Description
The Future Is Bright!
With the accounting difficulties at Enron, WorldCom, HealthSouth, and others, the accounting profession has come under intense scrutiny from regulatory agencies and has become the subject of late-night talk show jokes. As a future accounting professional, a natural question is what the future holds for you upon graduation. Let’s take a look at some recent evidence that may yield some answers.
As the regulatory environment has become more dynamic over the last several years, companies are faced with an increasing number of new accounting rules that pose a significant challenge for financial reporting. All indications are that future years will present even greater challenges. To deal with this changing envi-ronment, more and more companies are turning to accountants for assistance. Many companies have increased the importance of accounting skills in their executive train-ing programs while other companies have emphasized the certified public accountant (CPA) credential in their executive searches. The trend toward increased hiring of individuals possessing accounting skills is not con-fined to industry. According to the 2004 American Institute of Certified Public Accountants (AICPA) survey, hiring of accounting graduates by public accounting firms increased approximately 10% in 2003. Future projections of hiring trends for accounting graduates (shown in the figure) are indicative of continued positive growth.
Finally, in a recent survey conducted by the National Association of Colleges and Employers, accounting was listed as the number one major on col-lege campuses. By all indications, accounting skills appear in high demand, and your future professional career in accounting appears bright!
Accounting is the process of identifying, measuring, recording, and communicating eco-nomic information to enable users to make informed judgments and decisions. It is also called the “language of business.” In the U.S. economy, most published accounting infor-mation is about different types of companies (primarily corporations). Companies engage in many transactions and generate large amounts of data. Since people can absorb only limited amounts of information, accounting systems are designed to report infor-mation in a concise, understandable format. In this sense, accounting is the link between a company’s economic activities and decision makers.
In this chapter we review the uses of accounting information and who uses it, the development of principles for accumulating and communicating accounting informa-tion, and the ethical framework within which these accounting principles are applied.
ACCOUNTING INFORMATION:USERS ,USES, AND GAAP
The U.S. economy is a free-market economy. In this type of economy, the decisions of many buyers and sellers influence the demand for and supply of products and services offered by companies. Individuals acting in this economy have limited resources to con-sume or to invest. But typically companies need large amounts of capital for their opera-tions. Companies may obtain this capital from the issuance of capital stock (equity) and bonds (debt), from other borrowings, or from resources generated by their operations. The exchange of capital by investors for the stocks and bonds of companies occurs in capital markets, as we show in Exhibit 1-1. There are organized capital markets, such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), and the Nasdaq Stock Market, Inc. (NASDAQ). In these markets the capital stock and bonds of many cor-porations are purchased and sold daily. These corporations are called publicly-held (or publicly-traded) companies. These markets sometimes are referred to as secondary markets because the sales and purchases are among the investors themselves. That is, the corpora-tion that initially issued the capital stock or bonds is not involved in the exchange.
There also are more loosely organized capital markets in which fewer exchanges occur. For instance, corporations may borrow from lending institutions or may issue new capital stock or bonds, either through “public offerings” or through “private placements.” Public offerings involve the sale to many investors (i.e., the general public). Private place-ments involve the sale to a few private institutions such as insurance companies and pen-sion funds, or to employees. These markets sometimes are called primary markets because the exchange is directly between a corporation and the investors. Whether investors or lending institutions are involved in primary or secondary markets, they are interested in earning dividends and interest, and in a safe return of their resources. Investors in pub-licly traded securities participate in the increase (or decrease) in the market price of the capital stock and bonds. These investors are concerned with the efficient allocation of their scarce resources to achieve these objectives. Accounting information is useful in making decisions for this allocation process within these capital markets. It is also useful for other purposes.