customers to assess whether their business is in good health which is necessary for sustainable
business growth.
Shareholders: company’s shareholders are the real owners of a business and needs information from thost
that manage the business on their behalf.

Auditor: Auditors examine financial statements and underlying accounting records to form an audit
opinion. Investors and other interested parties rely on external auditors’ independent assessment of the
correctness of financial records.

Investors: Investors need to know how well their investment is performing. Investors primarily rely on
the financial statements published by companies to assess the profitability, valuation and risk of their
investment. Investors use accounting information to determine whether an investment is a good fit for
their portfolio and whether they should hold, increase or decrease their investment.

 Internal users:

Employees: The stability and profitability of the employers are topics that interest both the workforce and
the groups that serve as its representatives. Additionally, they are looking for facts that will help them
judge whether the company can afford to pay salaries, offer retirement benefits, and create job prospects.

Management: In order to assess the firm’s short-term and long-term solvency, management needs
information regarding the firm’s activity. Management needs accounting information to make several
decisions, like determination of selling price and other strategies. It is also needed for comparison of
performance with similar enterprises in the industry and to make plans for the future regarding expansion,
reduction, etc.

Owners: Owners need to assess how well their business is performing. Financial statements provide
information to owners about the profitability of the overall business as well as individual products and
geographic segments. Owners are also interested in knowing how risky their business is. Accounting
information helps owners in assessing the level of stability in business over the years and to what extent
have changes in economic factors affected the bottom line of the business. Such information helps owners
to decide if they should invest any further in the business or if they should use their financial resources
elsewhere in more promising business ventures

Officers: to review the operating situation and make the correct decision for the company.
 2.3 Career opportunities in accounting

Figure 1: career opportunities in accounting (BTEC FPT)

3. The context and purpose of financial and management accounting

3.1 The roles and importance of accounting as an information system.

Accounting as an information system is responsible for identifying, recording, analyzing and reporting
information to be used for decision making. It provides accurate data to managers before making any
decisions regarding the business. According to Atrill and McLaney (2018), there are four sequential stages
of an accounting information system:

 Identifying and capturing relevant information;

 Recording, in a systematic way, the information collected;
 Analysing and interpreting the information collected; and
 Reporting the information in a manner that suits users' needs
 Figure 2: accounting information system (Atrill and McLaney, 2018)

The main functions of an accounting information system include planning, control, and decision making.
It is essential within the company as it allows managers to track income and expenditure, maintain
regulatory compliance, and provide financial information to users. An effective accounting system is a
critical component of a successful organization because when the accounting system fails or the
calculations are incorrect, the results can be detrimental to the company (Atrill and MacLaney, 2018).
Qualitative characteristics include relevancy. Relevance is closely and directly related to the concept of
useful information. Relevancy implies that all such items of information must be reported in order to be
able to assist users in decision making. Next, reliability helps accounting information make decisions.
Reliable information is needed to form judgments about the earnings potential and financial position of a
trading company. Understandability is the quality of information that allows users to perceive its
importance. Furthermore, when making a decision, the decision maker will compare alternatives, which is
supported by financial information. Comparability implies having things like reported in a similar fashion
and unlike other reported things. In addition, other qualities recommended by the IASB are materiality,
truthful representation, quality over formality, neutrality, prudence, completeness, and timeliness (Kaur,
2020).

3.2 The difference between financial accounting and management accounting

Features Management accounting Financial accounting

The purpose Providing information to Provides information for

serve the management the preparation of
of production and financial statements.
business activities.
Scope Reporting interval As short as required by Usually annually, semi-
managers annually or quarterly
Users object Internal community External object
Range and quality of Financial and non- Financial information
information financial information
Binding Accurate and must Can be based on
comply with Generally guesswork or estimate
Accepted Accounting as most managers don't
Principles (GAAP) have time to get exact
numbers at the time a
decision is made
Table 1: distinguish between financial accounting and management accounting (Crowe, 2021)

3.3 The organisational constraints and threats following the concepts of accounting regulations
(GAAP, IFRS from FASB) and principles as well as ethics in accounting
GAAP and IFRS
 Definition

Generally Accepted Accounting Principles (GAAP) is a collection of commonly followed accounting

rules and standards for financial reporting and refer to a common set of accounting principles, standards,
and procedures issued by the Financial Accounting Standards Board (FASB). Public companies in the
U.S. must follow GAAP when their accountants compile their financial statements (Fernando, 2022).
GAAP specifications include definitions of concepts and principles, as well as industry-specific rules. The
purpose of GAAP is to ensure that financial reporting is transparent and consistent from one public
organization to another, and from one accounting period to another. (Stephen, 2022)

