Chapter 1

Accounting as a Form of

Communication

After studying this chapter, students should be able to:

Explain what business is about (LO1). Understand the different forms of business and explain their distinguishing characteristics (LO2). Describe the various types of business activities (LO3). Define accounting and identify the primary users of accounting information and their needs (LO4). Understand the information communicated in the balance sheet, income statement, and statement of

retained earnings and the relationship among these statements (LO5). Identify and explain the primary assumptions made in preparing financial statements (LO6). Identify the various groups involved in setting accounting standards and the role of auditors in

determining whether the standards are followed (LO7). Explain the critical role that ethics play in providing useful financial information (LO8).

INSTRUCTOR’S MANUAL

Chapter Outline

LO 1 Explain What Business is About

Business is all of the activities necessary to provide the members of an economic system with goods and services

Classification of business by type of activity: Product companies - provide goods or product

Suppliers - supply raw materials needed to make the product Manufacturers/Producers - transform the raw materials obtained from the suppliers into

a finished product Distributors - sell the finished product to others

Wholesalers - sell to retail outlets Retailers - sell to consumers

Service companies - provide a service. Service providers are becoming increasingly important in today’s economy.

LO 2 Forms of Organization

Business entities are organizations operated to earn a profit:

Sole proprietorship: A business organization with a single owner Many small businesses are sole proprietorships Economic entity concept: the affairs of the business and the owners must be kept separate. A

single, identifiable unit must be accounted for in all situations Economic entity concept is an accounting concept, not a legal concept. Therefore, a sole

proprietorship is not a taxable entity Any profits earned are included on the tax return of the owner.

Partnership: A business owned by two or more individuals Partnership agreement - determines how profits will be divided and how much each partner

will contribute. Can be oral or written Public accounting firms, law firms are often partnerships Not a taxable entity: Any profits earned are taxed on the return of the owners

Corporations: Corporations control the majority of private resources in the US, even though sole

proprietorships and partnerships dominate in number. Business organized under the laws of a particular state Articles of incorporation must be filed with the state. Once approved, a corporate charter is

issued and corporation can sell stock Stock certificate - evidence of ownership in a corporation Stocks can be sold on organized stock exchanges (New York Stock Exchange or American

Stock Exchange) Advantages of a corporation:

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Ability to raise large amounts of money in relatively short time by: Sale of stock: ownership in corporation Sale of bonds: represents corporations promise to repay a certain amount and

interest in the future Ease of transfer of ownership

Sale of stock to another owner Limited liability: stockholder is only liable for the amount contributed to the

business Sole proprietorships and partnerships do not have limited liability

Nonbusiness entities:

Exist to serve the needs of various segments of society Lack of identifiable owner Even though there is a lack of a profit motive in nonbusiness entities, still need information

provided by an accounting system This type of entity uses fund accounting Hospitals, municipal government, colleges, are nonbusiness entities Business entities have become more sensitive to their social responsibilities

LO 3 The Nature of Business Activity

Business activities can be categorized into either: Financing activities, Investing activities or Operating activities:

Financing activities:

How a business obtains money (capital) for its needs Accounting is called the “language of business” and has its own unique terminology Includes the sale of stock or borrowing to finance operations Includes the sale of stock or borrowing to finance operations Liabilities: an obligation of a business. Notes payable, bonds payable, accounts payable Capital stock: - the dollar amount of stock sold to the public. Indicates the owners’

contributions to a corporation Stockholder (shareholder) provides permanent form of financing and need not be repaid Creditor (lender) expects repayment of the amount loaned plus interest

Investing activities: Once the funds are generated from financing activities, the money is now available to invest Includes the purchase of assets for the business Assets: a future economic benefit to the business. Accounts receivable, patents, cash are

examples Not all assets are tangible in nature

Operating activities: Once investments are made in assets, company can begin operations Includes the sale of products or services and the costs incurred to operate the business Revenues are the inflow of assets resulting from the sale of goods and services. Represents

the dollar amount of sales of products and services for a specific period of time

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Expenses are the outflow of assets resulting from the sale of goods and services. They are the costs incurred in operating a business

LO 4 Define Accounting, Identify the Users of Accounting and Their Needs

Accounting is the process of identifying, measuring and communicating economic information to various users.

