FN0135 Financial Decisions and Accounting

Synopsis of Module

The aim of this module is concerned with how accounting techniques can help meet user needs. From an ex ante perspective it introduces accounting techniques which can assist entrepreneurs appraise entrepreneurial opportunities. From an ex post perspective the module also looks at how accounting systems can be developed to collect, record, and summarise the economic activities of a business and how users can use the outputs of these systems to appraise progress to date.

At the end of the module students will be able to use accounting techniques to appraise investment opportunities within conditions of certainty and uncertainty. Students will also understand the nature and importance of stewardship and will be able to design and monitor systems to collect, record and summarise business transactions and interpret results to date. In all instances students will understand the limitations of the techniques and systems used.

The module will be delivered by means of lectures and student centred seminars. There will be directed preparation requirements for seminars which will enable students to check their understanding and progress to date. In addition, students will be expected to undertake independent reading and learning.

Because of professional accreditation requirements assessment will be by closed book examination. A short computer administered and assessed examination will be held at the end of the first semester and a longer closed book written examination will be held at the end of the second semester. The final mark for this module will be based 25% on the computer based examination and 75% on the written examination.

Aims of Module

1.	To introduce the structure and regulation of the accountancy profession in the UK and its role in supporting and facilitating the creation of wealth.

2.	To demonstrate the relevance of the investment decision, the financing decision, and stewardship decisions to entrepreneurs.

3.	To demonstrate investment appraisal techniques.

4.	To introduce techniques for dealing with risk and uncertainty in investment appraisal.

5.	To introduce the stewardship function of accounting.

6.	To enable the student to understand how systems can be set up, administered and controlled to collect, record, summarise and communicate data to users.

7.	To develop an ability to understand and interpret financial statements.

Learning Outcomes

1.	Explain the structure and regulation of the accountancy profession in the UK.

2.	Explain the nature of wealth and the motivations for entrepreneurial activity.

3.	Forecast, model and evaluate cash flows.

4.	Explain and apply generally accepted techniques for appraising investment proposals.

5.	Apply basic techniques for dealing with risk and uncertainty in investment appraisal.

6.	Demonstrate competence in basic financial accounting skills and techniques, in particular: - recording and processing transactions - proving the accuracy of the financial accounting system - preparing financial statements.

7.	Interpret basic financial statements and communicate the results to users.

8.	Demonstrate an understanding of financial accounting systems as control and stewardship systems.

Outline Syllabus

Accounting and its environment

The nature of accounting. An outline history of the development of accounting. Accounting as an information system. The users of accounting information. The relationship between accounting and other disciplines e.g. economics, law, management, quantitative techniques, politics and behavioural disciplines.

The structure and regulation of the UK accounting profession.

Accounting and entrepreneurial decisions

Motivations for entrepreneurial activity. The information needs of entrepreneurs.

The investment decision

The investment decision, an introduction to investment appraisal techniques. Payback, accounting rate of return, and discounted cash flow models. The theory underlying the net present value decision rule, the Fisher-Hirshleifer model.

Discounted cash flow as an optimal investment appraisal technique. Specifying cash flows and the appropriate discount rate. Net present value v. internal rate of return. An outline of the problems of forecasting cash flows, uncertainty and risk, inflation, taxation and capital rationing. The limitations of DCF techniques. Elementary game theory and investment decisions.

Modelling cash flows

Cash flow models and the calculation of net present values and internal rates of returns. Converting long term cash flow projections into short and medium term budgets. The comparison of actual and budgeted cash flows. Analysing differences and report writing.

The financing decision

An introduction to alternative forms of finance and business structure. Loan capital and equity capital, an introduction to gearing and financial risk. Sole traders, partnerships, companies, groups and joint ventures. Short term finance and an introduction to stock control, debtors control (including factoring), trade credit and bank overdraft finance.

Stewardship

The nature of stewardship. Concepts of accountability.

Accounting systems

Systems for collecting, recording, and summarising accounting data. Source documents and their processing. Double entry book-keeping. Summarising financial data - the trial balance, profit and loss account, balance sheet and cash flow statement.

Accounting Control systems.

The nature, identification and correction of errors. Reconciliations and control accounts; the control of branch organisations. Incomplete accounting records.

Problems of profit measurement.

Realisation of income and the matching of expenditure, accruals and cash accounting. Introduction to valuation issues in connection with fixed assets, stock and trade debtors.

Financial reporting

The preparation of summary financial statements for sole traders, partnerships and limited companies (internal use only). Non-trading and not-for-profit organisations. An introduction to the regulatory instruments affecting the preparation of financial statements.

Interpretation

The interpretation of financial statements. Users and user needs. Accessing databases for comparable data. The preparation and presentation of reports to owners and managers. Limitations of conventional accounting.

Summative assessment

1.	An unseen closed book examination to be held at the end of semester 1. This will be administered and assessed electronically. 1.5 hours, 25%

2.	An unseen closed book written examination to be held at the end of semester 2. This will last 3 hours and contribute 75% of the module assessment mark.