CHAPTER 1

Decision Making
and the Role of
Accounting
PowerPoint Presentation
by Matthew Tilling
2012 John Wiley & Sons
Australia Ltd

YOUR JOURNEY INTO

ACCOUNTING
Accountants
Not Bean Counter or Number
Crunchers
Rather Problem Solvers and Decision
Makers
Who work in a range of organisations
In a variety of roles

Accounting
The language of business
More than just bookkeeping

THE DECISION-MAKING
PROCESS
Life is full of decisions
Decisions mean making choices
We must choose how to spend our time
We must choose how to spend our
resources

Decisions affect the future

Good decisions require good
processes
3

STEPS IN DECISION
MAKING
Goals

What are we trying to

achieve?

Informatio
n

What information do
we need?

Consequen
ces

What are the

consequences of
different alternatives?
Which course of action
should we choose?

Choose

ECONOMIC DECISIONS
Many decisions involve economic
resources
Economic resources have a price as
they are scarce
Must also consider
Personal taste
Social factors
Environmental factors
Religious and/or moral factors
Government Policy
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THE NATURE OF
ACCONTING
Accounting is a service activity
Its function is to provide and interpret
financial information to aid decision
making.

Accounting is used in a range of

organisations
Business
Government
Charities
Not-for-profits

THE ACCOUNTING
ENVIRONMENT
Accounting evolves as society
and business changes.
Some of these changes include
Rapid developments in information and
communication technologies
Increasing demand for a range of
information about organisational impact
Globalisation of business
Development of international
regulations and standards

THE ACCOUNTING
PROCESS

USERS OF ACCOUNTING
INFORMATION
Internal Users

External
Users
Should I invest?

How much profit?

What should be
produced?
What resources are
available?
How much does it
cost?
How much do we
owe?
What would happen
if?

Can the business

pay?
Can they repay?
Will they make a
profit?
Are they acting
ethically?
Is the business
socially and
environmentally
friendly?

FINANCIAL REPORTS AND

USERS

10

USING INFORMATION IN
ECONOMIC DECISIONS
Consider Darren, a hard-working
editor, who is ready to take on a
new career.
He has the opportunity to start
his own gardening business.
Using the decision making
process already outlined he
needs to decide if this is the
right decision for him.
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GOALS
Darren wants to do something
different to sitting behind a
desk. So clearly a gardening
business will meet this goal.
He also wants to be financially
secure. To establish this will
require additional information

12

GATHER
INFORMATION
First he will need a range of
Second-hand van
$22 000
equipment:
Trailer
Rotary lawnmower

1 500
950

Cylinder mower

1 600

Chainsaw

1 150

Edger

600

Hedge trimmer

700

Blower

1 000

Shredder

1 400

Brushcutters

800

Gardening tools,
ladders etc.

850
$32 550

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GATHER
INFORMATION
Estimated weekly running costs
Fuels and oils, repairs and
maintenance

$50
0

Part-time employee (Sue)

300
$80
0

Estimated client numbers

Lawn mowing and trimming

60

Gardening, with shredding if

required

12

Tree-lopping and shredding

20

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GATHER
INFORMATION
Approximate charges per client
Lawn mowing

$
45

Gardening

$
90

Tree-lopping

$
135

5 lawns mowed on each of 6

days

$1
350

1 garden on each of 6 days

540

Estimated weekly receipts

$1
890
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DETERMINE
CONSEQUENCES
Based on these estimates Darren
would expect gross annual
turnover for a 48 week year of
$90 720.
This is before including
additional income from treelopping.
After taking into account costs
this should equate to a net
weekly cash inflow of at least $1

16

CHOOSE
With all these factors in mind
Darren can now make an
informed decision about his
future.
Would also include non-financial
factors.

17

ACCOUNTING INFORMATION
AND DECISIONS
Many decisions require
significant amounts of financial
information
Accounting information is very
important

Accountants report on the past

Still useful for making decisions about
the future
Also useful for assessing past decisions

Accountants also look to the

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MANAGEMENT AND
FINANCIAL ACCOUNTING
MANAGEMENT
ACCOUNTING
Internal Focus
- Planning

FINANCIAL
ACCOUNTING
External Focus
Reporting Information

- Controlling

- Performance

- Decision-making

- Position

Cost Behaviour

Financing and Investing

Budgeting

Compliance

Strategy

Highly Regulated
19

ACCOUNTING AS A PROFESSION
AUSTRALIAN PERSPECTIVE
Self-regulated profession
Similar to law and medicine

Two major professional

associations
CPA Australia (CPA)
Institute of Chartered Accountants
Australia (ICAA)

Membership requires
Tertiary qualification
Ongoing professional development
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PUBLIC ACCOUNTING
Accountants who offer their
professional services to the public
for a fee
Four main areas with many
specialties
Auditing and assurance services
Taxation services
Advisory services
Insolvency and administration
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ACCOUNTING IN COMMERCE
AND INDUSTRY
Accountants who are employed
in business entities
Many areas of interest
General accounting
Cost accounting
Accounting information systems
Budgeting
Taxation accounting
Internal auditing and audit committees
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NOT-FOR-PROFIT
ACCOUNTING
Many accountants work in the
not-for-profit area
This requires a slightly different
approach as profit is not the
primary focus
Includes a range of organisations
Government
NGO
Charities
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TYPES OF BUSINESS
ENTITIES
Single proprietorship or sole
trader
Owned by one person

Partnership
Owned by two or more partners

Company or corporation
Owned by shareholders
Separate legal entity
Limited liability
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MANAGEMENT
FUNCTIONS
PLANNING
What to do
How to do it
CONTROLLING
Evaluating
actual versus
planned
performance

DECISION
MAKING

ORGANISING
Developing the
organisational
structure

DIRECTING
Performing
according to
plan
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ETHCS AND
ACCOUNTANTS
Ethics in business
Important in all business dealings

Ethics and professional

accounting bodies
Important for the standing of the
profession

Ethics in practice
Identify the ethical issue
Analyse key issues and stakeholders
Select appropriate course of action

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