Internal users: Are the managers and employees of a company Have easier access to information than external users Can access financial information in a format that best suits their needs Management accounting – the branch of accounting that provides company’s managers with

information needed to plan and control their areas of responsibility

External users: Are anyone outside of the company Limited access to information because not directly involved in the operations of the business Need different information than managers of the business Financial accounting is the branch of accounting concerned with the preparation of financial

statements for outside use. Stockholders (and potential stockholders) who need information to decide to hold, buy, or sell

investment in stock Bondholders, bankers, and other creditors who need information to aid in lending

decisions Government/regulatory agencies (IRS, SEC, ICC, FTC) Others: suppliers, trade associations, stockbrokers

Financial Decision Framework: Used to help make investment decisions

Formulate the question Gather information from the financial statements and other sources Analyze the financials Make the decision Interpret the results

LO 5 The Information in the Financial Statements

Financial accounting is the branch of accounting concerned with informing management and outsiders about a company through financial statements.

Accounting equation:

Assets = Liabilities + Owners’ Equity This equation is the foundation for the entire accounting system

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Left side, assets, are valuable economic resources that will provide future benefit to the company Right side indicates who has a claim to these resources; in other words, who provided the assets

Liabilities from creditors Owners’ equity – the owners’ claims on the assets of an entity

The mathematical difference between a corporation’s assets and its obligations or liabilities Owners’ equity is the general term used to refer to ownership Stockholders’ equity refers to ownership of a corporation by shareholders

Stockholders’ equity includes: The investments by stockholders (capital stock) Retained earnings, which represent the income earned less dividends paid over the life of

the entity

The balance sheet (sometimes called the statement of financial position) summarizes assets, liabilities, and owners’ equity at a specific point in time, usually the end of a month, quarter, or year

The entity’s status at that point in time

An income statement summarizes the revenues and expenses for a period of time (month, quarter, year)

Flow rather than status—whole period’s activities

Revenues less expenses = net income

A statement of retained earnings explains the change in retained earnings during the period Net income increases retained earnings and net losses decrease retained earnings Dividends are distributions of income to stockholders

Reduce retained earnings Dividends are not an expense and therefore do not go on the income statement

The basic format to compute retained earnings is:Beginning retained earnings + Net income – Dividends = Ending retained earnings

4. The statement of cash flows summarizes the cash receipts and cash payments during the period of a company’s operations, investing, and financing activities. The statement shows reader where the company got cash and how it used that cash

Relationships among the financial statements Income statement: compute the net income (loss) Statement of retained earnings: compute the ending balance of retained earnings using net income

from the income statement Balance sheet: the ending balance of retained earnings from the statement of retained earnings is

used to compute stockholders’ equity Statement of cash flows: the net increase or decrease in cash is used reconcile the beginning cash

balance to the ending cash balance (on the balance sheet)

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LO 6 The Conceptual Framework: Foundation for Financial Statements

Bookkeeping is the part of accounting that deals with record-keeping. Accounting requires judgment and communicating relevant information to financial statement users.

Conceptual framework: foundation for standards, principles, and assumptions for preparation of published information. This framework aids accountants in their preparation of the financial statements.

