Transcript Merchandising Operations and the Multiple

What is Accounting?
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The language of business - an information /
communication system
FASB #117 Quote: knowledge is gained by the orderly loss of
information; that is by taking the great buzzing confusion of numbers and
putting it into a form which can be understood and appreciated
Buffet: “Unlike God,
the stock market
does not forgive
those who do not
know what they do.”
One of the world’s richest men, Warren Buffet
attributes his success to being fluent in the
accounting, which he calls “the language of
business.” When asked by the daughter of a
business associate what she should study in
college, Buffet replied: “Accounting.” This is
because accounting skills help you understand
financial information. If you can’t read the
scorecard, you can’t tell the winners from the losers,
which means you can’t score. Says Buffet:
“Financial reporting for Berkshire Hathaway, and for
me personally, is the beginning of every decision
that we make around here . . . I’m punching out 10Ks and 10-Qs every single day . . .” [10-Ks and 10-Q
are annual and quarterly financial statements, resp.]
Importance of Providing
Accurate Financial Info
INFORMATION RISK
Ivar Kreuger
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Why Accounting is a Popular
Career Choice
1. Challenging Work
2. On-the-Job Exposure
3. Interesting People
4. Transferrable Skills
5. In Demand
See Video on
Jennifer de Leon
The stereotype
The stereotype
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Having public accounting
experience is invaluable in
terms of position and
advancement
This chart is taken from the 2014 NACE Survey and shows that accounting
majors and their close cousins (finance majors ) are doing very well indeed well.
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Did You Know that . . .
In 2013 (and prior years as well), accounting was the top
undergraduate degree in demand by employers?
In 2014, the average entry level salary for accounting graduates
ranged $50,000-$60,000, higher than in any other field except
engineering and computer science.
Women constitute 57% of those receiving bachelor degrees in
accounting?
Accountants are one of the FBI’s top choice when hiring special
agents. Nearly 2000 FBI agents, or about one in eight, have a
background in accounting, especially forensic accounting.
The CEOs of nearly half of the largest public companies in the UK
have accounting backgrounds. The percentage in the US is unknown
but could be equally as high.
Arthur Blank (founder of Home Depot), Phil Knight (founder of
Nike), along with many other executives, got their start as
accountants?
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CPA Certification
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The CPA is a highly-valued designation bringing
instant credibility, marketability and superior
earnings
You must have bachelor degree PLUS enough
college credits to total of 225 qtr credits (150 sem
cr), including 36 qtr cr (24 sem cr) of accounting
and another 36 of other business classes
(economics, finance, business law).
The CPA Exam is one of the hardest professional
exams. Four parts, 14 hrs long. Pass rates are
about 1-in-5 for all parts in one testing window.
To get license, must have one year of experience
under a CPA
Must also take an ethics exam.
Continuing Professional Education (CPE) of 40
hours per year (average) is required.
Check out WWU grad’s webpage
http://www.cpareviewmaterials.com/
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EXAMPLE OF PASS RATES PER WINDOW
CPA Exam has four parts (which can be taken separately):
1. Auditing and Attestation (AUD) 4 hours; 60% MC, 40% Simulation;
Courses: Auditing, Acct Info Systems; Cum. pass rate at one sitting is
46%.
2. Financial Accounting and Reporting (FAR) 4 hours; 60% MC, 40%
Simulation; Courses: Intermediate, Advanced, Cost & Managerial, Gov’t &
Nonprofit; Cum. pass rate at one sitting is 48%.
3. Regulation (REG) 3 hours; 60% MC, 40% Simulation; Courses:
Personal & Advanced Tax, B-Law, Prof Ethics (Auditing); Cum. pass rate at
one sitting is 48%.
4. Business Environment and Concepts (BEC) 3 hours; 85% MC, 15%
Writing: Courses: Econ, Finance, CIS, Mgmt, Acct Info Systems; Cum.
pass rate at one sitting is 56%.
The first two months of each quarter constitute a
testing window. Candidates can take 1-4 parts in a
testing window and have 18 months to pass all parts.
