Topic

Accounting
Environment

1 100 Shares

Accounting?
$1 par value

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 Learning
Learning Objectives
Objectives
 What is Accounting  Financial Reporting
 Accounting Profession Framework in Malaysia
 Internal and External
users of Accounting  International Accounting
Information Standards Board (IASB)
 Financial accounting vs
Management accounting  Financial Statements
 Generally Accepted • Income Statement
Accounting Principles • Owner’s Equity Statement
(GAAP) • Balance Sheet
 Professional Accounting • Cash Flow Statement
Bodies and Standard
Setting in Malaysia

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 What
What is
is accounting?
accounting?
is a
Accounting
Accounting Identifies
Identifies
system that

Records
Records

information
Relevant
Relevant Communicates
Communicates
that is

Reliable
Reliable
to
tohelp
helpusers
usersmake
make
Comparable better
better decisions.
decisions.
Comparable
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 Accounting
Accounting Activities
Activities
 Identifying  Recording
Business Business
Activities Activities

Communicating
Business
Activities

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 Users
Users of
of Accounting
Accounting Information
Information

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers •Budget Officers
•Governments •Customers •Internal Auditors •Controllers
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 Exh.
1-2

Financial
Financial vs
vs Managerial
Managerial Accounting
Accounting

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 FA
FA vs
vs MA
MA

External Users
Internal Users

Financial accounting provides

external users with financial Managerial accounting provides
statements. information needs for internal
decision makers.
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 Characteristics
Characteristics of
of Accounting
Accounting
Information
Information
USEFUL
FINANCIAL
INFORMATION

RELEVANCE RELIABILITY
1. Predictive value 1. Verifiable
2. Feedback value 2. Faithful representation
3. Timely 3. Neutral

COMPARABILITY CONSISTENCY

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 Generally
Generally Accepted
Accepted Accounting
Accounting
Principles
Principles
Financial
Financial accounting
accounting practice
practiceis
isgoverned
governedbyby
concepts
concepts and
and rules
rulesknown
knownasasGenerally
Generally Accepted
Accepted
Accounting
Accounting Principles
Principles(GAAP).
(GAAP).

Relevant
Relevant Affects
Affectsthethedecision
decisionof
of
Information
Information its
itsusers.
users.

Reliable
Reliable Information
Information Is
Istrusted
trustedby
by
users.
users.

Comparable
Comparable Is
Ishelpful
helpfulin
incontrasting
contrasting
Information
Information organizations.
organizations.
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 The
The Operating
Operating Guidelines
Guidelines of
of Accounting
Accounting

ASSUMPTIONS PRINCIPLES CONSTRAINTS

Economic entity Historical costs Conservatism

Monetary unit Revenue recognition Materiality

Going concern Matching

Time period Full disclosure

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 Accounting
Accounting Assumptions
Assumptions
Economic Entity
The business is accounted for
separately from other business
entities, including its owner
Monetary Unit Principle
Express transactions and events in The economic life of business can be
monetary, or money, units
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Now Future
Going-Concern Principle
Reflects assumption that the
business will continue operating
instead of being closed or sold
Time Period
divided into artificial time period for
the purpose of financial reporting
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 Accounting
Accounting Principles
Principles

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

Full Disclosure
Matching
Report enough information for
Expenses are matched against
users to make knowledgeable
revenues, and recorded in the
decisions about the company
same period in which the related
revenues are earned 12
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 Accounting
Accounting Constraints
Constraints

Conservatism
Income and assets be reported at
their lowest reasonable amounts (i.e.
minimizing the assets and
understating the income) Materiality
Accountants are required to
accurately account for significant
items and transactions

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 Accounting
Profession
and the
Financial and
Reporting
Environment
of Malaysia

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 Statutory
Statutory and
and capital
capital market
market
requirement
requirement
 Accountant Act 1967
 Companies Act 1965 (revised)
 Financial Reporting Act 1997
 Bursa Malaysia Listing Requirement

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 Financial
Financial Reporting
Reporting Framework
Framework in
in
Malaysia
Malaysia

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 Professional
Professional Accounting
Accounting Bodies
Bodies and
and
Standard
Standard Setting
Setting in
in Malaysia
Malaysia
 Malaysian Institute of Accountant (MIA)
http://www.mia.org.my
 Malaysian Institute of Certified Public Accountant
(MICPA)
 Malaysian Accounting Standards Board (MASB)
http://www.masb.org.my
 Financial Reporting Foundation (FRF)

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 Malaysian
Malaysian Accounting
Accounting Standards
Standards Board
Board
(MASB)
(MASB)
 Established under the Financial Reporting Act 1997
(the Act) as an independent authority to develop and
issue accounting and financial reporting standards in
Malaysia.
 Working with FRF to make up the new framework for
financial reporting in Malaysia, with representation
from all relevant parties in the standard-setting
process, including preparers, users, regulators and
the accountancy profession.

