Accounting is the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision mak- ing. The function of accounting is to provide certain types of quantitative information that management and others can use to make decisions. Accountants must have a thorough understanding of the principles and rules that provide the basis for prepar- ing the accounting information. Accountants also help to develop the systems used to record an entity's economic events in a timely way and at a reasonable cost. JA LUR dL WIE CCURUIUE 1eUsUIS UL HUMIULY IugUnguts Way auUMny 1s vaLUaD, tonsider a bank manager's decision to make a loan to a business. The decision will | vased on such factors as previous financial relations with the business and the finance! ondition of the business as reflected by its financial statements. Assuming the bar nakes the loan, it will charge a rate of interest determined primarily by three factors 1. Risk-free interest rate. This is approximately the rate the bank could earn by inve ing in Canada Treasury Bills for the same length of time as the business loan. 2. Business risk for the customer. This tisk reflects the possibility that the business w not be able to repay its loan because of economic or business conditions such as recession, poor management decisions, or unexpected competition in the indust 3. Information risk. This risk reflects the possibility that the information upon whi« the business decision was made was inaccurate. A likely cause of the informatic risk is inaceurate financial statements. Auditing has no effect on either the risk-free interest rate or business risk. It ci save a significant effect on information risk. If the bank manager is satisfied that the s low information risk, the risk is lowered and the overall interest rate to the borrow an be reduced. For example, assume a large company has total interest-bearing de £ approximately $1 billion. If the interest rate on that debt is reduced by only 1 p« ent, the annual savings in interest is $10 million. Many lenders such as banks requi nnual audits for companies with larve bank loans outstanding.