Economic entity concept: one identifiable, specific entity should be the subject of the financial statements Personal transactions of the owners and business transactions kept separate

Cost principle requires assets be recorded at the cost to acquire them Also called historical cost or original cost Once recorded at cost, how should assets be valued on subsequent balance sheets

Under current accounting standards, certain assets are valued at historical cost on all balance sheets until the company disposes of them since cost is objective, or verifiable by an outside observer

Certain assets are valued on subsequent balance sheets at market value if the amount can be objectively determined

Going concern assumption assumes the business will continue indefinitely and is not in the process of liquidation If a business is in the process of liquidation, market value may be more relevant than cost

The monetary unit is the yardstick used to measure amounts in the financial statements (e.g., U.S. dollars) Assume that the monetary unit is relatively stable

Time period assumption states that although we cannot know how successful a business is until the end of its life; information is needed before then, so companies report at even intervals of time (e.g., annually). Break down the indefinite life into artificial segments

GAAP, Generally Accepted Accounting Principles, are the rules, methods, practices, and other procedures that have evolved over time in response to the need to regulate the preparation of financial statements.

Accounting as a Social ScienceAccounting is a service activity. Its purpose is to provide financial information to decision makers.

It is a social science as opposed to a physical science The principles that govern financial accounting (GAAP) develop in response to changing business

conditions

LO 7 Setting Accounting Standards

Who Determines the Rules of the Game:Joint effort:

Securities and Exchange Commission (SEC): a federal government agency that oversees publicly traded companies (“listed stocks”) (www.sec.gov)

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Financial Accounting Standards Board (FASB): the group in the private sector with the authority to set accounting standards (www.fasb.org)

American Institute of Certified Public Accountants (AICPA): a professional organization of CPAs that serves as an advisory body to the FASB and administers the CPA exam (www.aicpa.org) CPA is an individual who has passed a uniform exam administered by the AICPA and has met

other requirements as determined by individual states Public Company Accounting Oversight Board (PCAOB): a five-member body created by an

act of Congress in 2002 to set auditing standards. International Accounting Standards Board (IASB) - organization responsible for the

development of worldwide accounting standards (www.iasb.org)

The audit of financial statements: Financial statements are the responsibility of the company’s management Audit: the process of examining the financial statements and the underlying records of a company

to render an opinion as to whether the statements are fairly presented Primary objective of an audit: to assure stockholders’ and other users that the statements are

fairly presented Auditor’s report: the auditor’s opinion concerning the fairness of the presentation of the financial

statements Public accounting firms provide external audits for their clients

LO 8 Introduction to Ethics in Accounting

Because some companies have filed reports of questionable or aggressive accounting practices, decision makers need to:

Ask questions, do research, and not just accept everything as fact Be alert to pressures on the decision-making process involving bias, deception, and even fraud that

may distort the disclosed information Be aware when it appears as if GAAP may not have been used to resolve particular accounting

issues.

When ethical dilemmas are encountered, accountants should use their profession’s conceptual framework to resolve the issues. Accounting information should be:

Relevant – information that is useful to the decision- making process Provide clear information about past financial events that is helpful in predicting the future To be relevant, information must be timely.

Reliable – information should accurately represent what it claims to represent Reliability includes:

Verifiability – documentation from one or more independent parties that supports the accuracy of the information

Neutrality – the presentation of information is free from bias toward a particular result.

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INSTRUCTOR’S MANUAL

The Ethical Decision Model: Identification recognize the ethical dilemma

analyze the key elements in the situation Analysis

analyze the key elements in the situation determine the alternative methods available to report the transaction, situation, or event

Resolution – select the best alternative.

Accountants and Ethical JudgmentsThe primary goal of accounting is to provide useful information to aid in the decision-making process

Accountants take on a serious responsibility because external parties rely on the financial statements to make important decisions

Accountants must make subjective judgments about what information to present and how to present it- this is why accounting is a profession.

The Changing Face of the Accounting ProfessionExamples of some the companies involved in financial reporting crisis:

Enron: an economic entity decision as to whether various entities, under the control of Enron, be included in the company’s financial statements

WorldCom: the decision as to whether certain costs should have been treated as expenses rather than assets

Accounting firms’ independence is questioned when these accounting firms are rendering nonaudit services while simultaneously rendering an opinion on the company’s financial statements.