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 Malaysian
Malaysian Institute
Institute of
of Accountant
Accountant (MIA)
(MIA)
 established under the Accountants Act 1967
 regulating the accounting profession.
 play a significant role in the development and advancement of
accounting profession globally.
 Its membership in such bodies include the:
• Asean Federation of Accountants (AFA)
• Confederation of Asian and Pacific Accountants (CAPA)
• International Federation of Accountants (IFAC)
• Intergovernmental Working Group of Experts on
International Standards of Accounting and Reporting
(ISAR)

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 Malaysian
Malaysian Institute
Institute of
of Accountant
Accountant (MIA)
(MIA)
 Objectives:
• To promote and regulate professional and ethical
standards
• To enhance competency through continuous education
and training to meet the challenges of the global
economy
• To enhance the status of members
• To lead research and development for the enhancement
of the profession
• To inculcate a high sense of social responsibility

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 Malaysian
Malaysian Institute
Institute of
of Certified
Certified Public
Public
Accountant
Accountant (MICPA)
(MICPA)
 Objectives:
• To advance the theory and practice of accountancy in all its
aspects.
• To recruit, educate, train and assess by means of
examination or otherwise a body of members skilled in
these areas.
• To preserve at all times the professional independence of
accountants in whatever capacities they may be serving.
• To maintain high standards of practice and professional
conduct by all its members.
• To do all such things as may advance the profession of
accountancy in relation to public practice, industry,
commerce, education and the public service.

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 Financial
Financial Reporting
Reporting Federation
Federation (FRF)
(FRF)
 Established under the Financial Reporting Act 1997
(Act), comprises representation from all relevant
parties in the standard setting process, including
preparers, users, regulators and accountancy
profession.
 Oversight the MASB's performance, financial and
funding arrangements, and as an initial source of
views for the MASB on proposed standards and
pronouncements. It has no direct responsibility with
regard to standard setting. This responsibility rests
solely with the MASB.
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 Opportunities/Profession
Opportunities/Profession in
in Accounting
Accounting
Financial
Financial Managerial
Managerial Taxation
Taxation
•Preparation
•Preparation •General
•Generalaccounting
accounting •Preparation
•Preparation
•Analysis
•Analysis •Cost
•Costaccounting
accounting •Planning
•Planning
•Auditing
•Auditing •Budgeting
•Budgeting •Regulatory
•Regulatory
•Regulatory
•Regulatory •Internal
•Internalauditing
auditing •Investigations
•Investigations
•Consulting
•Consulting •Consulting
•Consulting •Consulting
•Consulting
•Planning
•Planning •Controller
•Controller •Enforcement
•Enforcement
•Criminal
•Criminal •Treasurer
•Treasurer •Legal
•Legalservices
services
investigation
investigation •Strategy
•Strategy •Estate
•Estateplanning
planning
•Lenders
•Lenders •FBI
•FBIinvestigators
investigators
•Consultants
•Consultants •Market
•Marketresearchers
researchers
•Analysts •Systems
•Systemsdesigners
Accounting-
Accounting- •Analysts
•Traders •Merger
designers
•Traders •Mergerservices
services
related
related •Directors
•Directors •Business
•Businessvaluation
valuation
•Underwriters
•Underwriters •Human services
•Human services
•Planners
•Planners •Litigation
•Litigationsupport
support
•Appraisers
•Appraisers •Entrepreneurs
•Entrepreneurs
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 International
International Accounting
Accounting Std.
Std. Board
Board
(IASB)
(IASB)
 The International Accounting Standards Committee
(IASC) was set up in 1973 to develop a set of
international accounting standards for use by those
countries wishing to do so.

 The IASC was replaced in 2001 by the IASB.

 The main reason for replacement was that the IASC’s
standards allowed too many alternatives and it was
felt that international accounting standards should be
of a higher quality if they were to be accepted and
used for the purpose of listing a company’s shares on
stock exchanges around the world.
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 International
International Accounting
Accounting Std.
Std. Board
Board
(IASB)
(IASB)
 Following the direction given by Malaysia’s FRF in 2005,
the MASB was required to adopt the standards issued by
the IASB as from 1 January 2006.
 Hence, the financial statements prepared by Malaysian
companies are in line with those prepared by entities in
other countries which also have adopted IASB standards.
 This should allow for greater comparability and
understanding of financial statements worldwide, and lead
to a more efficient flow of capital resources across national
boundaries.

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 Financial
Financial Statements
Statements

1. Income Statement
2. Statement of Owner’s
Equity
3. Balance Sheet
4. Statement of Cash Flows

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 Profit is the
difference
between
Revenues and
Expenses.

The income statement describes a

company’s revenues and expenses
along with the resulting profit or loss
over a period of time due to earnings
activities.
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 The profit of $2,200
increases Scott’s
capital by $2,200.

The Statement of
Owner’s Equity
explains changes in
equity from profit (or
loss) and from owner
investments and
withdrawals for a
period of time.

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 The
The Balance
Balance Sheet
Sheet describes
describes
aa company’s
company’s financial
financial
position
position at
at aa point
point in
in time.
time.

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 From Statement of Owner’s Equity
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 The Statement of Cash Flows identifies cash inflows and cash outflows over a
period of time. 32
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 End of Topic 1

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