Welcom

e TO

DZARFAN B ABDUL
KADIR
BKAL1013 ROOM 2.55 School of
Accountancy (SOA)
BUSINESS

dzarfan@uum.edu.my
ACCOUNTIN
04-9287236
G

1
Introduction to
Accounting and
Business

After completing this chapter, you should be able to:

1.Definition of accounting.
2.Purposes of accounting, users of accounting information,
fields of accounting, accounting professional bodies, ethics
and regulations
3.Types of business
4.Characteristics of qualitative accounting information
3

Objective
Objective 11
Explain what accounting is.

Accounting
an information system that provides
reports to stakeholders about the
economic activities and condition of a
business.

.it is a process
Identifying
Recording
Communicating

Objective
Objective 22
Purposes of accounting, fields of
accounting, accounting professional
bodies, ethics and regulations

.to whom the information for?

The stakeholder.

is a person or entity having an

interest in the economic
performance and well-being
of a business.
8

Financial accounting is primarily concerned

with the recording and reporting of economic
data and activities for a business.

Managerial accounting uses both financial

accounting and estimated data to aid
management in running day-to-day
operations and in planning future operations.
9

Financial versus Managerial

Financial Accounting

Managerial
Accounting

Format has to follow

established standards
of reporting format
Foreign the
information (report) is
meant for foreign
users e.g LHDN, SC,
Banks

Management
intended users are the
management of the
entity

10

Types of Accountants
Private Accountants

Public Accountants

Accountants employed by a
business firm or a not-forprofit organization

Accountants and their staff

who provide services on a fee
basis
e.g. Big 4, medium and small
size accounting firms.

Delloitte

PricewaterhouseCoop
ers

Ernst & Young

KPMG
11

Malaysian
Malaysian
Institute of
Institute of
Certified Public
Accountants
Accountin
Accountants
(MIA)
g
(MICPA)
Profession
al bodies
in
Malaysian Malaysia Financial
Reporting

Accounting
Standards
Board (MASB)

Reporting
Foundation
(FRF)

12

Ethics?
.. are the moral principles that
guide the conduct of individuals.
right or wrong
acceptable or not
standards of good or bad behaviour
13

Why?

our actions are watched and judged

as right or wrong, honest or dishonest,
and fair or bias.
it has impact on society and others.
communicate credible economic
information activities.

14

1-1

Objective
Objective 33
Describe the types of business
and forms of business
organization

15

1-1

Types of Businesses
Service
ServiceBusiness
Business
Les
LesCopaque
Copaque
Malaysia
MalaysiaAirlines
AirlinesSystem
System(MAS)
(MAS)
Maybank
MaybankCorporation
Corporation
Seri
SeriMalaysia
Malaysia
lodging
lodging
PWC
PWC

Service
Service
Entertainment
Entertainment
Transportation
Transportation
Financial
Financialservices
services
Hospitality
Hospitalityand
and
Auditing
Auditing

16

Types of Businesses

1-1

Merchandising
Merchandising Business
Business Product
Product
Giant
Giant
Amazon.com
Amazon.com
Toy
ToyR
RUs
Us
Pensonic
Pensonic
Cheetah
Cheetah

General
Generalmerchandise
merchandise
Internet
Internetbooks,
books,music,
music,video
video
Toys
Toys
Consumer
Consumerelectronics
electronics
Apparel
Apparel

17

Types of Businesses
Manufacturing
Manufacturing Business
Business

Product
Product

General
GeneralMotors
MotorsCorporation
Corporation
Nokia
Nokia
Acer
Acer
Adidas
Adidas
FF&
&NNCompany
Company
Samsung
Samsung

Cars,
Cars,trucks,
trucks,vans
vans
Cell
Cellphones
phones
Personal
Personalcomputers
computers
Athletic
Athleticshoes
shoesand
andapparel
apparel
Beverages
Beverages
Stereos
Stereosand
andtelevisions
televisions