The Sarbanes-Oxley Act was passed by Congress in 2002 to bring about major reforms in corporate accountability and stewardship. The provisions of the act included:

The establishment of the Public Company Accounting Oversight Board (PCAOB) Requirement that external auditors report directly to company’s audit committee Prohibition of public accounting firms who audit a company from providing any other services

that could impair their ability to act independently in the course of their audit

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Lecture Suggestions

LO 2 Have students name businesses that they use or that they work for. Then have them classify the business by type – supplier, manufacturer, distributor, retailer or service company. Finally, have them classify the business as to how it is organized – sole proprietorship, partnership, corporation or nonbusiness entity.

LO 4 Who are the internal users of financial information? Ask students to name as many as they can. How does management accounting information help them? Who are the external users of accounting information? What financial data would be of interest to each of these external users? Why is the information they need different from what internal users need?

LO 5 Focus on the word balance in the balance sheet and the accounting equation. The balance sheet must balance: assets equal the total of liabilities plus owners’ equity.

Summarize Top of the World’s financial statements (from Examples 1-5 through 1-8) to show how the income statement and the statement of retained earnings bridge the gap between the balance sheet of one period and that of the following period:

JULY 1, 2009 – JUNE 30, 2010

JUNE 30, 2010

Assets $0 Revenues $8,000 Assets $7,300Liabilities 0 Expenses 6,000 Liabilities 4,100Equity 0 Net Income 2,000 Equity 3,200 Stock 0 Dividends (800) Stock 2,000 Retained earnings 0 Retained income 1,200 Retained

earnings 1,200

July 1, 2009 RE balance

$0 + 2009-2010 income retained

$1,200 = June 30, 2010 RE balance

$1,200

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LO 5 Students have a difficult time understanding the concept of equity. Have students think about their equity in their assets. If they purchased a car for $10,000 and took out a $3,000 loan, what is their equity in the car? Put this transaction into the accounting equation to see that the left side represents the economic resources and the left side represents the claims to the resources.

LO 5 The reader can find many pieces of desired financial information (net income, dividends paid, cash balance) in more than one place in the statements. Students should learn to “read” the statements, to become familiar with what is in them, and where it is located. This familiarity will help them keep the more complicated detailed topics in perspective as you progress through the book.

LO 6 What accounting assumption principle has been violated in each situation below:

1. Melissa is the owner of Missy’s Tea Shop, a sole proprietorship. She purchases a new computer for her use at home. Melissa records the computer as an asset of Missy’s Tea Shop.

2. Houston Electronics purchased an office building several years ago for $500,000. The office building could be sold today for $850,000. The accountant will now show the building as an asset on the books for $850,000.

3. Henry is a new accountant for Acme Foods. He is extremely busy and has decided that he can prepare the financial statements every two years.

4. The Candle Store is having financial problems. It has no plans to liquidate, but decides to use market value to report their assets since they plan on moving to a smaller store.

Solution1. Economic entity concept2. Cost principle3. Time period assumption4. Going-concern assumption

LO 7 Students think they “know” what an auditor does, but do not have a clear conception of the specifics. Conduct a brief discussion in class of how an auditor really “audits” the books. What specifically do they do? How do you become a CPA?You get some wide-ranging answers, and can shed a lot of light on the subject by leading the class around to some real facts to replace ill-formed notions.

LO 8 The AICPA code of ethics can serve as a good discussion tool. Thinking about some of the recent major frauds, what if any ethics rules were broken? Is unethical conduct always illegal? What are the consequences of a CPA not adhering to their code of ethics?

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Projects and Activities

LO 4 Users of Accounting Information and Their NeedsOutside assignment: The competitionIn this chapter of your textbook, many examples are drawn from the financial statements of Kellogg’s Company. How does it compare to other similar businesses?