International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial
statements of public companies that are intended to make them consistent, transparent, and easily
comparable around the world. IFRS is used primarily by businesses reporting their financial results
anywhere in the world except the United States. Generally Accepted Accounting Principles (GAAP) is the
accounting framework used in the United States. GAAP is much more rules-based than IFRS. IFRS
focuses more on general principles than GAAP, which makes the IFRS body of work much smaller,
cleaner, and easier to understand than GAAP (Palmer, 2021)

 The difference between GAAP and IFRS

 IFRS GAAP
Stands for International Financial Reporting Generally Accepted Accounting
Standard
Principles
Developed by International Accounting Standard Financial Accounting Standard
Board (IASB) Board (FASB)
Adopted by Globally adopted in around 144 Only adopted in the US
countries
Based on Principles Rules
Inventory methods allowed IFRS allows only FIFO (First In First GAAP uses both FIFO (First In
Out) inventory method for valuation First Out) and LIFO (Last In First
of inventories Out) method of inventory
valuation
Inventory reversal IFRS allows inventory write down GAAP does not allow inventory
reversal write down reversal
Income statement In IFRS, extraordinary items are not In GAAP, the extraordinary items
segregated and are included in the are segregated and are shown
income statement below net income in the income
statement
Valuation of fixed assets IFRS uses a revaluation model for GAAP uses a cost model for
valuation of fixed assets fixed asset valuation
Cost of development Development costs under IFRS can Development costs cannot be
be capitalised, provided certain capitalised in GAAP, it is always
conditions are met treated as an expense
Table 2: The difference between GAAP and IFRS (Bỵju’s)

 Advantages and disadvantages of GAAP, IFRS

- Advantages and disadvantages of IFRS

IFRS
Advantages Greater Comparability:
Companies that use the same standards to prepare their financial statements can be
compared to each other more accurately. This is especially important when
 comparing companies located in different countries, as they might otherwise be using
different rules and methodologies to prepare their statements. This increase in
comparability has helped investors better determine where their investment dollars
should go.
More Flexibility:
IFRS uses a principles-based, rather than rules-based, philosophy. A principles-based
philosophy means that the goal of each standard is to arrive at a reasonable valuation
and that there are many ways to get there. This gives companies the freedom to adapt
IFRS to their particular situation, which leads to more easily read and useful
statements.
Disadvantages Not Globally Accepted:
The United States has not yet adopted International Financial Reporting Standards
and other countries continue to hold out as well. This makes accounting by foreign-
based companies that do business in America difficult as they often have to prepare
financial statements using IFRS and another set using American Generally Accepted
Accounting Principles.
Standards Manipulation:
There is a downside to the flexibility that IFRS allows: companies can utilize only the
methods they wish to, allowing the financial statements to show only desired results.
This can lead to revenue or profit manipulation, can be used to hide financial
problems in the company and can even encourage fraud. For example, changing the
method of inventory valuation can bring more income into the current year's profit
and loss statement, making the company appear more profitable than it really is.

While IFRS requires that changes to the application of the rules must be justifiable, it
is often possible for companies to "invent" reasons for making the changes. Stricter
rules would ensure that all companies are valuing their statements the same way.
Increased Costs:
A small company would be impacted by a country's adoption of IFRS in the same
way a larger one would. However, small businesses do not have as many resources at
their disposal to implement the changes and train staff. This results in smaller
 companies bringing in accountants or other outside consultants to help make the
changeover. These smaller companies will bear more of a financial burden than larger
ones in this area.
Table 3: advantages and disadvantages of IFRS (Agie Mohr,2019)

- Advantages and disadvantages of GAAP

GAAP
Advantages They foster transparency:
One advantage of using GAAP involves the ease of understanding the financial
statements. The accounting standards published by the FASB represent the
required processes for businesses to follow. Financial statement users expect
companies to follow the published accounting standards when creating financial
statements. These users rely on the assumptions set forth in the accounting
standards when interpreting the results reported. The users interpret the financial
statements of different companies using the same assumptions. Once the users
understand these assumptions, they use this knowledge when reading any
financial statement.
They provide guidance:
Another advantage of using GAAP concerns the guidance provided to
accountants. When financial reporting issues arise, the accountant may refer to
GAAP to determine how to record the event. These issues include new
accounting transactions arising from technology, such as internet sales, or new
actions incorporated by the company, such as changes in pension plans. The
FASB incorporates the needs of financial statement users as well as company
feedback when creating accounting standards. This process allows the accountant
to trust that the guidance provided through the accounting standard passed the
rigorous process of ensuring that it meets everyone’s needs.
They provide a benchmark:
When businesses and industries use GAAP for bookkeeping, it is easier to see
upward or downward trends and understand the bigger picture of how well or
poorly a business is doing. Investors and small businesses can measure the
 performance of one company against another or against industry benchmarks and
projections. This can help determine whether a business or industry is a solid
investment, as well as when changes are needed to alter the trajectory of a
business or industry to get things moving in a more positive direction.
Disadvantages They can be inflexible:
A disadvantage of using accounting standards involves the inflexible framework
the accountant must comply with. GAAP is incredibly clear and specific about
how things must be done in order to maintain accuracy and consistency. Each
company faces different experiences with working to consistently meet GAAP
standards. The accountant must make the company’s unique business and
practices fit into the guidelines of the published accounting standards. This is
more easily done with a hired accountant than in a business where the business
owner is trying to meet GAAP without formal education
Compliance can be costly:
Another disadvantage of GAAP has to do with the costs for the company to
comply with the standards. New accounting standards require the company to
consider the requirements of the standard, what actions the company must take to
implement the standard and what the cost will be. In many cases, the company
must design new procedures, which requires a large financial investment that
includes employee labor costs, system upgrades and employee training.
Table 4: advantages and disadvantages of GAAP (Kathy Adams McIntosh, 2018)

