Chapter 1 Flashcards
Financial Accounting Information
Information that is provided to external parties who have an interest in a company.
Managerial Accounting Information
Information used internally by management and others.
Financial Accounting
Information describing the financial resources, obligations, and activities of an economic entity (either an organization or an individual)
Financial Position
Entity’s financial resources and obligations at a point in time.
Results of Operations
Entity’s financial activities during the year.
Management Accounting
Development and interpretation of accounting information intended specifically to assist management in operating the business.
Accounting System
Consists of the personnel, procedures, technology, and records used by an organization (1) to develop accounting information and (2) to communicate this information to decision makers.
Internal Control
Process designed to provide reasonable assurance that the organization produces reliable financial reports, complies with applicable laws and regulations, and conducts its operations in an efficient and effective manner.
Five Components of Internal Control
Control environment, risk assessment, control activities, information and communication, and monitoring.
Control Environment
Foundation for all the other elements of internal control, setting the overall tone for the organization. Factors that affect a company’s control environment are: (1) integirty, ethical values, and competence of the company’s personnel, (2) management’s philosophy and operating style, (3) management’s assignment of authority and responsibility, (4) procedures for the hiring and training of personnel, and (5) oversight by the board of directors. Also important because fraudulent financial reporting often results from an ineffective control environment.
Risk Assessment
Identifying, analyzing, and managing those risks that pose a threat to the achievement of the organization’s objectives.
Control Activities
Policies and procedures that management puts in place to address the risks identified during the risk assessment process. Ex: approvals, authorizations, verifications, reconciliations, reviews of operating performance, physical safeguarding of assets, and segregation of duties.
Information and Communication
Developing information systems to capture and communicate operational, financial, and compliance-related information necessary to run the business.
Monitoring
Enables the company to evaluate the effectiveness of its system of internal control over time.
External Users
Individuals and other enterprises that have a current or potential financial interest in the reporting enterprise, but are not involved in the day-to-day operations of that enterprise.