To answer this, you obviously need to know who the competition is. In an interview, someone asked Peter Lynch, the now-famous former manager of Fidelity Investments’ successful Magellan Fund, where he got his ideas about which companies to invest in. One of his sources, he said, was the supermarket! He was not trivializing the question. We all spend a great deal of time shopping, so our first exposure to a company is frequently its product. A good product comes from what may turn out to be an interesting company.

One place to learn about products is where they are sold. Another idea would be to compare competitors. Go to the Internet and do your own competitive comparison of fitness centers. Does Life Time Fitness Centers have a “product” to sell? How do their products differ? How are they the same? Where should you go next if you want to find out more about these companies?

SolutionThere is, of course, no “right” answer to this question, or, countless right answers could be given. Students begin to learn where to find information. The sources are everywhere. Comparisons can begin anywhere. For retail products, comparisons can begin in stores. The student might like to “try out” the product. By contacting company websites or toll free information lines, a student can research a particular company. Competitive studies can be done using the internet. Of course the library, and helpful reference librarians, will supply material for this assignment. Students do not necessarily need sophisticated electronic databases to continue their research, although these are certainly useful and great to have. Your school’s resources may be limited, and the students need to open their minds to various means of inquiry, available in “hard copy,” including books, newspapers, magazines, and journals.

The quickest way to research is by using the Internet. Students can go to a company’s Web site and find financial information. They can access information by using sites such as Hoover’s Online (www.hoovers.com).

Encourage students to share current events and good reference sites with the class throughout the semester. Each student (or a group of students) can be responsible for a specific company during the semester. It is very interesting to have the class choose an industry to follow during the semester. Each student (or group) could follow a specific retailer, restaurant, computer manufacturer, Internet company, etc.

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LO 5 Financial Statements: How Accountants CommunicateOutside assignment: Prepare your own balance sheetDo you have your own personal balance sheet? Before you say, “No, I’m not a business, so I don’t have accounts or anything,” think about the question. Financial records, and the statements that result from them, are a way of recording formally what already exists physically. Don’t you already have some assets, like a bank account, a car, a stereo and TV, perhaps furniture? How about liabilities? Do you owe anyone money?

Set up a balance sheet form similar to the one in your textbook in the review problem (Greenway Corporation). Instead of using the accounts for Greenway Corporation, fill in your own name, and your own “accounts.” Approximate the costs of your assets if you do not know their exact cost, in accordance with the principles you are learning. Are you going to list any of them at market value? Why or why not? What is the difference between the total of your assets and your total liabilities?

SolutionYour students may need a bit of guidance to get started, mainly because they do not think of their possessions as “assets.” Begin by reviewing the definition of an asset. They will see that a balance sheet is not an abstraction created from nowhere, but a way of writing down what physically exists. Students may be asked to prepare a personal balance sheet when they fill out a loan application. They asked, essentially, for a balance sheet, although not in so many words. The historical cost concept is introduced here, in the question of cost versus market value. Students may debate what their assets are “worth.” They finish by calculating their own “equity” or “net worth” (using the old phrase), that is, what they own outright with no outside claims or liens. Doing this in personal terms makes the concepts more “real” than doing it for some abstract company whose “equity” means nothing to a student.

In-class discussion: Why do we need so many statements? The balance sheet gives the company’s status at the end of a chosen accounting period. It includes the results of all the operations that took place during this period. Why do we need to have an income statement and statement of retained earnings, which simply expand upon the retained earnings account? If we wanted detail, couldn’t we just include it as part of the retained earnings section of the balance sheet?

SolutionMany students, when they begin to prepare financial statements, mix up the statements. A very common error is that students will include all the revenues and expenses in the retained earnings section, come up with a net, subtract dividends, and show, then, the ending retained earnings. In other words, they include the income statement and statement of retained earnings in the balance sheet. Then, they repeat them again when asked for the individual statements (and probably grumble to themselves that this sure is a lot of extra work). It is useful to review the intent, and different purposes, of the statements so that students see them as individual pieces of information.

