Financial Accounting

ASIA GLOBAL EDITION, 3E

Williams Haka Bettner Carcello Lam Lau

Topic 1:
Chapter 1
Accounting:
Information for
Decision Making
Lecturer
 Mr. Clive HO
 College Lecturer, CC, HKU SPACE
 Email:
[email protected]
 Consultation Hours: Monday 1:00pm-
4:00pm; Thursday 10:00am-11:30am;
Friday 10:00am-11:30am
 Office Phone: 3762 1119
 Phone (for WhatsApp / WeChat):
5504 7211
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Subject matters
Textbooks
Financial Accounting:
Williams, J. R., Haka, S. F., Bettner,
M. S., Carcello, J.V., Lam, N & Lau, P
(Asia Global Edition, 3rd Edition).
McGraw Hill

 Please bring a calculator with

you when attending classes as
there are numerical examples
and class exercises starting
from next lecture.
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Housekeeping stuffs
Class disciplines and etiquette:
◦ Switch your mobile phones into the vibrating
mode when attending classes
◦ Be punctual in attending classes
◦ Late assignments will not be graded
◦ Plagiarism (抄襲) is strictly prohibited
◦ It is your responsibility to attend lecture or to
catch up on any missed material should you be
unable to attend.

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Soul 2.0
 Check CCBS4005 - CL07 – CL10 on Soul
2.0 for course information regularly:
Mother Level CCBS4005-1; Individual
Course Level CCBS4005-CL07 – CL10
Course Outline
Class Notes; Class Exercises
Solution to Class Exercises
Assignment Questions
Home Exercises (no need to hand in)
Solution to Home Exercises
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How do you get good grade
 Work Hard
 Read the Textbook (purchase textbook)
 “Understand” the Concept;
 Work the Class Exercises together in class
 Try the Home Exercises
 Practice make perfect!
 Do the assignments by yourself; don’t plagiarize
 Manage your time well
 Don’t spend more than an hour in surfing the
Internet / mobile phone (e.g. Facebook, Instagram)
every day
 Express yourself clearly 6

 Must get at least 40 marks in exam to pass 1-6

Further Studies
 Good GPA
 IELTS 6.5
 ICGSE Chinese / HKDSE Level 3 in Chinese
 Good reasons why you want to take that bachelor
programme; any reasons?
 Good personal statement – fair written skills, and
a good personal story
 Interview preparation / skills
 Reference Letter

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Topic 1: Chapter 1
Learning Objectives
 Accounting: Information for Decision
Making
(1) Types of Accounting Information:
Financial; Management & Tax
(2) Overview of Financial & Managerial
Accounting
(3) Integrity of Accounting Information

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Introduction
The primary objective of accounting is to provide information that is
useful in making good decisions, and as a result of good decisions,
societal prosperity and welfare is maximized.

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Primary Goals
In order to develop your ability to understand
and use accounting information, you need to
understand the following:
 The nature of economic activities that
accounting information describes.
 The assumptions and measurement
techniques involved in developing accounting
information.
 The information that is most relevant for
making various types of decisions.
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Accounting Systems
- collect information and produce reports

An accounting system consists of the

personnel, procedures, technology, and
records used by an organization to
develop accounting information and to
communicate this information to
decision makers.

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Information Systems
An information system consists of the
personnel, procedures, technology, and
records used by an organization
(1) to develop information and
(2) to communicate this information to
decision makers.

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 Information System
Information
Users
Decisions
Supported
Investors Financial  Performance
Creditors Information evaluations
Managers Provided  Equity
Owners  Profitability investments
Customers  Tax strategies
 Financial
Employees
 Labor relations
position
 Resource
Regulators  Cash flows allocations
(監管機構)  Lending
decisions
 External users who are persons
 Borrowing
outside the company.
 Internal users who are persons
working within the company.

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 Basic Functions of an Accounting
System
1) Interpret 2) Classify (分類)
and record similar
business transactions into
transactions. useful reports
(more on
Chapter 2).

3) Summarize
and
communicate
information to
decision makers.

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Types of Accounting Information

Financial Tax

Management

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Types of Accounting Information:
Financial
1. Financial Accounting
• Information describes the financial
resources, obligations, and activities of an
economic entity.
• Assists external users such as investors
and creditors in the decision-making
process.
• Is often called “general-purpose”
accounting information.

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Types of Accounting Information:
Management
2. Management Accounting
• Involves the development and
interpretation of accounting information
for management.
• Information can be specifically tailored
to management’s needs in order to assist
in the decision-making process.
• Reports are only provided to internal users.