1-1

18

Common Forms of Business

Organizations
Proprietorship
Partnership
Corporation
Limited liability company

19

Proprietorship
owned by one individual,
more than 70% of business organizations in
Malaysia are organized by proprietorships,
easy and low cost of organizing,
financial resources are limited to the owners
resources, and
commonly used by small businesses such as
hardware stores, laundries, restaurants, and grocery
shop.
20

Partnership
owned by two or more individuals
about 10% of business organizations in Malaysia
are organized by partnerships,
combine the skills and resources of more than one
person, and
like proprietorships, small local businesses such
as automotive repair shops, music stores, beauty
salons, and clothing stores may be organized as
partnerships.
21

Corporation
organized under state or federal statutes as a separate
legal taxable entity
generates 90% of the total dollars of business receipts
received.
comprises only 20% of the business organizations in
Malaysia.
ownership is divided into shares of stock, sold to
shareholders (stockholders)
able to obtain large amount of resources by issuing
stock.
is used only by large businesses.

22

Limited liability company (LLC) @

Sdn Bhd
combines attributes of a partnership and a
corporation in that it is organized as a corporation.
can elect to be taxed as a partnership
a popular alternative to a partnership
has tax and liability advantages to the owners.
23

The process by which accounting provides

information to business stakeholders is as follows:
Identify stakeholders.
Assess stakeholders information needs.
Design the accounting information system to meet
stakeholders needs.
Record economic data about business activities and events.
Prepare accounting reports for stakeholders.
24

25

Understandability
The information must be readily
understandable to users of the
financial statements. This means
that information must be clearly
presented, with additional
information supplied in the
supporting footnotes as needed to
assist in clarification.
26

Relevance
The information must be relevant to
the needs of the users, which is the
case when the information influences
the economic decisions of users. This
may involve reporting particularly
relevant information, or information
whose omission or misstatement
could influence the economic
decisions of users.
27

Reliability
The information must be free of
material error and bias, and not
misleading. Thus, the information
should faithfully represent
transactions and other events,
reflect the underlying substance of
events, and prudently represent
estimates and uncertainties through
proper disclosure.
28

Comparability
The information must be
comparable to the financial
information presented for other
accounting periods, so that users
can identify trends in the
performance and financial position
of the reporting entity.

29

Who uses the accounting information?

Internal users
eg. marketing managers, production supervisors,
finance directors, and company officers.
they need detailed information like financial
comparison of operating alternatives, projection of
income from new sales, and forecasts of cash needs
for the coming year on a timely basis in running the
business.
30

Who uses the accounting information?

External users
Investors to make decisions whether to buy, hold, or sell their share
in the company.
Tax authority check for companys tax compliance. E.g. LHDN
Security Commission (SC) to make sure that company is operating
within the prescribed rules.
Customers observe whether company continues to maintain product
quality and warranty and then decide whether to continue supporting
its products.
Labour union want to know whether company can afford to give
pay
raises or benefits.
31

1-1

23
32

.the end!
33

In Malaysia, the word

accountant is protected as
provided for under the
provisions of the Act which
states that no one can hold
himself out or practise as an
accountant unless he is
registered as a member of MIA.

MIA is a statutory body established

under the Accountants Act, 1967 to
regulate and develop the accountancy
profession in Malaysia.
MIA's responsibilities include education
and quality assurance as well as
enforcement which are carried out to
ensure that the credibility of the
profession is maintained and that public
interest is continuously upheld.
Implementing professional standards
and practices based on internationally
accepted guidelines as standards and
By-Laws for members to comply with in
maintaining the integrity of the
profession
MIA monitors international and local
accounting trends and developments,
and consults regularly with the
government and regulatory bodies.
34

 To advance the theory and practice of

accountancy in all its aspects.
To recruit, educate, train and assess by
means of examination or otherwise a
body of members skilled in these areas.
To preserve at all times the professional
independence of accountants in whatever
capacities they may be serving.
To maintain high standards of practice
and professional conduct by all its
members.
To do all such things as may advance the
profession of accountancy in relation to
public practice, industry, commerce,
education and the public service.

