Accounting fundamentals: financial and managerial aspects at Unibo

LUCA PACIOLI: The Father of Accounting

Prof. Federica Farneti

Sustainable Development Goals

9.30-12.30 16 September 2024 Unit: 1

2 5 10 MARS CO 17 MORTS TAINABLE GOALS T 1 Accounting https://www.unibo.it/en/study/phd-professional- masters-specialisation-schools-and-other- programmes/course-unit-catalogue/course- unit/2024/502413 2

Learning Objectives - Unit 1

1. Explain the definition of accounting
2. Identify who the users of accounting information are and explain why they find accounting information useful
3. Identify the variety of professional services that accountants provide
4. Summarize the development of accounting from a broad historical perspective
5. Identify the key elements of ethical behavior for a professional accountant
6. Summarize the objectives of financial reporting for business enterprises

Understanding Organizations

3 Accounting The course is about understanding organizations under the financial, managerial and sustainable point of views ATTORI LONTANO Across the industries, different stakeholders rely on financial, managerial, social and environmental information to operate To be able to use such information you need an overall understanding of accounting fundamentals

• MANAGERIAL
• FINANCIAL
• SUSTAINABLE

Relevance of Accounting for Organizations

2Accounting Accounting, for different organizations, is relevant for recording transactions, to have a financial overview of financial performance, to plan new services, to develop budgets, to understand the cost of a product, to record the impact of CO2 emissions, etc.

Course Aim and Topics

5 Accounting The aim of the course is to provide knowledge on accounting and more specifically on financial accounting. However, the course introduces the following topics: Financial Accounting, Social and Environmental Accounting, Managerial Accounting.

Types of Accounting

6 3Accounting Financial Accounting refers to the process that results in the preparation and reporting of financial statements for an entity. DIVULGAZIONE Social and Environmental Accounting refers to public disclosures about the social and environmental performance of an entity. Management Accounting is concerned with the use of economic and financial information to plan and control many activities of the entity and to support the management decision-making process. In summary, accounting provides data to different stakeholders (for ex hospitality operators and managers) to inform their actions. PROVIDES DATA TO OFF. STAKEHOLDERS TO INFORM THEIR ACTIONS

Financial Statements Focus

7 Financial Accounting BILANCIO The focus of the course is mainly on financial statements. The course describes financial statements, explains how they are interrelated and summarizes key accounting concepts and principles. Financial statements are the product of the financial accounting process. They are the means of communicating economic information about the entity to individuals (who want to make decisions) and informed judgments about the entity's financial position, results of operations and cash flows. 8 FINANCIAL STATEMENTS ECONOMIC INFO ABT ENTITY TO INDIVIDUALS

Main Financial Statements

4Financial Accounting The main financial statements are: The Balance-Sheet SITUAZ. PATRIMONIALE 2 The Income Statement CONTO ECONOMICO The Statement of Cash Flows FLUSSI a CASSA RENDICONTO DEI The Statement of Changes in PROSPETTO Stockholders' Equity NETTO VARIAZ . PATRIM. 9

What is Accounting?

What is Accounting? Accounting is the process of: Identifying Measuring 1 Economic information about an entity -> For decisions and informed judgments Communicating 1-10 10

Users and Uses of Accounting Information

5Users and Uses of Accounting Information User Decision/Informed Judgmeent Made (use) Management Planning, directing, and controlling Investors/Shareholders INVESTITORI /AZIONISTI Assessing amounts, timing, and uncertainty of future cash returns on their investment Creditors/Suppliers CREDITORI/FORNITORI Assessing probability of collection and the risk of late (or non-) payment Employees Planning for retirement and future job prospects Varius governmental agencies Reviewing for compliance of all required information 11

Bookkeeping and Financial Accounting Process

Financial Accounting CONTABILITÀ LIBRI CONTABILI Bookkeeping is used to record and accumulate the financial statement results of many of an entity's activities. These procedures belong to the financial accounting process. PROCESSO DI CONTABILITÀ FINANZIARIA 12

Financial Accounting Characteristics

6Financial Accounting Financial accounting generally refers to the process that results in the preparation and reporting of financial statements for an entity. EXTERNALLY ORIENTED Financial accounting is primarily externally oriented and concerned with the historical results of an entity' s performance. HISTORICAL RESULTS 13

Managerial and Cost Accounting

Managerial Accounting and Cost Accounting How Much Does a 3D Printer Cost? Managerial accounting is related to the use of economic and financial information to plan and control many of the activities of the entity and to support the management decision-making process. CONTABILITÀ DEI COSTI Cost accounting is related to the determination and accumulation of product, process, or service costs. 14 PLAN AND CONTROL · DECISION-MAKING PROCESS

Managerial vs. Financial Accounting

7 Managerial Accounting versus Financial Accounting Managerial Accounting Financial Accounting Service perspective Internal - to managers External - to investors and creditors Time Frame Breadth of concern Present and Future Historical perspective Micro - Individual units of organization Macro - Entire organization Reporting frequency and promptness Frequent and timely - one day after period ends Monthly - a week or more after period ends Degree of precision Relevance more important than reliability High accuracy desired - reliability very important Reporting standards None imposed eneral accepted accounting pr and prescribed formats 15

Auditing and Public Accounting

Auditing-Public Accounting Public accounting firms and individual Certified Public Accountants (CPAs) provide auditing services and issue an independent auditor' s report. An independent auditor' s report usually contains four brief paragraphs and states whether the financial statements are prepared in conformity with generally accepted accounting principles. An auditor' s report can be unqualified (a "clean opinion") or qualified. 16

Internal Auditing Functions

8 Internal Auditing 17 Internal auditors are professional accountants who perform functions much like those of an external auditor. However, internal auditors are employed in industry rather than public accounting.