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Types of Accounting Information:
Tax
3. Tax Accounting
• Information must conform with income tax
reporting requirements.
• Laws and regulations are often different
from those underlying the preparation of
financial accounting information.
• Year 2 courses

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 Types of Accounting Information
Financial Accounting Management Accounting

1 Aim at serving external users by Aim at serving internal users by

providing them with general providing them with more specific
purpose financial statements information to help them to make
more specific decisions.

2 Prepare in according with No fixed rules.

accounting rules and regulation
3 In standard format No standard format

Tax accounting: is a specialized field within

accounting and focuses on the preparation of income tax
returns.

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External Users of Accounting Information
(who are persons outside the company)

Examples include:
• Owners
• Creditors
• Potential investors
• Government regulators
• Suppliers
• Customers
• General public

- have a current or
potential financial
interest in the
reporting enterprise.
- Not involved in the
day-to-day operations
of that enterprise.
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Objectives of External Financial
Reporting range from general to specific

Most
specific

More
specific

General

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Objectives of External Financial Reporting
The primary financial statements (財務報表)
(more on Chapter 2)

1. Statement of financial position: shows

where the company stands in financial
terms on a specific date; also called the
balance sheet.

2. Income statement: shows the details of a company’s

profit-related activities over a period of time.

3. Statement of cash flows: shows the details of a

company’s activities involving cash during a period of
time.

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Internal Users of Accounting
Information
(who are persons working within the company)

 Board of directors
 Chief executive officer (CEO)
 Chief financial officer (CFO)
 Vice presidents
 Business unit managers
 Plant managers
 Store managers
 Line supervisors
(They are those directly involved in managing and operating an
organization. They use the information to help improve the
efficiency and effectiveness of an organization. )

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 Owners
Typical Simple
董事會 Board of Organization Chart
Directors - It outlines the internal
structure of a company

Chief Executive
Officer 行政總裁
(CEO)

Business V.P. V.P. Chief

V.P.
Unit Human Information Financial
Ethics
Managers Resources Services Officer (CFO)

Plant Plant
Managers Managers Controller Treasurer

Plant Plant
Accountants Accountants
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Objectives of Management
Accounting Information
To help
management
achieve the
organization’s
goals and
missions

To help evaluate
and reward
decision makers

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Integrity of Accounting Information, p18
(會計信息公允性)

• What enables investors and creditors to rely on financial

accounting information without fear that the management
of the reporting enterprise has altered the information to
make the company’s performance look better than it
actually was?

• It depends on the integrity of accounting information.

• Integrity refers to the following qualities: complete (全面),

unbroken (完整), unimpaired (無損), sound (健全), honest
(誠實) and sincere (可信).

• The integrity of accounting information is enhanced in

three primary ways.
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How to Enhance Integrity?
The integrity of accounting information is
enhanced in three primary ways:
1. Institutional features
2. Professional accounting organizations
3. Personal competence, judgment, and ethical
behavior

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 1. Institutional Features (制度特徵)

Institutional features include standards for the

preparation of accounting information, an internal
control structure, and audits of financial statements.

 Generally Accepted Accounting Principles (GAAP)

 International Accounting Standard Board (IASB)
 Financial Accounting Standards Board (FASB)
 Securities and Exchange Commission (SEC)
 Financial Statement Audits (審計)

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Integrity: GAAP
1. Institutional Features
a. Generally Accepted Accounting
Principles (GAAP)
1) Provides the general framework for
determining what information is included
in the financial statements and how this
information is prepared and presented.
2) Originates from a combination of tradition,
experience, and official decree.
3) May change over time.

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Integrity: IASB
1. Institutional Features
b. International Accounting Standards
Board (IASB)
1) London-based panel of elite professionals with
expert knowledge of accounting methods used
in the most vibrant capital markets.
2) Issues International Financial Reporting
Standards (IFRS).
3) More than 100 countries, including those in
the European Union, require companies to
follow IASB standards.
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Integrity: IASB (cont.)
1. Institutional Features
b. International Accounting Standards
Board (IASB)
4) The SEC accepts financial statements
prepared using IASB standards from foreign
companies that are cross-listed on a U.S. stock
exchange.
5) The AICPA, which maintains jurisdiction over
private company reporting, accepts either
FASB standards or IASB standards as
authoritative sources of accounting principles.
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Integrity: FASB
1. Institutional Features
c. Financial Accounting Standards
Board (FASB)
1) Independent rule-making body.
2) Recognized as the most authoritative
source of GAAP.
3) Maintains the Accounting Standards
Codification which includes all standards
and represents an official expression of
GAAP.
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Integrity: SEC
1. Institutional Features
d. Securities and Exchange Commission
(SEC)
1) Governmental agency with the legal power to
establish accounting principles and financial
reporting requirements for publicly owned
corporations.
2) Delegates standard setting responsibility to the
FASB (discussed on next slide).
3) Reviews the financial statements of publicly
owned corporations.
4) May initiate legal action against companies.
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Integrity: Audits
1. Institutional Features
e. Financial Statement Audits
1) An examination of a company’s financial
statements, designed to determine the
fairness of the statements.
2) Must be conducted by an independent
certified public accountant (CPA).
3) Financial statements are judged based on
the standards of GAAP.