Total: 14 hours
For more info, go to
http://www.aicpa.org/BecomeACPA/Pages/BecomeaC
PA.aspx
or for state information:
http://www.becker.com/cpa-review/resources/aboutexam/requirements
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The Accounting Profession
PUBLIC ACCOUNTING
Size:
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local firm (Bruce J. Toews, CPA)
http://www.youtube.com/watch?v=98V9lD48tTk&feature=related (Girard Pisauro)
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Regional firm (Moss Adams)
National (McGladrey & Pullen)
International or Big 4
Firm
Deloitte
PwC
EY
KPMG
Revenues
$34.2bn
$32.1bn
$27.4bn
$23.4bn
Employees
210,400
184,000
190,000
155,000
Revenue Per
Employee
$162,547
$174,456
$144,211
$150,968
Fiscal
Year
2014
2013
2014
2013
Headquarters
United States (150+ countries)
United Kingdom (150+ countries)
United Kingdom
Netherlands
The Accounting Profession
PUBLIC ACCOUNTING
Services:
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Auditing of Financial
Statements
Assurance Services (e.g.
Grammies, Oscars, Florida vote
count)
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Environmental Accounting
Forensic Accounting
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See Video Rachel Buse
Information Technology
International Advisory
Management Consulting
Personal Financial Planning
Tax Advisory Services
For a complete 2014 report on CPA firms, see
http://www.citrincooperman.com/News-Events/Headlines/Press-Releases/CitrinCooperman-Ranked-25th-Largest-Firm-in-U-S-F/Accounting-TodayTop100Firms2014.aspx
The Accounting Profession
PUBLIC ACCOUNTING
Professional Staff: Partners or shareholders (owners), managers
(supervise 2 or more engagements), seniors (in-charge on one
engagement), staff assistants. Here is how it works at E&Y:
https://clarknuber.com/people/rhona-kwiram/
https://www.thiswaytocpa.com/profession/profiles/ Ben Ellingson Partner
June, 2014: Erin Sleeth will be admitted as a tax
partner based in PwC’s Portland office. She brings
over 16 years of experience working with clients in the
utilities, manufacturing, forest, paper and packaging,
industrial products and retail and consumer
sectors. Notably, she has significant experience
working with clients on alternative and renewable
energy incentives. Her experience includes deep
technical knowledge in areas such as accounting for
income taxes, public and private companies,
partnerships, and federal tax issues. Sleeth earned a
bachelor of science degree in accounting from Walla
Walla College and a master’s degree in taxation from
Golden Gate University. She is a licensed CPA in the
states of Oregon and California and a regular speaker
at local events, including TEI and PwC roundtables.
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The Accounting Profession
BUSINESS AND INDUSTRY
Size:
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small (e.g. local construction firm)
medium (e.g. Key Technology)
large (e.g. CostCo)
Services:
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Financial Management
Financial Reporting
Internal Auditing
Management Accounting
Tax Planning
The Accounting Profession
GOVERNMENT
Federal:
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FBI, IRS, GAO, Treasury Dept.
http://www.youtube.com/watch?v=8gVjS6LxYGs&feature=related (Lynette Williams, FBI agent)
State, County, City, School Districts, etc.
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State Treasury
Bond Financing
State & Local Utilities
Counties and cities
Universities, Community Colleges, local K-12 school districts
WHAT DO THEY DO?
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Analyzing a school district's ability to remain viable
The propriety of expenditures for constructing prisons
The effectiveness of the workers' compensation system
The regulatory compliance of hazardous waste programs
The Accounting Profession
NONPROFITS
Types of Organizations:
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Charities (Goodwill, Gates Fdn, Seattle Symphony, etc.)
Education (Whitman’s Controller; WWCC VP of Finance, WWU)
Healthcare (lots of connections here)
Churches, political parties, cemeteries, museums . . .
See Video Debra Lockwood
EDUCATION
Become a professor and torment hopelessly
befuddled groups of students with reams of
useless data.
Accounting professors are in high demand and paid
top faculty salaries
The three best reasons for teaching? June, July
and August
But the non-physical rewards are what really
makes it worthwhile – helping students realize
their dreams. See Video Kem Washsington
WHAT IS FINANCIAL ACCOUNTING?
Involves preparation/interpretation of financial statements
(covered in 1st two qtrs of Principles, & in Intermediate & Advanced Acctg)
On the other hand, managerial accounting focuses on decision-support
(covered in the last quarter or Principles and Cost & Mngrl Acctg).
WHAT IS FINANCIAL REPORTING?
Financial Statements and Auditors' Report PLUS
Management Discussion & Analysis (MD&A) PLUS
Other Info (pretty pictures, investor info, list of board members, other fluff
& stuff, etc.)