In-class discussion: DividendsDividends, you have learned, are a distribution of income, not an expense. What is the difference? Why can’t the corporation list them as an expense, since dividends are just another amount of money paid out to somebody? This concept is important in other business courses (i.e., finance). Therefore, students need to become comfortable with the concept as quickly as possible.

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SolutionThe key concepts here are

To whom are the dividends paid? Is the company required to pay dividends? Are dividends paid in the process of earning revenue?

Expenses are incurred to earn revenues. Dividends are not a part of the revenue process. Expenses imply an obligation, whereas no requirement to pay dividends exists. The company may (or may not) feel that they should pay dividends, but are not required to do so. Finally, expenses involve payments to outside parties: suppliers, employees, banks. Dividends are paid to the owners of the company. In other words, they are withdrawals by the owners. Return to simple proprietorships or partnerships to reinforce the difference between an expense and a withdrawal from Getting Started in Business.

In-class discussion: GAAPAlthough regulations promulgated by the SEC and the IRS, for example, carry legally prescribed penalties, the standards used by the accounting profession, under which published statements are prepared, carry no such penalties. If nothing will happen to a company that does not follow generally accepted accounting principles, why do so? What prevents a company from deviating from these conventions if it sees an advantage to doing so?

SolutionHere is a question of peer pressure, which students understand very well. If the principles are indeed “generally accepted,” then they are also generally used, and the company that does not use them will stand out. Since corporations are dependent upon outside parties for their revenues (customers) and for major financing (lenders and stockholders, as well as short-term creditors), they want to maintain the trust of these parties. They cast a shadow on this trust if they do not adhere to accepted professional practice, and thus decrease the comparability of their published statements to those of other similar companies.

Students will point out that the company will get a bad audit report. This may be an acceptable consequence if the company has already decided to deviate from accepted practice. But they do have some concern for the opinion of those outside the company. An unfavorable audit report will erode credibility as a company. Further, even though the FASB has no legal authority, other bodies do, as mentioned, and they require statements prepared in accordance with generally accepted accounting principles, and impose some of their own rules.

GAAP is difficult to escape for a public company. On the other hand, private companies are less subject to these rules, because they are not required to publish financial statements. Few of these private entities can go very far without buying on account, or borrowing money from banks, and creditors generally require audited statements, which again have to conform to GAAP.

LO 6 The Conceptual Framework: Foundation for Financial Statements

Food for thought: The independent auditors’ opinionConsider the following excerpts from an audit opinion:

In General Motor’s 2008 10-K, Deloitte’s audit opinion contained a “going concern” clause:

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The accompanying consolidated financial statements for the year ended December 31, 2008, have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 2 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Answer the following: What is the general purpose of an auditors’ report? What is a going concern? Define it in your words, don’t quote the book. Are losses, restructuring, and the disposal of segments necessarily precursors to the demise of

the company? What, in your words, are the auditors saying about this particular company? What do you think the term “qualified opinion” means?

Solution

The auditors’ opinion is just that, an opinion. It is, importantly, an unbiased opinion, by someone independent from the company. Auditors perform tests in accordance with PCAOB auditing standards to verify that the statements were prepared in accordance with generally accepted accounting principles, consistently applied, and that no material errors were found. Readers gain additional reassurance about the intent of management, stated in the management letter, to convey accurate, complete information about the financial status and results of the company.

A going concern is a business that will continue to operate indefinitely. Large and/or recurring losses often prompt restructuring and selling of unsuccessful segments

of the business, or segments that no longer fit into the future plans of the business, in order to return the company to profitability. When too many employees have to be let go, or when too many assets are sold, doubt exists about the ability of the company to carry on its business with whom or what remains.

In the case of this particular company, the auditors are saying that there is doubt about the ability of the company to continue due to its inability to generate sufficient cash flow and its recurring losses from operations.

