financial accounting: a managerial perspective april 2014 © phi learning private limited new delhi...

1 April 2014 © PHI Learning Private Limited New Delhi 1

Financial Accounting:A Managerial Perspective

Fifth Edition

Prepared by R. NarayanaswamyIndian Institute of Management Bangalore


Chapter 1

Accounting, Markets, and Governance


Understanding Business Organizations

� Merchandising organizations

� Manufacturing organizations

� Service organizations

� Business organizations as cash generating-cum-dispensing machines


Business Organizations


What is Accounting

� Accounting is the language of business

� Who should know accounting?

� Why accounting in MBA?

� The MBA Oath and financial reporting

� Accounting information and economic decisions


The Accounting Information System


Users of Accounting Information

� Investors

� Lenders

� Analysts and advisers

� Managers

� Employees and trade unions

� Suppliers and trade financiers

� Customers

� Government and regulatory authorities

� The public


Financial Accountingand Management Accounting

� Financial accounting

� Management accounting

� How do they differ?


Accounting Measurement Assumptions

� Reporting entity

� Going concern� Historical cost

� Periodicity

� Money measurement


Generally Accepted Accounting Principles and the Accounting Environment


Generally Accepted Accounting Principles and the Accounting Environment

� Accounting standards and policies� Accounting standards

� Accounting standard-setting arrangements

� Accounting policies

� Converging IGAAP with IFRS� IGAAP

� IFRS

� Ind AS

� Principles or rules?


Forms of Business Organization

� Sole proprietorship

� Partnership

� Limited company� Listed

� Public

� Private

� Limited liability partnership

� Legal formalities for a limited company


The Corporate Organization


Accounting, Capital Market and Corporate Governance

� The lemons principle and the problem of adverse selection

� Signalling quality

� Moral hazard and corporate governance


The Accounting Equation

� Economic resources = Claims

� Assets = Liabilities + Equity

� Assets: “own”

� Liabilities: “owe”

� Equity: “residual interest”

� Analyzing the effect of transactions


Financial Statements

� Statement of profit and loss

� Statement of retained earnings

� Balance sheet

� Cash flow statement

� Statement of retained earnings

� How are the financial statements interrelated?

� Preview of financial statement analysis


What do Accountants Do?

� Public accounting� Auditing

� Forensic accounting and risk management

� Tax services

� Advisory services

� Bankruptcy

� Small business services

� Private accounting� Management accounting

� Internal auditing

� Information systems

� Government accounting

� Not-for-profit accounting


Accounting as an Academic Discipline

� Illustrative research areas� Accounting and stock prices

� Benefits of disclosure

� Usefulness of accrual and cash

� Reporting losses faster than gains

� Selection of accounting methods and disclosure levels

� Predicting future profits from past profits

� Disclosure and managerial behaviour

� Executive pay and financial performance


Fraud and Ethical Issues in Accounting

� What leads to fraud and unethical accounting?

� Fraud-hit companies: e.g.� Satyam

� Enron

� WorldCom

� The Satyam case

� Resolving ethical dilemmas

� Whistle-blowing


End of Chapter 1

Accounting, Markets, and Governance

financial accounting: a managerial perspective april 2014 © phi learning private limited new delhi...

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