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2. Professional Organizations
Several professional accounting organizations play an active role
in improving the quality of accounting information that is used by
investors, creditors, management, and others.

 American Institute of Certified Public Accountants

(AICPA)
 Institute of Management Accountants (IMA)
 Institute of Internal Auditors (IIA)
 American Accounting Association (AAA)

use their professional

knowledge to improve
the quality of accounting
information.
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Integrity: AICPA
2. Professional Organizations
a. American Institute of CPAs (AICPA)
1) Mission is to provide members with the most
relevant knowledge.
2) Conducts research and works closely with the
FASB in the establishment and interpretation
of GAAP.

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Integrity: IMA
2. Professional Organizations
b. Institute of Management Accountants
(IMA)
1) Provides a forum for research, practice
development, education, knowledge sharing,
and the advocacy of the highest ethical and
best business practices in management
accounting and finance.
2) Influences concepts and ethical practices for
management accounting and financial
management.
3) Offers the Certified Management Accountant
(CMA) designation. 1-37
Integrity: IIA
c. Institute of Internal Auditors (IIA)
1) Primary international professional
association dedicated to the promotion and
development of the practice of internal
auditing.
2) Offers professional development through
conferences and seminars.
3) Provides audit specialty services and
industry-specific auditing programs as well
as quality assurance review and
benchmarking services.
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Integrity: AAA
d. American Accounting Association
(AAA)
1) Mission is to further the discipline and
profession of accounting through
education, research, and service.
2) Made up primarily of accounting educators
who focus on improving the quality of
accounting education.

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Professional Organizations
(Hong Kong)
 HKICPA (Hong Kong Institute of Certified Public
Accountants)
 ACCA (Association of Chartered Certified
Accountants)
 AIA (Association of International Accountants)
 CIMA (The Chartered Institute of Management
Accountants)
 HKIAAT (Hong Kong Institute of Accredited
Accounting Technicians)

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3. Competence, Judgment and Ethical Behavior

 Certified Public Accountant (CPA)

 Certified Management Accountant (CMA)
 Certified Internal Auditor (CIA)

Ethical behavior is the

cornerstone of the
accounting profession.

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3. Competence, Judgment and
Ethical Behavior
 Ethical behavior is the cornerstone of the
accounting profession.
 Recently there have been many corporate
scandals involving individuals who acted in an
unethical, and often times illegal, way.

 Ethics is the belief system that permits us to

distinguish right from wrong and identify good
and bad behavior.
 Professional organizations have publicly known
codes of ethics that must be followed by
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 Careers in Accounting

 Public Accounting
 Management Accounting
 Governmental Accounting
 Accounting Education

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Careers in Accounting
 Certified public accountants (CPAs)
offer a variety of accounting services to
the public.
 The work consists primarily of auditing
financial statements, income tax work,
and management advisory services.
 To become a CPA, a person must meet
several criteria, including an extensive
university education requirement, passing
the CPA examination, and meeting a
practice experience requirement.
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Careers in Accounting
 Management accountant works for one
enterprise and develops and interprets
accounting information designed specifically
to meet the various needs of management.

 Governmental agencies use accounting

information in allocating their resources and
in controlling their operations.
 Therefore, the need for management
accountants in governmental agencies is
similar to that in business organizations.
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What About Bookkeeping?
Bookkeeping is the clerical side of accounting—
the recording of routine transactions and day-to-
day record keeping.

Professional accountants are involved more with

the interpretation and use of accounting
information than with its actual preparation.
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Accounting as a Stepping-Stone
 An accounting background is invaluable
for key positions in management or
administration, because top management
works continuously with issues defined
and described in accounting terms and
concepts.

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I’m Not An Accounting Major
Accounting is the language of business,
and trying to run a business without
understanding accounting information is
similar to trying to play sports without
understanding the rules.

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 Readings and Home Exercises
 Readings - Chapter 1 Williams

End of Chapter 1

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