management acc chp1

8/3/2019 Management Acc Chp1

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Copyright 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin

Chapter One

Managerial Accounting andthe Business Environment


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Imports into the United States

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50

100

150

200

250

300

Years

U S I m p o r t s

( b i l l i o n s o

f $ )

Canada

China

GermanyJapan

Mexico

United Kingdom

1990 1995 2000 2004


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Exports from the United States

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40

60

80

100120

140

160

180200

Years

U S E x p o r t s

( b i l l i o n s o

f $ )

Canada

China

GermanyJapan

Mexico

United Kingdom

1990 1995 2000 2004


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Internet Usage

The Internet fuels globalizationby providing companies with greater

access to geographically dispersedcustomers, employees, and suppliers.

The number of internet users morethan doubled during the first four

years of the new millennium.


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Strategy

A strategyis a game plan

that enables a company

to attract customersby distinguishing itselffrom competitors.

The focal point of acompanys strategy should

be its target customers.


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Customer Value Propositions

Understand and respond toindividual customer needs.

CustomerIntimacyStrategy

OperationalExcellence

Strategy

Deliver products and servicesfaster, more conveniently,

and at lower prices.

ProductLeadership

StrategyOffer higher quality products.


7/50Copyright 2008, The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin

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Work of Management

Planning

Controlling

Directing and

Motivating



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Planning

Identifyalternatives.

Select alternative that doesthe best job of furtheringorganizations objectives.

Develop budgets to guideprogress toward theselected alternative.



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Directing and Motivating

Directing and motivating involves managingday-to-day activities to keep the organizationrunning smoothly.

Employee work assignments.Routine problem solving.Conflict resolution.

Effective communications.



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Controlling

The control function ensuresthat plans are being followed.

Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.



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Planning and Control Cycle

DecisionMaking

Formulating long-and short-term plans

(Planning)

Measuringperformance(Controlling)

Implementingplans (Directingand Motivating)

Comparing actualto planned

performance(Controlling)

Begin

Exhibit 1-2



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Learning Objective 1

Identify the majordifferences and similarities

between financial andmanagerial accounting.

f l d



1-13 Comparison of Financial andManagerial Accounting

Financial Accounting Managerial Accounting1. Users External persons who Managers who plan for

make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on relevanceversus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis ontimeliness precision timeliness

5. Subject Primary focus is on Focuses on segments

the whole organization of an organization

6. GAAP Must follow GAAP Need not follow GAAPand prescribed formats or any prescribed format

7. Requirement Mandatory for Notexternal reports Mandatory



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Understand the role ofmanagement accountantsin an organization.



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Corporate Organization Chart

Purchasing Personnel Vice PresidentOperations

Treasurer Controller

Chief FinancialOfficer

President

Board of Directors

Organizational Structure

Decentralization is the delegation of decision-making authority throughout an organization.

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Line and Staff Relationships

Line positions are directlyrelated to achievement ofthe basic objectives of anorganization.

Example: Productionsupervisors in amanufacturing plant.

Staff positions supportand assist line positions.

Example: Costaccountants in themanufacturing plant.

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The Chief Financial Officer (CFO)

A member of the top management teamresponsible for:

Providing timely and relevant data to supportplanning and control activities.Preparing financial statements for external users.

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Understand the basic

concepts underlying LeanProduction, the Theory of

Constraints, and Six

Sigma.

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Process Management

Business functions making up the value chain

Product CustomerR&D Design Manufacturing Marketing Distribution Service

A businessprocess is a series of

steps that are followed in order tocarry out some task in

a business.

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Process Management

There are three approaches toimproving business processes . . .

LeanProduction

Theory of

Constraints (TOC)Six

Sigma

1 21 T diti l P h



1-21 Traditional Push Manufacturing Company

Forecast Sales Order components

Produce goods inAnticipation of Sales

Make Sales fromFinished Goods

Inventory

Store Inventory

StoreInventory

1-22 T diti l P h



1-22

Traditional push manufacturing

Traditional Push Manufacturing Company

Largeinventories

Finishedgoods

Rawmaterials

Work inprocess

Materials waitingto be processed.

Completed productsawaiting sale.

Partially completed productsrequiring more work before

they are ready for sale.

1-23 Exhibit



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Lean ProductionExhibit

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The lean thinkingmodel is a fivestep approach.

Identify valuein specific

products/services.

Identify thebusiness process

that delivers value.

Organize workarrangements around

the flow of thebusiness process.

Create a pullsystem that responds

to customer orders.

Continuously pursueperfection in the

business process.

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Customer Placesan Order

Create ProductionOrder

Generate ComponentRequirements

Production Beginsas Parts Arrive

Goods Deliveredwhen needed

Componentsare Ordered

Lean Production

The five step process results in a pull manufacturing system that reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.

