Lesson 1 Introduction To Accounting

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Lesson 1Introduction To Accounting

• Task Team of
• FUNDAMENTAL ACCOUNTING
• Business School, Sun Yat-sen University

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Outline

• The nature of firm
• The value of accounting
• The Evolution of accounting
• Accounting A bird view

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Opening Story

• Everyone here is supposed to know the Outlaws of
  the Marsh
• Question I
• Who plays the role of CFO of the Marsh Mountain
  Liang?
• There are two

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Opening Story

• Some other positions related to accounting

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Opening Story

• Question II
• Why does the Marsh Mountaion Liang need such
  positions as CFO and Chief Controller?
• We must know that the title of SHUIHUZHUAN is
  also translated as All Men are Brothers.

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The Value of Accounting

• Why does accounting exist in every organization?
• I explain this question in another way what kind
  of unique value does accounting possess?
• The value must be fundamental and the society
  could not go without
• Another way to explain Darwinism
• Natural selection and the fittest survive

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The Nature of Firm

• Although every organization needs accounting, we
  just talk about enterprise accounting for
  simplicity
• What is the nature of firm?
• We discuss about human nature first

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The Nature of Man

• Ethic Man
• Human Nature Virtue vs. Evil
• Confucis vs. Hsun Tzu
• Economic Man
• There is no ethics concept in Economists
  dictionary
• It is not from the benevolence of the butcher,
  the brewer, or the baker that expect our dinner,
  but from their regards their own interest. (Adam
  Smith)

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The Nature of Man

• We need a compound analytical tool
• Maslow and the Hierarchy of Needs the most
  common tool
• Michael Jensen and William Meckling
• REMM
• Resourceful,
• Evaluator,
• Maximizer,
• Model.

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The Nature of Firm

• Classical theories
• A device to capture transaction costs
• A nexus of contracts
• Agency theory
• Economic Darwinism
• ,,,,
• REMM perspective
• A coalition of economic men

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The Nature of Firm

• On the coalition of economic men
• Why does REMM join a firm?
• Maximization of his own interests
• When does REMM quit from a firm?
• Seek different chance to maximize his own
  interests
• When we define human being as REMM, we have to
  solve the fundamental issue
• How does REMM trust each other?

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The Value of Accounting

• Without trust, we could not have even a family,
  let alone a firm
• 911 and the increase of trusting cost
• REMMs have to find efficient ways to develop and
  maintain trust
• They know that they have to
• The problem is how

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The Value of Accounting

• Historically, REMMs have created and experimented
  numerous ways
• Accounting is proven to be cost-effective
• It is suitable to all kinds of firms,
• No matter of their size,
• No matter of the geographic locations
• No matter of ownership

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The Evolution of Accounting

• Now that accounting is connected with human
  nature and trusting issue, we may trace the
  history of accounting to the early days of human
  beings, or Primitive Society
• the Incas and Quipu

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• Sumer and CUNEIFORM
• Phoenician and ALPHABET

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The Evolution of Accounting

• Why do our ancestors invent Alphabet?
• To build trusting via enhanced memory
• This is the right value of Accounting.
• Chronology of spelling by Steve Bett
• 3200 BC Writing developed as an extension of the
  accounting system in Babylon
• A British accounting scholar claimed
• Phoenician invented ALPHABETfor the sake of
  accounting.

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The Evolution of Accounting

• The primitive stage of accounting
• A tool to help to maintain the trusts
• Alphabet, numeric and organizational control

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The Evolution of Accounting

• The birth of double-entry bookkeeping
• A. C. Littleton on the birth of DEB
• Another story
• The Crusaders (1095-1270)
• Italian commodity economy, developed bank
  business
• DEB the symbol of accounting science

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The Evolution of Accounting

• From Bookkeeping to Financial Accounting
• Capital market accounting information is widely
  circulated
• The most common users outside of the reporting
  entity
• GAAP the symbol of the conversion
• Financial Accounting is also called External
  Accounting

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The Evolution of Accounting

• Industrial revolution and modern mass
  manufacturing process
• Business profiting model is changed
• Originally, buy low, sell high
• Now, buy raw materials, manufacture into products
  and sell out
• The determination of the cost of manufactured
  products is essential in profit determination
• Cost Accounting is invented

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The Evolution of Accounting

• From cost accounting to management accounting
• More complicated business activities
• Dynamic and keep-changing environment
• Much larger business scale
• Decision makingmuch more complicated
• Management Accounting isinvented

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The Evolution of Accounting

• From commodity market to capital market
• The developing of capital market raises two
  issues
• Effective ways to raise and allocate capital
• Trust crisis
• We have Corporate Finance and Auditing subjects
  respectively.

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Corporate Finance and Auditing
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The Evolution of Accounting

• Accounting will evolve with the development of
  economy and technology
• The invention of computer and its adoption into
  accounting practice
• Reduces time, effort and cost of record-keeping
• Improves clerical accuracy
• Changes the way we store, process and summarize
  large masses of data

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The Evolution of Accounting

• Website and Internet
• dissemination of accounting information easy
  and no increment cost
• Internet based financial reporting system
• Extensible Business Reporting Language (XBRL) was
  developed to provide users with an efficient and
  effective means of preparing and exchanging
  financial information over the Internet.
• Extensible Assurance Reporting Language (XARL)
  was designed to enable assurance providers to
  report on the integrity of information
  distributed over the Internet and help users and
  companies place warranted reliance on such
  information
• Events accounting may be re-introduced under
  internet environment

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The Evolution of Accounting

• SOX and its impact on accounting
• Enron filed for bankruptcy protect in December 3,
  2001
• WorldCom reported billions of false profit in
  June, 2002
• Sarbanes-Oxley Act of 2002 was signed by
  President Bush and becamea law in June 30, 2002
• It mainly focuses on accounting

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The Boundary of Accounting

• Accounting a boundless discipline
• What should accountants supposed to do?
• For instance, the job description of CFO
• The job description of chief controller
• No definite definition
• No generally accepted principles

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What should we do?

• ??????????,????????? ???????,????????,????,???
  ?????????? ???,?????,??????,???????
• The implication to us!

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• You may use knowledge freely as soon as you find
  the underlying regularity

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Summary

• The nature of firm contemporary interest
  coalition of REMM
• REMMs have to find cost-effective ways to build
  trust
• Accounting is proven cheap and reliable
• Accounting is evolving with economy and
  technology, etc
• Four main branches Financial accounting,
  management accounting, corporate financeand
  auditing
• Computer and internet already changedaccounting
  significantly

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Case for open discussion

• Collect relevant comments and news reports on the
  financial fraud of Shanghai listed company
  Hongguang Industrial (600083), especially the
  first lawsuit filed by Ms. Jiang from Shanghai.
• Requirements
• Is the suit filed by Ms. Jiang merit or
  meritless?
• Is the rejection by local court reasonable or
  not? Why?
• Suppose that Ms. Jiang had won the case, what
  kind of consequences are expected?

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The End of Lesson 1