Mª ANGELA JIMENEZ 1

STRUCTURE:

 1. INTRODUCTION TO ACCOUNTING
 2. FINANCIAL STATEMENTS
 3. BASIS CONCEPTS IN AUDITING
 4. EXTERNAL AUDITING
 5. INTERNAL CONTROL

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THE FRAMEWORK OF THE AUDIT IS ACCOUNTING.

DIFERENT FIELDS OF ACCOUNTING ARE:

 FINANCIAL ACCOUNTING
 COST ACCOUNTING
 INTERNATIONAL ACCOUNTING STANDARDS
 MERGER ACCOUNTING
 MANAGEMENT ACCOUNTING
 AUDITING
 EXTERNAL AUDIT
 INTERNAL AUDIT

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 ACCOUNTING IS VERY IMPORTANT FOR:

THE MAIN PURPOSE OF ACCOUNTING IS TO PROVIDE

USEFUL INFORMATION TO PEOPLE WHO MAKE
RATIONAL INVESTMENTS, CREDIT AND SIMILAR
DECISIONS.

ALL ORGANIZATIONS IN ECONOMIC ACTIVITIES USE

ACCOUNTING TO GENERATE INFORMATION ABOUT
THEIR ACTIVITIES.

THE INTERNAL ROLE OF ACCOUNTING IS TO SERVE THE

ORGANIZATION´S VARIOUS FUNCTIONS BY PROVIDING
INFORMATION THAT HELPS MANAGERS.

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ACCOUNTING PROVIDES: internal role of accounting

EXECUTIVE MANAGEMENT: Financial Statements,

budgets, performance reports.
FINANCE: Cash Flow Information
HUMAN RESOURCES: Payroll information
RESEARCH AND DEVELOPMENT: Cost reports.
PRODUCTION: Production reports, internal control.
MARKETING: Sales report, cost reports

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ACCOUNTING HELPS THE ORGANIZATION TO
REACH ITS OVERALL GOALS.

THE PRIMARY FUNTION OF ACCOUNTING IS

TO PROVIDE FINANCIAL INFORMATION:
 TO AN ORGANIZATION´S MANAGERS
 THAT IS USEFUL IN MAKING RATIONAL
INVESTMENT, CREDIT AND SIMILAR DECISIONS.
 TO AN ORGANIZATION´S CREDITORS

FIELDS IN ACCOUNTING:
 EXTERNAL ACCOUNTING- EXTERNAL AUDITING
 INTERNAL ACCOUNTING- INTERNAL AUDITING

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OWNERS AND MANAGERS USE ACCOUNTING
INFORMATION TO HELP THEM ANSWER
QUESTIONS LIKE:
 HOW MUCH INCOME IS IT EARNING?
 ARE THE EXPENSES APPROPIATE FOR THE
AMOUNT OF SALES?
DOES IT HAVE GOOD PROSPECTS FOR FUTURE
EARNINGS?
ARE THE CUSTOMERS´ ACCOUNTS BEING
COLLECTED PROMPTLY?

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ACCOUNTING´S EXTERNAL FUNCTION IS TO
PROVIDE:
 ASSURANCE THAT MANAGEMENT HAS COMPLIED
WHIT ALL LAWS.

 INFORMATION TO USERS WHO ARE NOT INVOLVED

IN THE ORGANIZATION´S DAILY ACTIVITIES
(STAKEHOLDERS)

 INFORMATION THAT MANAGERS USE TO CONTROL

BUSINESS OPERATIONS.

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IT IS NECESSARY TO DIFERENCIATE BETWEEN
ACCOUNTING AND BOOKKEEPING.

ACCOUNTING AND BOOKKEPING AREN´T THE

SAMETHING.

BOOKKEPING IS THE PART OF ACCOUNTING THAT

RECORDS TRANSACTIONS AND OTHER EVENTS.

