ACCY 111 – TUTORIAL 1 (WEEK 2)
Discussion Questions
1. You are considering buying an apartment. Outline the information you would like to assist you to
make this decision. Identify how much of this information is accounting information?
Considerations when buying an apartment include factors such as location, type (studio, one
bedroom, two or three bedrooms), size (bigger rooms, additional bathroom, balcony), age of the
apartment, and available funds. Information to assist the purchase decision includes whether the
apartment is for residential or investment purpose, personal taste (e.g. interior design, view),
distance to workplace or train stations, funds to meet ongoing costs like repairs and maintenance
required after purchase, body corporate fees, council rates, and insurance. Initial purchase
considerations include whether the apartment is to be purchased outright or through a home loan
taken with a financial institution, stamp duty to be paid, and the eligibility of obtaining first-
home buyer grant from the federal/state government. Purchase considerations and ongoing costs
represent accounting information relevant to the decision-making process.
2. Describe the differences between accounting information and other information.
Accounting information comprises financial information summarised in the form of financial
reports. Accounting information is used to provide information about the financial costs of
business decisions. It differs from other information used in the business decision-making
process due to the financial nature of measuring economic resources used in business
transactions. Other information which may be used in the decision making process includes
personal preferences, social factors like the effect on unemployment, environmental factors (like
pollution and waste management) and government policy effects on decision making in business
entities. Should accountants also report social and environmental information, or is this the task
of others?
3. ‘Accounting is irrelevant in decision making because the information it provides relates only to
the past.’ Evaluate this remark.
Accounting is relevant to the decision-making process as it helps provide financial information
as to the most efficient use of available economic resources. Although accounting provides
financial information based on past financial transactions, it is useful in giving details on how
efficiently an organisation has been using its available resources. For example, what profit has
the accounting entity reported based on the assets used? A reported profit of $50 000 where an
entity has total assets of $200 000, appears more favourable when compared to an entity which
has total assets of $1 000 000. Accounting information is useful in providing decision makers
with information about the outcomes of their past business decisions. Past performance also
gives insight to the future trends for the entity. Accounting information is also used as part of
the budgeting process of a business entity.
4. Distinguish between the work performed by public accountants and the work performed by
accountants in commerce and industry and in not-for-profit organisations.
Public accounting
Public accountants run businesses which offer their professional services to the public for a fee.
These vary from small businesses to very large international organisations. Members of public
accounting businesses tend to specialise in one of four general services: auditing and assurance
services, taxation services, advisory services, and insolvency and administration.
Auditing and assurance services
An audit is an independent examination of a business entity’s financial reports, supporting
documents and records in order to form an opinion as to whether the financial reports comply
with certain levels of quality, as specified in accounting standards, and present a true and fair
view of the entity’s performance and financial position. It is essential that auditors are
independent observers in carrying out their duties.
Assurance services are defined as ‘independent professional services that improve the quality of
information, or its context, for decision makers’. Emphasis is being placed on the detection of
fraud and assessing whether the entity is appropriately placed to remain as a going concern. The
auditor is required to report on the ‘credibility’ of information.
Taxation services
Accountants provide advice concerning the tax consequences of business decisions. Individuals
and business entities have to collect or pay various forms of taxes including income tax, capital
gains tax, fringe benefits tax, goods and services tax, local government rates, and other taxes.
Accountants are often engaged to help in tax planning to minimise the tax liability of the
business, consistent with the rules and regulations established by taxing agencies. Accountants
also are often called upon to prepare tax returns, including business activity statements (BASs),
required by law.
Advisory services
Accountants provide advice on:
overcoming detected defects or problems in a client’s accounting system.
the installation and modification of computer systems,
budgeting, forecasting and general financial planning,
design or modification of superannuation plans
company mergers and takeovers,
personal financial planning, and
managing deceased estates.
Insolvency and administration
Public accountants help businesses administer their recovery from trading difficulties or
insolvency, if possible. However, if recovery is not possible, accountants then help in the
winding-up of the business’s affairs. In the case of the company form of business organisation,
such a wind-up is referred to as liquidation.
Accountants in commerce and industry
An entity’s chief financial officer (CFO) has overall responsibility for directing the activities of
accounting personnel. In a large company, the CFO may have several management accountants
as part of the finance team. Overall responsibilities include:
General accounting
The accountant in commerce and industry is required to oversee the recording of transactions
undertaken by the business entity and to prepare reports specially tailored for use by
management in their planning, control and decision-making activities.
Cost accounting
The accountant deals with the collection, allocation and control of the costs of producing
specific products and services. Knowledge of the cost of each manufacturing process and each
service activity is important in making sound business decisions.
Accounting information systems
Accountants are often heavily involved in designing both manual and computerised accounting
information systems. Once systems have been designed and installed, their operation is
constantly monitored for improvements and system maintenance. Integrity of data and privacy
issues are of paramount importance.