Governmental and Not-for-Profit Accounting

Governmental and Not-for-Profit Accounting HOSPITAL H Governmental units (e.g., municipal, state, and federal agencies) and not- for-profit entities (e.g., universities, hospitals, and religious organizations) require the same accounting functions to be performed as do other accounting entities. 18

Income Tax Accounting Specialties

9 Income Tax Accounting W-2 Copy 2 to be filed with employ Tax SMT WT Form 1040 26 27 28 20 30 4 240 Label lee For the year Jan Department of the Treasury - li U.S. Individual Inc develop specialties in the taxation of individuals, partnerships, corporations, trusts and estates, or international tax law issues. 19

Historical Development of Accounting

Ancient Accounting Practices

How Has Accounting Developed? Mesopotamians recorded tax receipts on clay tablets. 3000 B.C. 20 10

Luca Pacioli and Double-Entry Bookkeeping

City APRIL V.A. 2. Tax practitioners often 1 2How Has Accounting Developed? Luca Pacioli published the first textbook describing a comprehensive double-entry bookkeeping system. 3000 B.c1494 21

Industrial Revolution Impact on Accounting

How Has Accounting Developed? The industrial revolution of the 19th century generated the need for large amounts of capital to finance the enterprises that supplanted individual craftsmen. 3000 B.c1494 1800s This change resulted in a development of a corporate form of organization with the need to provide investors with reports showing the financial position and the results of operations. 22

Professionalization of Accounting in the U.S.

11 How Has Accounting Developed? 3000 B.c1494 1800s 1900s Accounting professionals in the U.S. organized themselves in the early 1900' s and worked hard to establish certification laws, standardized audit procedures, and other attributes of a profession. 23

Standards for Different Accounting Types

Standards for Other Types of Accounting Managerial/Cost Accounting Cost Accounting Standards Board (CASB) for government contracts Auditing/Public Accounting Auditing Standards Board (part of AICPA) State and Local Governments Governmental Accounting Standards Board (GASB) 24

Objectives of General Purpose Financial Statements

12Concepts Statement No. 8 (FASB) The Objectives of General Purpose Financial Statements Individual firms or entities External Users Historical cost Benefits exceed costs Timely information Notes and disclosures DIVULGAZIONE X COMPETENZA Accrual accounting Does not measure value of the firm Evolving 25

International Accounting Standards Board (IASB)

International Accounting Standards The goal of the International Accounting Standards Board (IASB) is to develop a single set of high-quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles. International Accounting Standards Board ® The IASB has issued 41 IASs and 19 IFRSs, by 2024 26

Ethics and the Accounting Profession

• Integrity
• Objectivity
• C Independence
• Competence 27

The Stakeholder Concept

L The Stakeholder Concept The word stakeholder refers to persons or groups that affect, or are affected by, an organization's decisions, policies, and operations QUOTA A stake is an interest in-or claim on-a business enterprise INCORPORATI Businesses are embedded in networks that involve many groups with such a stake 28 28

Understanding the Stakeholder Concept

14 The Stakeholder Concept: A Tip for Understanding Term stakeholder is NOT the same as stockholder The words sound similar BUT are not the same Stockholders are one of several kinds of stakeholders Ethical practices are required among the business world because different stakeholders need information. 29 29

The Meaning of Ethics

1 The Meaning of Ethics Ethics: . A concept of right and wrong (conduct) . Tells us whether our behavior is moral or immoral . Deals with fundamental human relationships-how we think and behave toward others and want them to think and behave toward us Ethical Principles: Guides to moral behavior • Business Ethics: · Application of general ethical ideas to business behavior 30

Key Reasons for Business Ethics

Meeting Stakeholder Demands

151 5 Key Reasons why Business Should be Ethical To meet demands of business stakeholders Organisational stakeholders require that businesses exhibit high level of ethical performance and social responsibility MIGLIORARE

Enhancing Business Performance

To enhance business performance . Research shows link between ethically responsible behavior and favorable corporate financial performance · Promoting positive alliances among business partners 31

Complying with Legal Requirements

5 Key Reasons Business why should be Ethical RISPETTARE To comply with legal requirements Two legal requirements provide guidance for US companies interested in being more ethical in their business operations . U.S. Corporate Sentencing Guidelines . Sarbanes-Oxley Act of 2002 . Although they apply only to U.S .- based firms, these legal requirements also provide a model for firms that operate outside the United States 32 16