ACCOUNTING INVOLVES DESIGNING AND

IMPLEMENTING SYSTEMS TO PRODUCE USEFUL
REPORTS AND TO CONTROL THE OPERATIONS OF AN
ORGANIZATION.

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ACCOUNTING INVOLVES DESIGNING AND
IMPLEMENTING SYSTEMS TO PRODUCE USEFUL
REPORTS AND TO CONTROL THE OPERATIONS OF AN
ORGANIZATION.

ACCOUNTING INVOLVES MORE PROFESSIONAL

EXPERTISE AND JUDGEMENT THAN BOOKKEEPING
BECAUSE ACCOUNTANTS MUST ANALYZE COMPLEX
AND UNUSUAL EVENTS.

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THE MOST COMMONLY USED SYSTEM OF
BOOKKEEPING IS THE “DOUBLE ENTRY BOOKKEEPING” .

IT IS BASED ON THE PRINCIPLE THAT EVERY FINANCIAL

TRANSACTION INVOLVES THE SIMULTANEOUS
RECEIVING AND GIVING OF VALUE, AND IS THEREFORE
RECORDER TWICE.

EVERY TRANSATION AFFECTS AND IS RECORDED IN AT

LEAST TWO ACCOUNTS. WHEN RECORDING EACH
TRANSATION, THE TOTAL AMOUNT DEBITED MUST
EQUAL THE TOTAL AMOUNT CREDITED. THE SUM OF
DEBITS FOR ALL ENTRIES MUST EQUAL THE SUM OF THE
CREDITS FOR ALL ENTRIES.

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FINANCIAL ACCOUNTING: PROVIDES INFORMATION TO
DECISION MAKERS WHO ARE NOT INVOLVED IN THE
DAY-TO-DAY OPERATIONS OF AN ORGANIZATION.
(STAKEHOLDERS)

THE INFORMATION IS DISTRIBUTED PRIMARILY

THROUGH GENERAL PURPOSE FINANCIAL STATEMENTS:
 STATEMENT OF REVENUES AND EXPENSES
 BALANCE SHEET
 RELATED EXPLANATORY NOTES

FINANCIAL STATEMENTS DESCRIBE THE CONDITION OF

THE ORGANIZATION AND THE EVENTS THAT
HAPPENED DURING THE YEAR.

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THE AUDIT IS RELATIONED WITH THIS FIELD OF
ACCOUNTING. ( BY INDEPENDENT CPAs)

THE AUDIT IS A THOROUGH CHEK OF AN

ORGANIZATION´S ACCOUNTING SYSTEMS AND
RECORDS. IT IS PERFORMED TO ADD CREDIBILITY TO
THE FINANCIAL STATEMENTS.

FOR EXAMPLE, BANKS REQUIRE AUDITS OF THE

FINANCIAL STATEMENTS OF COMPANIES APPLYING FOR
LARGE LOANS. (STAKEHOLDERS)

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ALSO, FEDERALS AND STATE LAWS REQUIRE
COMPANIES TO HAVE AUDIT BEFORE THEIR SECURITIES
(STOCKS AND BOUNDS) CAN BE SOLD TO THE PUBLIC.
(STAKEHOLDERS)

TO PERFORM AN AUDIT, AUDITORS:

 TO EXAMINE THE FINANCIAL STATEMENTS

 TO EXAMNIE ACCOUNTING SYSTEM.
 TO DECIDE WHETHER THE STATEMENTS REFLECT THE
COMPANY´S FINANCIAL POSITION
 TO DECIDE WHETHER ACCOUNTING SYSTEM IS IN
AGREEMENT WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)

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THESE PRINCIPLES ARE RULES ADOPTED BY THE
ACCOUNTING PROFESSION AS GUIDE FOR MEASURING
AND REPORTING THE FINANCIAL CONDITION AND
ACTIVITIES OF A BUSINESS.

