Lecture 1

INTRODUCTION TO ACCOUNTING
 AGENDA

1. Accounting Function

2. Accounting Information

3. Financial Accounting vs. Management Accounting

4. Ethics in Accounting

5. Accounting Assumptions and Principles

6. Career Opportunities in Accounting

7. Skills and competences of Accountant

 1. Accounting Function
Identifying Recording
Business Business
Activities Activities
Communicating
Business Activities

Select transactions Input, measure

& events & classify
Prepare, analyse & interpret
Source: American Accounting Association (1966)
 1. Accounting Function

Source: Mowen, Hansen & Heitger (2018)

 1. Accounting Function

Source: ACCA (2021)

 2. Accounting Information

Owners Customers Competitors

Managers Employees
Main users of
Accounting Business

Information Lenders Government

Investment Community
Suppliers
analysts representatives
 2. Accounting Information
Main users of Accounting Information

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers •Budget Officers
•Governments •Customers •Internal Auditors •Controllers
 2. Accounting Information
Qualities of Accounting Information
Qualities

Fundamental Enhancing

Relevance Faithful representation

Predictive value Confirmatory value Completeness Neutrality Freedom from error

Materiality
threshold

Comparability Timeliness Verifiability Understandability

Source: International Accounting Standards Board (2018)

 2. Accounting Information

Accounting Information System

Information Information Information Information

identification recording analysis reporting
 2. Accounting Information

Roles of Accounting Information System

Source: Mowen et al. (2018)

 Accounting Activities:
Marketing Majors

Planning

How much should we budget for TV,

print, and internet advertising?

How many salespeople should we

plan to hire to serve a new territory?
 Accounting Activities:
Marketing Majors

Controlling

Is the budgeted price cut increasing

unit sales as expected?

Are we accumulating too much

inventory during the holiday shopping
season?
 Accounting Activities:
Marketing Majors
Decision
Making

Should we sell our services as one

bundle or sell them separately?

Should we sell directly to customers

or use a distributor?
 Accounting Activities:
Operations Management
Majors
Planning

How many units should we plan to

produce next period?

How much should we budget for next

period’s utility expense?
 Accounting Activities:
Operations Management
Majors
Controlling

Did we spend more or less than

expected for the units we actually
produced?

Are we achieving our goal of

reducing the number of defective
units produced?
 Accounting Activities:
Operations Management
Majors
Decision
Making

Should we buy a new piece of

equipment or upgrade our existing
machine?

Should we redesign our

manufacturing process to lower
inventory levels?
 Accounting Activities:
HRM Majors

Planning

How much should we plan to spend

for occupational safety training?

How much should we plan to spend

on employee recruitment advertising?
 Accounting Activities:
HRM Majors

Controlling

Is our employee retention rate

exceeding our goals?

Are we meeting our goal of

completing timely performance
appraisals?
 Accounting Activities:
HRM Majors

Decision
Making

Should we hire an on-site medical

staff to lower our healthcare costs?

Should we hire temporary workers or

full-time employees?
 3. Financial Accounting vs.
Management Accounting
Features Management Accounting Financial Accounting
Assist internal users in the planning, Helps those external users make
Nature of the reports
controlling and decision-making decisions: credit terms, investment
produced
process and other decisions
Level of detail Often very detailed Usually broad view
Usually subject to accounting
Regulations Unregulated
regulation
Usually annually, semi-annually
Reporting interval As short as required by managers
or quarterly
Often based on projected future
Time Orientation Almost always historical
information and past information
Range and quality of Financial and non-financial
Financial information
information information

Sources: Association of Certified Public Accountants (2018) & Chartered Institute of Management Accountants (2018)
 4. Ethics in Accounting
Five fundamental principles
of ethics in accounting:
• Integrity
Ethics • Objectivity
• Professional competence

Beliefs that Accepted and due care

distinguish standards of • Confidentiality
right from good and bad
wrong behavior • Professional behaviour
Sources: AICPA (2018), CIMA (2018) & IIA (2018)
 4. Ethics in Accounting

Identify ethical concerns Analyse options Make ethical decision

Use personal ethics to Consider all good and Choose best option after
recognize ethical concern bad consequences weighing all consequences
 5. Accounting Assumptions &
Principles
Conceptual Framework Approach: Members shall identify,
evaluate and address threats to compliance with the rules and
fundamental ethical principles.
• Generally Accepted Accounting Principles (GAAP) from Financial Accounting
Standard Board (FASB)

• International Financial Reporting Standards (IFRS) from International

Accounting Standard Board (IASB)

• Vietnamese Accounting Standards (VAS) from Ministry of Finance

Sources: FASB (2018), IASB (2018) & VAS (2018)
 5. Accounting Assumptions &
Principles
Conceptual Framework Approach
Objectives of Financial Reporting

Qualitative
Elements of
Characteristics of
Financial Statements
Accounting Information

Operating Guidelines

Assumptions Principles Constraints

Sources: FASB (2018), IASB (2018) & VAS (2018)

 5. Accounting Assumptions &
Principles

Now Future
Going-Concern Assumption Monetary Unit Assumption
Reflects assumption that the business will Express transactions and events in
continue operating instead of being closed monetary, or money, units.
or sold.

Business Entity Assumption Time Period Assumption

A business is accounted for separately Presumes that the life of a company
from other business entities, including its can be divided into time periods, such
owner. as months and years.

Sources: FASB (2018), IASB (2018) & VAS (2018)

 5. Accounting Assumptions &
Principles

Revenue Recognition Principle

1. Recognize revenue when it is earned. Cost Principle
2. Proceeds need not be in cash. Accounting information is based on
3. Measure revenue by cash received actual cost. Actual cost is
plus cash value of items received. considered objective.

Full Disclosure Principle

Matching Principle
A company is required to report the
A company must record its expenses
details behind financial statements that
incurred to generate the revenue reported.
would impact users’ decisions.

Sources: FASB (2018), IASB (2018) & VAS (2018)

 5. Accounting Assumptions &
Principles
Two constraints

• Materiality relates to an item’s impact

on a firm’s overall financial condition and
operations.

• Conservatism dictates that when in

doubt, choose the method that will be
the least likely to overstate assets and
income.
 6. Career Opportunities in
Accounting

Sources: Openstax (2019)

 6. Career Opportunities in
Accounting

Managerial Financial Taxation Accounting-related

•General accounting •Preparation •Preparation •Lenders •FBI investigators
•Cost accounting •Analysis •Planning •Consultants •Market researchers
•Budgeting •Auditing •Regulatory •Analysts •Systems designers
•Internal auditing •Regulatory •Investigations •Traders •Merger services
•Consulting •Consulting •Consulting •Directors •Business valuation
•Controller •Planning •Enforcement •Underwriters •Human services
•Treasurer •Criminal investigation •Legal services •Planners •Litigation support
•Strategy •Estate plans •Appraisers •Entrepreneurs

Sources: AICPA (2021) & ACCA (2021)

 6. Career Opportunities in
Accounting

Sources: Openstax (2019)

 7. Skills and Competences of
Accountant

Sources: AICPA (2021), ACCA (2021) & CGMA (2021)

The changing business environment

Increasing sophistication of customers

Development of global economy

Rapid changes in technology

Deregulation of domestic markets

Increasing pressure from owners

Increasing volatility of financial markets

 Discussion

What are objectives that a business pursue?

Let’s think about the needs of internal and

external stakeholders.
 Link to Assignment 1

P1 - Purpose of the accounting function

 Link to Assignment 1
P2 - Assess the accounting function within the organisation in
the context of regulatory and ethical constraints.