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At the completion of this lecture, students should:-
‡ Understand how accounting is usually defined
‡ Appreciate the function of accounting and its importance
‡ Be able to distinguish financial and management accounting
‡ Understand the nature of the audit function
‡ Have an awareness of factors that influence how accounting is
practiced
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A process of 4 activities:-
‡   relevant economic events. E.g: Sales of goods,
payments of salary
‡ m
 systematically and also classifying and
summarising (Measuring & Analysis)
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 to interested parties through financial
statements
‡

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(use of ratios, graphs, charts
to highlight trends etc) of "#" to permit
#"$%$" and $ by users of the
information
 
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Accounting is often called the language of business.
Uses of accounting information:-
‡ &% (within organisation)
E.g: Production, Financial, Human resource, Marketing
managers etc
‡ '&%
Ä Ênvestors use financial reports to buy, hold or sell shares
or to evaluate their return on investment
Ä Creditors & banks uses financial reports to evaluate risk
involved by selling on credit or provoding loans
Ä Ê B uses financial reports to determine company¶s taxes
Ä Competitors uses financial reports to compare
performance & efficiency
 
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m(&)"*")+%&,-.
‡ Does the company has enough cash to pay the bills?
‡ Can the company afford to pay bonuses and pay rise this
year?
‡ Are production cost under control?
‡ Which product are profitable, which ones are not?
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Accounting does not just j
 economic events and

circumstances, it 
them

Example:-
‡ Ênvestors allocate their funds on the basis of financial reports
‡ Executive remuneration (bonuses etc) linked to reported profits
‡ Government rate (e.g taxes etc) rises justified by budget
projections
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‡ Accounting information (general purpose financial reports or

information ± Balance Sheets, Êncome Statements, Cash Flow
Statement etc) prepared for distribution to external parties
‡ Used by shareholders, creditors, prospective investors,
regulatory agencies, social groups or general public ± external
parties: parties that do not have authority to u


information
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‡ Accounting information (special purpose financial reports ±

analysis of variances, costs, trends etc) prepared for ÷
use within an organisation
‡ Example: managers using accounting information to plan and
control activities and make resource allocation decisions
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‡ The independent testing of a general purpose financial reports

and expressing an opinion based on the specified criteria.
‡ Êntention: to provide assurance to the users of financial reports
regarding the reliability and credibility of such reports
‡ '&%$ ± function of auditing conducted by
professional accounting or auditing firm. More toward
independent testing of a general purpose financial reports and
expressing an opinion based on the specified criteria
‡ &%$ ± function of auditing conducted by internal
audit staff of an organisation itself. More toward checking and
evaluating of compliance to policies and SOP; and systems
improvement.
 
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‡ Legislation (e.g. Companies Act)

‡ Court decisions
‡ egulatory Agencies (Malaysian Accounting Standard Board,
Securities Commission of Malaysia, Bursa Malaysia)
‡ Accounting Profession (MÊA, MACPA)
‡ Convention
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101

:-
‡ esources owned/controlled by company
‡ Provide future benefits to the company through cash inflows
generated by the assets
‡ Example: Company owns hotel and receives payments of room
rentals, providing food & beverages, etc


=:-
‡ Amount owed to 3rd parties
‡ Claims by 3rd parties against assets owned by company
‡ Example: Bank loans, amount owed to suppliers of goods
bought on credit etc
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‡ Ownership claim on assets after deducting liabilities
‡ Claims by 3rd parties against assets owned by company
‡ Example: Bank loans, amount owed to suppliers of goods
bought on credit etc
‡ OWNE S¶ EQUÊTY CAN ÊNC EASE BY:-
Ä Owner investing more funds
Ä Making profits ( evenue > Expenses)
‡ OWNE S¶ EQUÊTY CAN DEC EASE BY:-
Ä Drawings ± withdrawal of fund for personal use (only for
sole trader & partnership)
Ä Êncurring losses ( evenue < Expenses)
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‡ QUESTÊON

‡ SOLUTÊON
  
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