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Lesson Description
This lesson explains about the nature and purpose of the
accounting function in a business context. On the completion of
this lesson, the student will be able to understand the relationship
of IT to accounting and finance, financial and non-financial
objectives and identify the main stakeholder groups.
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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What is Business?
Business means the exchange of goods and services for money. It can
be an organisation or an economic system.
A business is an organisation that regularly enters into transactions
that are expected to provide a reward measurable in monetary terms.
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What is Accounting?
Accounting is concerned with measurement and management.
Measurement is mainly concerned with the recording of past data,
and management with the use of that data in order to make
decisions that will benefit the organisation.
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Financial Accounting
Financial accounting is the classification and recording of
monetary transactions of an entity in accordance with established
concepts, principles, accounting standards and legal requirements,
and their presentation, by means of various financial statements,
during and at the end of an accounting period.
Source: CIMA Fundamentals in Financial Accounting (2009)
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Accounting Functions
In large organisations, accounting department performs a number of functions.
Hence, sometimes, the accounting department is split into number of different
functions as depicted in the below diagram:
Finance Director
Chief
Accountant
Financial Accounting
Auditor Relationship
Tax
Manager
Treasurer
Debt strategy
Currency Management
Tax strategy
Tax mitigation
Management
Accountant
Management information
and accounting
Budgeting and forecasting
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Branches of Accounting
Accounting can be divided into two branches as follows:
ACCOUNTING
Financial
Accounting
Management
Accounting
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Management
Investors
Creditors
Lenders
Government
Employees
Customers
Others
For
Decision
Making
Users of Information
Purpose of Accounting
Profitability
Liquidity
Stability of
operations
Ability to settle
obligations
Tax bases
Going concern
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Financial Accounting
Purpose of using
information
To aid planning,
controlling & decision
making
To record financial
position and performance
Legal Requirements
None
Nature of Information
Time period
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Information Systems:
Refer to the management and provision of information to
support the organisational functioning.
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Advantages of Computerisation
SPEED
ACCURACY
Advantages of
Computerization
VOLUME
COMPLEXITY
COST
PRESENTATION
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Business Objectives
Business objectives are set by a business to achieve its aims.
Objectives should be SMART. It is an acronym used to reflect the criteria
business objectives must fulfill. It simply tells you how to set good targets.
They give the business a clear target.
This allows people to make plans in order to meet that target
S
Specific
M
Measureable
A
Achievable
R
Realistic
T
Timed
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Categories of Objectives
Business objectives can be categorised into two main categories as
follows:
Business
Objectives
Financial
Objectives
Non Financial
Objectives
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Financial Objectives
Financial objectives are set in monetary terms by a company. It is
important to set such objectives for following reasons:
Business survival
To break even
To improve company image and reputation
To motivate employees
To maximise profits
To increase market share
For business growth
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Types of Stakeholders
Internal Stakeholders
These are any stakeholders that are within the organisation. Their objectives are likely
to have a strong influence on how it is run. Internal Stakeholders include:
Stakeholder
Need/ Expectation
Example
Employees
Managers/ Directors
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Connected Stakeholders
Connected stakeholders either invest in or have links with the firm. Their
objectives include:
Stakeholder
Need/ Expectation
Shareholders
Customers
Suppliers
Paid promptly
Finance
providers
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External Stakeholders
These stakeholders do not have a direct link to the organisation, but can
influence or be influenced by its activities.
Stakeholder
Need/ Expectation
Community at large
Environmental
pressure groups
Government
Trade Unions
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Stakeholder Conflict
An organisation can have many different stakeholders, all with different
needs. Inevitably, some of these stakeholder needs will come into conflict
with the needs of others. Some of the most common conflicts include:
Stakeholders
Conflict
Employees Vs Managers
Jobs/wages Vs bonus
Customers Vs Shareholders
Managers/ Shareholders
Growth Vs Independence
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Mendelows Matrix
When there is a stakeholder conflict, an organisation will have to decide on the
most important stakeholder needs. Usually, this will be the needs of the most
dominant stakeholder (the one with the most power). Mendelows power- interest
matrix is a useful tool to prioritise such conflicting stakeholder interests.
Low
Level of Interest
High
Low
Minimal Effort
Keep Informed
High
Keep Satisfied
Key Players
Level of
Power
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Topics:
What is Accounting?
Financial Accounting Function
Users of Financial Statements
Mendelows Matrix
Shareholder Value Added
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Thank You
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