WHAT QUALITIES SHOULD FINANCIAL REPORTS HAVE?
Comparable
Accurate and Reliable
Fully-Disclosed
Timely
Relevant & User Friendly
Objective
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WHY HAVE ACCOUNTING STANDARDS?
Comparability and Efficiency – apples compared to apples
Report True Economic Results (measure profits properly)
Force Adequate Disclosure (warts and all)
Provide Objective, Unbiased, Auditable Figures
WHO SETS ACCOUNTING STANDARDS in US?
--SEC has ultimate authority but usually lets profession self-regulate
--1953-59: AICPA's Committee on Accounting Procedures (CAP) ARBs
--1959-73: AICPA's Accounting Principles Board (APB) Opinions
--1973-now
a) Private Sector: Financial Accounting Standards Board (FASB) –
SFASs, (7 members, full-time, well-paid, well-represented); FASB
Codification (http://asc.fasb.org/home)
b) Public Sector: Gov’t Accounting Standards Board (GASB)
Future? IASB will establish IFRS or iGAAP.
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Standard Setting
Business Entities
CPAs and
Accounting Firms
AICPA (AcSEC)
Financial
Community
FASB
Preparers
(e.g., FEI)
Government
Academicians
(SEC, IRS, other
agencies)
Investing Public
Accounting standards,
interpretations, and bulletins
Industry
Associations
Securities and Exchange Commission
Established by federal government
Accounting and reporting for public companies
Securities
Act of 1933
Securities
Act of 1934
Encouraged private standard-setting body
SEC requires public companies to adhere to GAAP
SEC Oversight and Enforcement Authority
Sarbanes-Oxley Act of 2002 (SarbOx or SOX) created the SEC’s
Public Companies Accounting Oversight Board (PCAOB) which is
charged with establishing auditing standards for public companies
and monitoring the audit firms.
HOW IS A STANDARD SET?
Need Identified
Discussion Memorandum (DM) out for at least 60 days
Public Response (much lobbying)
Exposure Draft (ED) or rough draft out for at least 30 days (usually longer)
Public Response (again much lobbying)
FASB votes (majority of 4/7 needed)
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Generally Accepted Accounting Principles
GAAP Documents
Most authoritative document
start at the bottom
Generally Accepted Accounting Principles
FASB Codification
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Goal in developing the Codification is to provide in one place
all the authoritative literature related to a particular topic.
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Creates one level of GAAP, which is considered authoritative.
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All other accounting literature is considered non-authoritative.
FASB has developed the Financial Accounting
Standards Board Codification Research
System (CRS). CRS is an online real-time
database that provides easy access to the
Codification.
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LO 6
Generally Accepted Accounting Principles
Illustration 1-5
FASB Codification
Framework
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LO 6
Challenges Facing Financial Accounting
Nonfinancial Measurements:
Ignores key performance measures used by managers, such as
customer satisfaction, backorder info, product quality rates, etc.
Forward-looking Information:
Financial statements primarily contain historical info, which isn’t
always relevant in a fast-moving world
Soft Assets:
The balance sheet ignores certain intangibles until they have been
turned into cash, such as superior managers, strategic location,
product domination, etc. (Which gets recorded by accountants:
purchase of a paperclip or hire of a new CEO?)
Timeliness:
Little real-time data is provided. This is changing.
Understandability:
Complexity is overwhelming to many investors.
WHY ARE INTERNATIONAL STANDARDS IMPORTANT?
Differences Between Countries Create Inefficiencies
Globalization of Financial Markets Requires Cross-Border Investment
IASB may eventually replace the FASB for public companies.
Convergence is planned within the next decade but major hurdles remain
International Financial Reporting Standards (IFRS or iGAAP) will
eventually replace U.S. GAAP for public companies. Private companies
will likely still follow “small GAAP” set by FASB.
Principle-based
Application (rules)based
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Illustration IFRS1-2
International Standard-Setting Structure
The world’s two big accounting bodies
Russell Golden
Chair of FASB
FASB (Norwalk, Connecticut)
http://www.fasb.org/jsp/FASB/
Page/SectionPage&cid=12182
20131802
Hans Hoogervorst,
Chair of IASB
IASB (London ,England)
http://www.ifrs.org/Theorganisation/Members-of-theIASB/Pages/Members-of-theIASB.aspx
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Big GAAP (public companies)
vs.
Little GAAP (for private
companies)
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