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CHAPTER 1 AN OVERVIEW OF FINANCIAL ACCOUNTING AND AUDITING The field of accounting encompasses a large range of activities and processes that deal with the capture, measurement, and communication of economic information to interested parties. Financial accounting focuses on issues of providing information about the results of a company’s activities to investors and creditors. Management accounting concentrates on the generation and communication of information to the managers of the enterprise. Tax accounting emphasizes the information that a firm reports to tax authorities such as the Internal Revenue Service. Accounting information systems centers on issues of how to gather and process data that are employed for financial, managerial, and tax purposes. Auditing is concerned with the verification of management assertions about accounting. In this text we shall focus on transactions and transactions processing. Transactions are activities of the firm; the accountant tracks and records these transactions. At an appropriate time the accountant summarizes the financial effects of the transactions and presents them to interested readers, typically in the form of financial statements or schedules. In addition to gathering data about transactions, the accountant also wants the bookkeeping efforts to be free from error and misstatement. This means that the accountant will build controls into the accounting system so that errors, intentional and unintentional, are discovered and corrected before the financial report is delivered to its audience.
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Ketz--Overview of Financial Accounting and Auditing Page 1-2 Much of the subject matter of this book is a part of financial accounting, though it will also venture into accounting information systems and auditing. It also touches upon that part of management accounting that is transactions-based. This chapter provides an overview of financial accounting and auditing. While the emphasis of the book will be on transactions and transactions processing, it is important to keep in mind the objectives of financial accounting and auditing in order to consider how to construct a transactions processing system that meets those objectives. This requires one to study the conceptual framework of financial accounting and the building blocks of auditing. After reading and studying this chapter, you should be able to: Define accounting, financial accounting, and the conceptual framework of financial accounting. State the objective of financial accounting and reporting; Explain the qualitative characteristics of information; Define the elements of financial accounting; Define transaction and transactions processing; Discuss the nature of auditing and distinguish between external auditing and internal auditing; Identify management’s assertions in the financial report and explain the importance of verifying these assertions; Define internal control and indicate its components; Discuss the contents of management’s responsibility report and an unqualified audit report; and Explain the most important ethical principle in financial accounting.
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This note was uploaded on 01/26/2011 for the course HRIM 318 taught by Professor Howard,paul during the Fall '10 term at Penn State.

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