What are accounting and finance?
- Accounting provides financial information to help various user groups make better judgements and decisions
- Finance is concerned with the financing and investing activities of the business and is also concerned with improving the quality of user decisions
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Accounting and user needs
- For accounting to be useful, there must be a clear understanding of for whom and for what purpose the information will be used
- Owners, managers and lenders are important user groups, but there are several others.
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Providing a service
- Accounting can be viewed as a form a service as it involves providing financial information required by various users
- To provide a useful service, accouting must possess certain qualities, or characteristics. There are relevance, reliability, comparabilitiy and understandability. in addition, accounting information must be material
- Providing a service to users can be costly and financial information should be produced only if the cost of providing the information is less that the benefits gained
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- accounting is part of the total information system within a business. It shares the features that are common to all information systems within a business, which are the identification, recording, analysis and reporting of information
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Management accounting and Financial accounting
- These are two main strands of accounting
- Management accounting - seeks to meet the needs of the business's managers
- Finanicial accounting - seeks to meet needs of the other user groups
- The two strands differ in terms of types of reports produced, the level of reporting detail, the time horizon, the degree of regualtion and the range of quality of information provided
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Is accounting too interesting?
- In recent years, there has been a wave of accounting scandals in the US and Europe
- This appears to reflect a particular economic environment, although other factors may also play a part
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The changing face of accounting
- Changes in the economic environment have led to changes in the nature and scope of accounting
- Financial accounting has improved its framework of rules and there has been greater international harmonisation of accounting rules
- Management accounting has become more outward-looking, and new methods for management costs have emerged
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How are businesses managed?
- Strategic management has been increasingly adopted to cope with the more complex and more competitive business environment
- It is designed to provide a clear sense of purpose and to ensure that any action taken is consistent with this purpose
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What is financial objective of a business?
- The key financial objective is to enhance wealth of the owners. To achieve this, the needs of other groups connected with the business
- When setting financial objectives, the right balance must be struck between risk and return
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