WHEN AN AUDIT IS COMPLETED, THE AUDITORS

PREPARE A REPORT THAT EXPRESSES THEIR
PROFESSIONAL OPINION ABOUT THE FINANCIAL
STATEMENTS.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

(GAAP) ARE IDENTIFIED IN RESPONSE TO THE NEEDS OF
USERS AND OTHER AFFECTED BY ACCOUNTING. THEIR
ARE SUBJECT TO CHANGE AS NEEDS CHANGE.

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TO GIVE USERS MORE CONFIDENCE IN THE
STATEMENTS, INDEPENDENT AUDITORS USUALLY
EXAMINE THE FINANCIAL STATEMENTS AND DEVELOP
AN AUDIT REPORT. (MERCANTILE REPORT)

THE STATEMENTS AND THE AUDIT REPORT THEN ARE

DISTRIBUTED TO THE USERS. (STAKEHOLDERS)

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THE GAAP ARE APPLIED IN PREPARING THE FINANCIAL
STATEMENTS.

PREPARERS USE GAAP TO DECIDE WHAT PROCEDURES

TO FOLLOW AS THEY ACCOUNT FOR BUSINESS
TRANSACTIONS AND PUT THE STATEMENTS TOGETHER.

IN THE DIAGRAM, WE SHOW THAT AUDITORS ARE

PERFORMED IN ACCORDANCE WITH GENERALLY
ACCEPTED AUDITING STANDARDS-GAAS AND ANALIZE
THE GAAP ADOPTED AND USED TO PREPARE THE
ACCOUNTING.

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GAAP ARE THE RULES ADOPTED BY THE ACCOUNTING
PROFESSION AS GUIDE FOR CONDUCTING AUDITS OF
FINANCIAL STATEMENTS.

GAAS TELL AUDITORS WHAT THEY MUST DO IN THEIR

AUDITS TO DETERMINE WHETHER THE FINANCIAL
STATEMENTS COMPLY THE GAAP.

APPLYING BOTH GAAP AND GAAS ASSURE USERS THAT

FINANCIAL STATEMENTS INCLUDE RELEVANT,
RELIABLE AND COMPARABLE INFORMATION.

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THE AUDIT DOES NOT ENSURE THAT THEY CAN SAFELY
INVEST IN OR LOAN TO THE COMPANY.

THE AUDIT DOES NOT REDUCE THE RISK THAT THE

COMPANY´S PRODUCTS AND SERVICES WILL NOT BE
SUCESSFULLY MARKETED OR THAT OTHER FACTORS
COULD CAUSE IT TO FAIL.

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THE PRIMARY AUTHORITATIVE SOURCES OF GAAP ARE
THE FINANCIAL ACCOUNTING STANDARDS BOARD
(FASB) IN U.S.A.

THE MOST IMPORTANT ORGANIZATION IN THE WORDL

IS THE INTERNATIONAL ACCOUNTING STANDARDS
BOARDS (IASB). ITS PRINCIPAL OBJETIVE IS TO CREATE
MORE HARMONY AMONG THE ACCOUNTING
PRACTICES OF DIFFERENT COUNTRIES AND TO
DEVELOP A SINGLE SET OF HIGH QUALITY,
UNDERSTANDABLE AND EFORCEABLE GLOBAL
ACCOUNTING STANDARD THAT REQUIRE HIGH
QUALITY, TRANSPARENT, AND COMPARABLE
INFORMATION IN FINANCIAL STATEMENTS AND OTHER
FINANCIAL REPORTING.
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IF THE STANDARDS COULD BE HARMONIZED, A SINGLE
SET OF FINANCIAL STATEMENTS COULD BE USED BY
ONE COMPANY IN ALL FINANCIAL MARKETS.

IN 2007, THE COUNTRIES FROM EUROPEAN COMUNITY

WILL APPLY THE SAME STANDARDS, THE IAS
(INTERNATIONAL ACCOUNTING STANDARD). THIS
HARMONY PROCESS WILL CHANGE THE GAAP USED IN
EVERY COUNTRY OF THE EUROPEAN COMMUNITY.

