Accounting
Accounting is a comprehensive information system for collecting, analyzing, and communicating financial information. It measures business performance and translates findings into data that supports management decisions.
- Bookkeeping = recording accounting transactions (a subset of accounting)
- Accounting Information System (AIS) = the organized procedure for identifying, measuring, recording, and retaining financial information for use in statements and reports
- Controller = the individual who manages all of a firm’s accounting activities (chief accounting officer)
How It Appears Per Course
ADMN 201
Accounting serves multiple stakeholders. Managers use it to plan and control; investors use it to evaluate returns; creditors use it to assess risk; regulators use it to ensure compliance. Accurate accounting protects all of these groups — inaccurate accounting harms all of them.
Financial vs. Managerial Accounting
graph LR AIS[Accounting Information System AIS] AIS --> FA[Financial Accounting External users Shareholders, Creditors Government, Public] AIS --> MA[Managerial Accounting Internal users Managers, Employees Departments] FA --> FS[Financial Statements Balance Sheet Income Statement Cash Flows] MA --> MR[Management Reports Budgets, Forecasts Cost Analysis]
(diagram saved)
| Financial Accounting | Managerial Accounting | |
|---|---|---|
| Users | External (shareholders, creditors, regulators) | Internal (managers, employees) |
| Focus | Company as a whole | Departments, divisions, projects |
| Reports | Balance sheet, income statement, cash flows | Budgets, cost analyses, projections |
| Standards | IFRS or ASPE (regulated) | No external standard required |
Professional Designations in Canada
Three legacy designations were unified into a single CPA (Chartered Professional Accountant) designation. Over 220,000 CPAs in Canada as of 2021.
| Old Designation | Now | Typical Focus |
|---|---|---|
| Chartered Accountant (CA) | CPA, CA | External auditing, tax, advisory for other firms |
| Certified Management Accountant (CMA) | CPA, CMA | Internal management accounting |
| Certified General Accountant (CGA) | CPA, CGA | Private company financials and auditing |
Accounting Services
Auditing
An audit = examination of a company’s AIS to verify that financial reports comply with proper accounting rules. Auditors check receipts, shipping documents, payroll records, inventory (sometimes physically), and other records.
Forensic Accountants = specialists who track down hidden funds and financial fraud. Called upon by law enforcement, courts, and insurance companies. One of the fastest-growing areas in accounting.
Tax Services
Help clients with tax planning and return preparation. Proper tax structuring can save businesses millions of dollars.
Management Consulting Services
Range from financial planning to corporate mergers, production scheduling, marketing studies, plant design, and computer feasibility studies.
Accounting Standards
| Standard | Applies to | Notes |
|---|---|---|
| IFRS (International Financial Reporting Standards) | Publicly traded companies and government enterprises | Canada adopted 2011; used in 140+ countries |
| ASPE (Accounting Standards for Private Enterprises) | Private businesses in Canada | Simpler than IFRS |
| GAAP (Generally Accepted Accounting Principles) | Historical standard | Now largely replaced by IFRS in Canada |
Apple uses GAAP; Samsung uses IFRS — same industry, different accounting rules, different reported numbers. This inconsistency is what the IASB is working to resolve.
Ethics in Accounting
The purpose of ethics in accounting is to maintain public confidence in financial markets and institutions. Without ethics, accounting tools are meaningless — their usefulness depends entirely on truthfulness.
Professional associations enforce codes of conduct covering: accountant responsibilities to the public, integrity, and prohibition of misrepresentation and fraud in financial statements.
The Maple Syrup Example: An accountant auditing the Global Strategic Maple Syrup Reserve discovered barrels filled with water rather than syrup — uncovering an M+ theft through standard audit procedures. Three men were convicted. Standard accounting practices exposed what no one else caught.
Cross-Course Connections
AccountingEquation-FinancialStatements — the primary outputs of the accounting process
FinancialRatios — tools for interpreting accounting data
FinancialManager — relies on accounting information for all four finance functions
Key Points for Exam
- Accounting = collecting, analyzing, communicating financial information
- Financial accounting = external users; managerial accounting = internal users
- CA + CMA + CGA unified into CPA designation (~2022)
- Three accounting services: auditing, tax, management consulting
- Audit = examination of AIS to verify financial reports comply with rules
- Forensic accounting = tracking hidden funds; fastest-growing specialty
- IFRS = international standard adopted by Canada in 2011 (publicly traded companies)
- ASPE = for private enterprises in Canada
- Ethics = foundation of public confidence in accounting and financial markets
Cross-course: ClassificationSystems-Accounting — accounting’s asset/liability/equity structure must satisfy PHIL 252’s four classification rules Cross-course: DataVisualization-FinancialRatios — financial charts and ratio presentations are subject to PHIL 252’s data visualization critique