ACC 607 Lecture Notes
Session 1

Types of Accounting

A. Financial Accounting

B. Managerial Accounting

Role of Accounting

* Safeguarding assets of the company (through record keeping) * Providing information to various user groups

* Creditors (lenders) * Investors (stockholders) * Managers (internal users) * Regulatory agencies (e.g., IRS)

* Of these groups investors may need the most comprehensive set of financial information. This will be our focus throughout this class.

Organizational Forms

* Sole Proprietorships * Partnerships * Corporations * Private * Public (our focus throughout this class)

* Stocks listed on recognized national stock exchanges * Limited liability * Geographically diverse stockholder group * Stockholders have no direct control over day-to-day operations * Investors need timely financial information to make decisions

Financial Reporting

* Regulated by the Securities and Exchange Commission (SEC) * SEC does not make the actual rules but has final say * Rules developed by the Financial Accounting Standards Board (FASB)

* Identifies areas that need to be fixed * Studies potential solutions * Circulates proposed rules for feedback * Recommends accounting procedures but SEC decides adoption * If adopted becomes part of Generally Accepted Accounting Principles (GAAP) * Standard setting is a political process * SEC Chairman appointed by the President

Need for regulation in financial reporting

* Maintaining investor faith in financial markets * What happens when investors lose faith? * Example – last few years (Enron, WorldCom, Banks…)

Periodicity of reporting

*