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ACCOUNTING PROCESS:

Reporting Capturing
Processing
Bussines Useful Data:
Data:
Transactions Information: F.S. And
Analyzing,
Classifying Other reports
Economics
Other And summari Presented
Events and
Internal -Sing the To economic
Recording
events Recorded Decision
Their effects
effects Makers.

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MANAGEMENT ACCOUNTING. IT IS RELATED WITH
INTERNAL AUDIT.

MANAGEMENT ACCOUNTING COULD BE DEFINED AS:

“THE APPLICATION OF THE PRINCIPLES OF

ACCOUNTING AND FINANCIAL MANAGEMENT TO
CREATE, PROTECT, PRESERVE AND INCREASE VALUE SO
AS TO DELIVER THAT VALUE TO THE STAKEHOLDERS OF
PROFIT AND NON-PROFIT ENTERPRISES, BOTH PUBLIC
AND PRIVATE”

M.A.: INVOLVES PROVIDING INFORMATION TO AN

ORGANIZATION´S MANAGERS.

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MANAGEMENT ACCOUNTING IS AN INTEGRAL PART OF
MANAGEMENT, REQUIRING THE IDENTIFICATION,
GENERATION, PRESENTATION AND USE OF
INFORMATION RELEVANT TO:

 FORMULATING BUSINESS STRATEGY

 PLANNING AND CONTROLLING ACTIVITIES
 DECISION-MAKING
 EFFICIENT RESOURCE USAGE
 PERFORMANCE IMPROVEMENT AND VALUE
ENHANCEMENT

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 SAFEGUARDING TANGIBLE AND INTANGIBLE ASSETS
 CORPORATE GOVERNANCE AND INTERNAL
CONTROL.

INSIDE MANAGEMENT ACCOUNTING IS POSIBLE TO

DIFERENCIATE “COST ACCOUNTING”.

IT CAN BE DEFINED LIKE THE ESTABLISHMENT OF

BUDGETS, STANDARDS COST AND ACTUAL COST OF
OPERATIONS, PROCESSES, ACTIVITIES OR PRODUCTS. IT
INCLUDES THE ANALYSIS OF VARIANCES,
PROFITABILITY OR THE SOCIAL USE OF FUNDS.

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COST ACCOUNTING IS A PROCESS OF ACCUMULATING
THE INFORMATION MANAGERS NEED ABOUT
OPERATING COST.

ITS HELPS MANAGERS IDENTIFY, MEASURE, AND

CONTROL THE COST.

COST ACCOUNTING INVOLVES ACCOUNTING FOR THE

COSTS OF PRODUCTS, SERVICES OR SPECIFIC
ACTIVITIES.

THIS INFORMATION IS USEFUL FOR EVALUATING EACH

MANAGER´S PERFORMANCE.

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MANAGEMENT ACCOUNTING SYSTEM PROVIDES
INFORMATION TO ASSIST MANAGERS IN THEIR
PLANNING AND CONTROL ACTIVITIES.

MANAGEMENT ACCOUNTING ACTIVITIES INCLUDE

COLLECTING, CLASSIFYING, PROCESSING AND
ANALYZING AND REPORTING INFORMATION TO
MANAGERS.

THIS INFORMATION SHOULD BE DESIGNED TO HELP

DECISION MAKING WITHIN THE FIRM.

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THE TEST OF MANAGEMENT ACCOUNTING SYSTEM IS
WHETHER IT MOTIVATES AND ASSISTS MANAGERS IN
ATTAINING THEIR ORGANIZACIONAL OBJECTIVES IN A
TIMELY, EFFICIENT AND EFFECTIVE MANNER.

MANAGERIAL ACCOUNTING REPORTS INCLUDE MUCH

OF THE SAME INFORMATION USED IN FINANCIAL
ACCOUNTING. THIS INFORMATION IN NOT REPORTED
OUTSIDE THE COMPANY.

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