Budgeting
Accountants deal with the preparation of plans and forecasts of future operations. Budgets also
serve as control devices when used in conjunction with performance reports, which measure
actual results for the period. Budgets also are used in assessing the efficiency of operations.
Taxation accounting
Businesses are assessed for a variety of taxes all of which require the preparation of periodic
reports to the various taxing agencies. The effects of tax must be considered in every
investment and financing decision made by management. Some businesses rely on public
accountants for some tax-planning advice and tax-return preparation, but many large companies
also maintain a tax accounting department to deal with tax issues and problems.
Internal auditing and audit committees
The internal audit committee in a business conducts ongoing reviews to make certain that
established procedures and policies are being followed. Thus, any deficiencies can be identified
and corrected quickly.
Not-for-profit accounting
Government
City councils, shire councils, state governments and the federal government collect and spend
large amounts of money annually. Many of the problems and decisions faced by government
officials are the same as those encountered in private industry, but accounting for not-for-profit
entities may require a different approach in some respects because of the absence of a profit
motive. Government accounting is concerned with the efficient usage of its resources,
consistent with the provisions of city, shire, state and federal laws.
Other not-for-profit organisations
Churches, hospitals, charities, clubs, private educational institutions also have specialised
accounting needs.
5. Describe what it means to behave ethically.
Ethics can be defined as ‘moral principles that govern a person’s behaviour or the conducting of
an activity (Oxford Dictionary). Therefore, to behave ethically means to make decisions or to
act based on what is morally right, for instance being honest, complying with rules, and ‘doing
the right thing’.
Ethical conduct can be considered essential to a business’ long-term survival because:
(a) It attracts a regular and stable client base;
(b) The legal implications of unethical conduct may prove to be costly;
(c) It may attract shareholders and/or consumers in that they trust you to manage
their money successfully and/or provide a quality service; and
(d) Unethical conduct can lead to government intervention and even closure of the
business.
6. ’Accounting is all about numbers’. Evaluate.
Although it is a common perception that accounting is all about numbers, the field of accounting
encompasses broader issues than merely numbers. Accounting is defined as the process of
identifying, measuring, recording and communicating economic information to assist users of
the information in making informed economic decisions.
Based on the definition above, there are four elements of accounting associated with providing
information that is useful for decision-making. Identification involves selecting economic events
that are relevant to a particular entity. Even though the economic events eventually need to be
expressed in measuring unit (numbers), the identification process itself requires knowledge
about the entity and its operations rather than just looking at the numbers.
After the identification of the transaction, accounting information must be expressed in a
common denominator so that the effects of transactions can be combined. This is where
measurement takes place. It is true that measuring economic events mostly involves numbers,
however it also requires knowledge of various measurement techniques, relies on judgments and
assumptions, and involves knowledge of relevant accounting standards.
Economic events or transactions that have been identified and measured are then maintained
systematically through recording process. In order to be useful in making decisions, recorded
data must be classified and summarised.
Finally, classified and summarised accounting data need to be communicated to the potential
users of the information. The communication process consists of placing accounting information
into financial reports and preparing interpretive disclosures necessary to make the date
understandable. For accountants to be able to help users of the reports to make economic
decisions effectively, the accountants who prepare the reports must have a full appreciation of
who the users are and their needs for accounting information.
In conclusion, it is a misunderstanding that accounting is all about numbers. Many people with
limited knowledge of accounting tend to view accounting as limited to recording numbers and
do not comprehend the whole processes involved in accounting as described above, which
requires extensive training, business experience and professional judgment rather than merely
calculating numbers.
Exercise 1
You have decided that now is the time to buy a new laptop. List the factors that are important in
choosing a new laptop and gather relevant information from various sources about different models
on the market. Given that you have a maximum of $1600 to spend, identify which model you would
buy and discuss the reasons for your choice. Present your answer so as to illustrate the steps required
in the decision-making process as discussed in this chapter.
Refer to the ‘Steps in the decision-making process’.
1.What are you trying to achieve? — Establish goals
Discuss your personal preference for a laptop including brand, make and model.
What laptop do you think you need (e.g. RAM, CPU, hard disk, screen size, weight)?
How will you use the laptop? Is it for your own personal use, or will you be sharing it with others?
2.What information do you need? — Gather available information on alternatives
Investigate pricing.
What are the available models in the desired price range?
Identify features available for each model.
Compare warranty and after-sales service.
Consider all possible alternatives.
3.What are the consequences of different choices? — Determine consequences of alternatives
Identify all the alternative options in your price range and identify your preferred choice.
Discuss the features which best appeal to you.
Discuss the likelihood that laptops will become technologically obsolete in the near future.
What is the worst case and best case scenario?
4.Which course of action will you choose? — Choose a course of action
Identify your choice and discuss why and how this particular model appealed to you.
Discuss why you think this particular model is the best option compared to other alternatives.