Ethics in accounting

Five fundamental principles of ethics in accounting:

- Integrity:

A professional accountant should be straightforward and honest in all professional and business
relationships

- Objectivity:

A professional accountant should not allow bias, conflict of interest or undue influence of others.
 - Professional competence and due care:

A professional accountant has a continuing duty to maintain professional knowledge and skill at the level
required to ensure that a client or employer receives competent professional services based on current
developments in practice, legislation and techniques. A professional accountant should act diligently and
in accordance with applicable technical and professional standards when providing professional services.

- Confidentiality:

A professional accountant should respect the confidentiality of information acquired as a result of

professional and business relationships and should not disclose any such information to third parties
without proper and specific authority unless there is a legal or professional right or duty to disclose.
Confidential information acquired as a result of professional and business relationships should not be used
for the personal advantage of the professional accountant or third parties.

- Professional behaviour:

A professional accountant should comply with the relevant laws and regulations and should avoid any
action that discredits the profession.

4. Conclusion

To sum up, the blog states the definition and purposes of the accounting function, as well as defining the
accounting information's main users in detail. In the latter part of the blog, a detailed analysis of financial
and managerial accounting is presented to show the roles and importance of accounting and the
differences between financial and managerial accounting regarding its purpose and scope. Lastly, this blog
also offers the organizational constraints by assessing the principles and ethics in accounting.

5. Reference

Atrill, P. and McLaney, E., 2018. Accounting and Finance for Non-Specialists 11th Edition. Harlow,
United Kingdom: Pearson Education

Agie Mohr,2019. International Financial Reporting Standards - Advantages & Disadvantages [online]
Chron. Available at: https://smallbusiness.chron.com/international-financial-reporting-standards---
advantages-disadvantages-2167.html
IESBA,2006. Revised Code of Ethics – Completed [online] IESBA. Available at:
https://www.ethicsboard.org/projects/revised-code-ethics-completed

Anastasia Hinojosa, 2022. 9 Types of Accounting (Plus 5 In-Demand Accountant Careers) [online]
Indeed. Available at: https://www.indeed.com/career-advice/career-development/types-of-accounting

Kathy Adams McIntosh, 2018. Advantages & Disadvantages of Accounting Standards [online] Bìzluent.
Available at: https://bizfluent.com/info-8552640-advantages-disadvantages-accounting-standards.html

BTEC FPT; lecture 1: introduction to accounting up

Byju’s. Difference between GAAP and IFRS [online] Byju’s. Available at:
https://byjus.com/commerce/difference-between-gaap-and-ifrs/

Crowe, 2021. Sự khác nhau giữa kế toán tài chính và kế toán quản trị | Kiểm Toán Crowe Vietnam.
[online] Available at: https://www.crowe.com/vn/vi-vn/insights/accounting-publications/faq/a2-financial-
accounting-and-management-accounting

tephen J. 2022. What is GAAP (Generally Accepted Accounting Principles)? Definition from
WhatIs.com. [online] Available at: https://www.techtarget.com/whatis/definition/GAAP-generally-
accepted-accounting-principles

Palmer, B., 2021. International Financial Reporting Standards (IFRS). [online] Investopedia. Available at:
https://www.investopedia.com/terms/i/ifrs.asp

Kaur, P., 2020. Qualitative Characteristics of Accounting Information. [online] Your Article Library.
Available at: https://www.yourarticlelibrary.com/accounting/financial-reporting/qualitative-
characteristics-of-accounting-information/57363

Accounting simplified. 11 Users of Accounting Information [online] accounting simplified. Available at:
https://accounting-simplified.com/financial/introduction/users-of-accounting-information/