When auditors have reservations about the accounting treatment of a material item, or about the company’s future, they will attempt to resolve the conflict with the management of the company. This is the management’s opportunity to correct the perceived deficiency if possible and get a “clean” report. If the issue cannot be resolved easily, the auditors feel that they must make financial statement users aware of the problem, and will thus refer to it in their opinion, giving thereby a “qualified” opinion. The severity of the qualification varies with the significance of the problem, and the auditors’ perception of the company’s ability to continue operations without correcting it. Few companies want to publish an annual report with a qualified opinion, since that opinion says that some difficulty, either in comparability with other companies’ reports, consistency with the company’s own prior years, or with the firm’s ability to operate indefinitely, exists. The subject company’s problems were so severe at that point in time that a qualified audit opinion was the least of their worries.

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LO 7 Who Determines the Rules of the Game?Food for thought: How does FASB make the rules?Visit the web site for the Financial Accounting Standards Board (www.fasb.org). Access the online publication, “Facts about FASB.” What is its mission? Who are the members? What are their qualifications? Are they no more than rulemakers (don’t we have enough already?) How does the process of developing a new standard begin? What process does the Board go through before the standard becomes a part of accepted practice? What are the latest developments?

SolutionThis independent board has seven members, appointed for five-year terms, from business, public accounting, and academe. They are paid substantial salaries for their full-time service. Members of the Board are required to sever all connections with their previous firms or institutions. They monitor the profession and, as they become aware of the need for a change in current practice, they thoroughly investigate the situation, using the services of FASB’s large research staff, and draft position papers. Comments from members of the profession are solicited and carefully considered, and a number of successive modifications to the original position may be made, before a standard is finally adopted. The process may take two or more years and is referred to as due process. (Comments about the latest developments will vary.)

LO 8 Introduction to Ethics in AccountingEthics: What does it mean to you?The topic of ethics is discussed in this chapter. It is a recurring theme throughout the book because it is a critical item in accounting as it is in any profession. Take a few minutes to ask yourself what ethics means to you. In a brief paragraph, give your own definition of ethics (please do not simply quote something out of a dictionary, but rather give your own personal meaning). Consider what the accountants might have felt at some of the companies embroiled in the current scandals.

Now describe how you see ethics applied to business in general, and to accounting in particular as far as you have been introduced to it. Why is it important? What do you hope to learn as this course continues that will help you solve the ethical dilemmas that you will inevitably meet in your continued schooling, and in your professional life?

This last question is difficult. You have defined what ethics means to you, your own standards, and what you wish to learn. Do you live by the rules you define? Think carefully. Are there instances where your actual performance falls short of what you say is correct?

SolutionThis assignment can have two parts. Assign this at the beginning of the course as an outside assignment, with possibly a brief in-class discussion. Return the students’ papers, but keep copies of them. At the end of the course, once more assign this, with slightly different wording (see assignment material for Chapter 13). At this point the students are also asked to compare their responses at the beginning and end of the course, and assess the progress they have made in this area.

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Accounting CareersThe financial accounting course can be an opportunity for a business major to choose accounting as a career. It is a great time to encourage students to explore career opportunities.

Have students interview accountants about their careers and share their findings with the class. Students can research the Web to obtain salary information.

Have the students go to the AICPA website (www.aicpa.org). On the left, click on Becoming a CPA/Academic Resources and then click on Accounting Education Center. On the left is a student video called Start Going Places. Discuss the video and the opportunities available to accounting students.

Encourage students to get involved with your school’s student accounting organizations. It is a great networking opportunity.

Have students bring in advertisements for accounting positions from the internet, the newspaper, and professional publications.

The many accounting financial statement frauds have highlighted some interesting, non-traditional accounting jobs that are available. Have students go the website for the Association of Certified Fraud Examiners (www.acfe.com) to see what a CFE does. The IRS hires criminal investigators to help them fight fraud. Students may want to check out their job duties at www.irs.gov. Even the FBI hires accountants. Have the students go to www.fbi.gov to see the many different duties for FBI agents.

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