35

 The Malaysian Accounting Standards Board (MASB)

is established under the Financial Reporting Act
1997 (the Act) as an independent authority to
develop and issue accounting and financial
reporting standards in Malaysia.
The MASB, together with the
Financial Reporting Foundation (FRF), make up the
frameworks for financial reporting in Malaysia.
These frameworks comprises an independent
standard-setting structure with representation from
all relevant parties in the standard-setting process,
including preparers, users, regulators and the
accountancy profession.
issue new accounting standards as approved
36
accounting standards and to review, revise
or adopt

 to provide its views to

the MASB
to review the
performance of the
MASB
to be responsible for
the financing
arrangements and
operations of the
MASB
to approve the MASB
budget;
to engage or to
employ persons and
determine the
conditions of such
appointments as are
necessary to assist
the FRF and MASB
perform their
functions under the
Act;

The Financial Reporting Foundation

(FRF) is established under the
Financial Reporting Act 1997. The
FRF comprises representation from
all relevant parties in the standard
setting process, including preparers,
users, regulators and the
accountancy profession.
The FRF, as a trustee body, has
responsibility for the oversight of
the MASB's performance, financial
and funding arrangements, and as
an initial source of views for the
MASB on proposed standards and
pronouncements. It has no direct
responsibility with regard to
standard setting. This responsibility
rests solely with the MASB.
37

Comparison or differences enterprise

(sole trader & partnership) with private

2.Bhd)
Taxes rate in Malaysia
limited company (Sdn.
Enterprise Personal Tax

A private limited company advantages

and disadvantages compared with
retaining Enterprise extends beyond
purely tax advantages. A private
limited company will limit your
liabilities for the debts of company.
Here we summarise some of the
advantages for help you decide should
you convert your enterprise into a
private limited
company:1. Liabilities of Owner
Enterprise Unlimited
There is no distinction between
business and personal money for self
employed or partnership as all
business debts & risks are the owners'
personal responsibility.

Sdn Bhd limited

Advantages are that the company is a
separate corporate body and liability
for payment of debts stops with the

Not subject to income tax. The Profits

made are added to the sole proprietor or
partners' Personal income tax and the
owner or partners are liable for this profit
under personal income tax.
Sdn Bhd Corporate Tax
Only subject to the 20% & 25%
corporation tax rate (for small middle size
company)

3. Flexibility
Enterprise less flexible
Sole proprietor or partners (resident
individual) is taxed on his chargeable
income at graduated rates from 2% to
26% after the deduction of tax relief.
Sdn Bhd more flexible (advantages)
Personal income
Advantages come from the flexibility of
being able to vary the mix of your
personal income. You can determine how
much you want to take out as salary,
director's fees, bonus, dividend or
benefits-in-kind and38how much you want
to leave in the company.

Employment income for

family members
Your wife and family members
as staff or directors, making
company's income into their
income. As you can control the
company, this flexibility can
create the most tax-efficient
way.
Benefits-in-kind
Certain benefits-in-kind, e.g.
motor car can taking advantage
of prescribed scales. Many
benefits are taxed on a more
favourable basis for employees,
including directors, than for the
Enterprise.
EPF or approved schemes
For Contributions to EPF to give
tax deductions for both
employer and employee
contributions, As Enterprise,

There is the chance to enjoy tax

incentives such as investment tax
allowance, reinvestment allowance,
pioneer status and others which only
for company.
Personal Income 26% Tax Rate
The advantages increase where net
taxable profit is above the self
employment upper earnings limit as
money can be left in the business and
therefore only subject to the 20% &
25% corporation tax rate (for small
middle size company) thereby
avoiding the sole proprietor or
partners 26% tax rate. Another
possibility is to distribute the shares
among family members to reduce the
risk of 26% tax.
Deductible Expenses
Potentially small issues but there
differences in the accounting
treatment of deductible expenses
such as charitable donations,
entertaining expenses and use of
home as office. A private limited
company advantages consist of being
able to claim such expenses as valid
39
business expenses which would not