ACCT102 Week 1 Lecture 2 - Nature and Role of Accounting

These vocabulary flashcards define key terms, qualitative characteristics, and financial reporting standards based on the ACCT102 lecture notes.

Accounting

The process of identifying, measuring and communicating economic information about an entity to a variety of users for decision making purposes.

Business Transactions

The external exchange of something of value between $2$ or more entities that affect assets, liabilities, and equity, and can be reliably measured and recorded.

Stewardship

The responsible management and care of resources, assets, or responsibilities entrusted to an individual or organization, ensuring their sustainability and benefit for future generations.

Decision-usefulness

The helpfulness of accounting information to decision making.

Accounting Information System

A system designed to identify and capture relevant economic information, record it systematically, analyse and interpret it, and report it to suit the needs of users.

Internal Users

Parties such as an entity's owner or management for whom accounting information is extremely valuable.

External Users (Stakeholders)

Parties outside the entity, such as shareholders, customers, suppliers, banks, employees, and government authorities, who use information to make decisions about the entity.

Financial Accounting

The preparation and presentation of financial statements, such as the income statement and balance sheet, to allow users to make economic decisions about the entity.

Management Accounting

Economic information for internal users predominantly focused on planning, formulating budgets, monitoring, and decision making for future events.

GAAP

Generally accepted accounting principles; a set of rules and practices having substantial authoritative support that guide financial reporting, represented in NZ by accounting standards and the Corporations Act.

The Big Four

The four major professional accounting firms: KPMG, Deloittes, PriceWaterhouseCoopers (PWC), and Ernst and Young (EY).

External Reporting Board (XRB)

An independent Crown Entity responsible for setting accounting and auditing standards in New Zealand.

Objective of General Purpose Financial Reporting

According to paragraph OB2 of the Conceptual Framework, it is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Relevance

A fundamental qualitative characteristic implying that information should have predictive and confirmatory value for users.

Faithful Representation

A fundamental qualitative characteristic implying that financial information faithfully represents the phenomena it purports to represent.

Comparability

An enhancing qualitative characteristic that allows users to compare aspects of the entity at one time and over time, and between different entities.

Verifiability

An enhancing qualitative characteristic providing assurance that information faithfully represents what it suggests it is representing.

Timeliness

An enhancing qualitative characteristic ensuring information is available to all stakeholders in time for decision making purposes.

Understandability

An enhancing qualitative characteristic where preparers present information in the most understandable manner for users.

Cost Constraint

The major constraint on the provision of financial information, involving costs for collecting, processing, verifying, disseminating, and storing information.

Statement of Cash Flows

A financial statement that shows the sources and uses of cash for a period.

Statement of Comprehensive Income

Commonly referred to as the income statement or profit and loss statement; it measures and reports how much profit has been generated in a period.

Statement of Changes in Equity

A report showing all changes in owners' interest in the net assets from transactions during the period.

Statement of Financial Position

Commonly referred to as the balance sheet; it shows the assets of a business and the claims on those assets.

Forensic Accounting

A new area for the accounting profession involving investigations into areas such as computer hacking.

Sustainability/Carbon Accounting

A professional area dealing with business risk, greenhouse gas emissions, and carbon reporting.