Ch 1: Accounting

마스터 제목 스타일 편집 in Action

(Week1_Part 3)

Taehee Lee
thlee@kookmin.ac.kr

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How is accounting information used?

Demands for accounting information

Shareholders
 To purchase, hold, sell decisions
Creditors
 To lend money to firms at certain interest rates
Management
 To initiate business plans, pricing strategy, performance
evaluation
Government, Labor Union, Customers, NGO’s
 Think of some of the reasons…

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Accounting information and interested parties

Division of ownership ->info. Asymmetry ->moral hazard

원가회계
& adverse selection ?
problem->need for accounting info.
Financial ->diseconomy of production -> market failure ->
Representative
Accounting Government intervention or need for external auditors
interested parties Share
holders -> allocative efficiency of pricing

Creditors Tax Agency

FIRM CEO
Employees Managerial
Accounting

-Relevance vs. Reliability

-Current & future info. Vs. historical
Customers info.

Competitors

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Accounting information and interested parties

Internal Users

Copyright ©2019 John Wiley & Son, Inc.

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Accounting information and interested parties
Accounting Activities and Users
External Users (1/2)

Copyright ©2019 John Wiley & Son, Inc.

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Accounting information and interested parties

External Users (2/2)

Taxing authorities: Does the company comply with the tax laws?
Regulatory agencies: Is the company operating within prescribed rules?
Labor unions: Does the company have the ability to pay increased wages and benefits to
union members?

Copyright ©2019 John Wiley & Son, Inc.

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Accounting information and interested parties

Division of ownership ->info. Asymmetry ->moral hazard

원가회계
& adverse selection ?
problem->need for accounting info.
Financial ->diseconomy of production -> market failure ->
Representative
Accounting Government intervention or need for external auditors
interested parties Share
holders -> allocative efficiency of pricing

Creditors Tax Agency

FIRM CEO
Employees Managerial
Accounting

-Relevance vs. Reliability

-Current & future info. Vs. historical
Customers info.

Competitors

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Accounting info: (1) division of ownership & capital
Division of ownership ->info. Asymmetry ->moral hazard
& adverse selection problem->need for accounting info.
->diseconomy of production -> market failure ->
Government intervention or need for external auditors
-> allocative efficiency of pricing

shareholder
CEO

capital
1492

management labor

Queen Isabella of Castile Columbus

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Accounting info: (2) info. Asymmetry & moral hazard
Division of ownership ->info. Asymmetry ->moral hazard
& adverse selection problem->need for accounting info.
->diseconomy of production -> market failure ->
Government intervention or need for external auditors
-> allocative efficiency of pricing

?
shareholder

option #1
Queen Isabella of Castile ?

Information Asymmetry

Columbus
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Accounting info: (2) info. Asymmetry & moral hazard
Division of ownership ->info. Asymmetry ->moral hazard annual reports &
& adverse selection problem->need for accounting info.
->diseconomy of production -> market failure -> financial statements
Government intervention or need for external auditors
-> allocative efficiency of pricing

? ① Main solution: to keep accounting records!

shareholder ?

What if ① is not enough? → “market failure”

Queen Isabella of Castile

Columbus

② Complementary solution: external auditor(CPA)!

③ Complementary solution: outside board member in BOD!

④ Other regulatory measures…

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Who supplies accounting information?

Supply of accounting information

Regulatory forces
 Commercial Code
 외감법(주식회사의 외부감사에 관한 법률): external audit
 IFRS(International Financial Reporting Standards)
Voluntary forces
 Management provides information to investors for capital
sourcing

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What kind of accounting info. should be
produced?

Qualitative characteristics of financial accounting

information
Objective: To enable users in making their decision
making processes
Primary attribute
 Relevancy
 Reliability
Secondary attribute
 Comparability
 Consistency

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