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Lean Production

Lean thinking may be used to improve businessprocesses that link companies together.

The term supply chain management refers tothe coordination of business processes across

companies to better serve end consumers.

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A constraint (also called a bottleneck ) is anything thatprevents you from getting more of what you want.

The Theory of Constraints is based on the observation thateffectively managing the constraint is the key to success.

The constraint in a system is determinedby the step that has the smallest capacity .

Theory of Constraints

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4. Recognize thatthe weakest link

is no longer so.

1. Identify theweakest link.

2. Allow theweakest link toset the tempo.

3. Focus onimproving

the weakestlink.

Only actionsthat strengthenthe weakest linkin the chainimprove the

process.

Theory of Constraints

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Six Sigma

A process improvement method relying on customerfeedback and fact-based data gathering and analysistechniques to drive process improvement.

Refers to a process that generates no morethan 3.4 defects per million opportunities.

Sometimes associatedwith the term zero defects .

1-29 Exhibit


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Six Sigma

Stage GoalsDefine Establish the scope and purpose of the project.

Diagram the flow of the current process. Establish the customer's requirements for the

process.Measure Gather baseline performance data related to

the existing process. Narrow the scope of the project to the most

important problems.

Analyze

Identify the root cause(s) of the problemsidentified in the Measure stage.Improve Develop, evaluate, and implement solutions

to the problems.Control Ensure that problems remain fixed.

Seek to improve the new methods over time.

The Six Sigma DMAIC Framework

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E-Commerce

E-commerce refers to businessconducted using the Internet.

In addition to dot.com companies, traditionalbusinesses, such as banks and retailers,

continue to expand their Internet presence.

The growth in e-commerce is occurringbecause the Internet has important advantagesover more conventional marketplaces for many

kinds of transactions.

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Enterprise Systems

A single software system thatintegrates data across an organization,thereby enabling all employees to

have simultaneous access to acommon set of data.

All data are recorded onlyonce in the companys

centralized database.

The unique data elementscontained within a database

can be linked together.

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Understand theimportance of upholdingethical standards.

1-33 Code of Conduct for


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Code of Conduct forManagement Accountants

The Institute of Management Accountants (IMA)Standards of Ethical Conduct for Practitioners

of Management Accounting and Financial

Management have two major parts,which offer guidelines for:Ethical behavior.

Resolution for an ethical conflict.

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CompetenceFollow applicablelaws, regulations

and standards.

Maintainprofessionalcompetence.

Provide accurate, clear,concise, and timely decision

support information.

IMA Guidelines for Ethical Behavior

Recognize andcommunicate professional

limitations that precluderesponsible judgment.

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Confidentiality

Do not disclose confidentialinformation unless legally

obligated to do so.

Ensure that subordinates donot disclose confidential

information.

Do not useconfidential

information forunethical or illegal

advantage.


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Mitigate conflicts ofinterest and advise others

of potential conflicts.

Abstain from activities thatmight discredit the

profession.

Refrain fromconduct that

would prejudicecarrying out

duties ethically.

Integrity


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d l f h l h


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Communicate informationfairly and objectively.

Disclose all relevantinformation that could

influence a usersunderstanding of reports

and recommendations.

Credibility


Disclose delays or

deficiencies in informationtimeliness, processing, orinternal controls.

1-38 IMA Guidelines for Resolution


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Follow employers established policies. For unresolved ethical conflicts:

Discuss the conflict with immediate supervisor ornext highest uninvolved manager.

If immediate supervisor is the CEO, consider theboard of directors or the audit committee.

Contact with levels above the immediatesupervisor should only be initiated with thesupervisors knowledge, assuming the supervisor is not involved.

IMA Guidelines for Resolutionof an Ethical Conflict

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Follow employers established policies. For unresolved ethical conflicts:

Except where legally prescribed, maintainconfidentiality.

Clarify issues in a confidential discussion withan objective advisor.

Consult an attorney as to legal obligations.

IMA Guidelines for Resolutionof an Ethical Conflict

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Abandoning ethical standards in business wouldlead to a lower quality of life with less

desirable goods and services at higher prices.

Why Have Ethical Standards?

Without ethical standards in business, theeconomy, and all of us who depend on it for

jobs, goods, and services, would suffer.

Ethical standards in business are essential for asmooth functioning advanced market economy.

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Company Codes of Conduct

Employees Customers Suppliers

And to the communities inwhich the company operates.

Broad-based statements of acompanys responsibilities to:

1-42 Codes of Conduct on


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Codes of Conduct onthe International Level

In addition to competence, objectivity, independence,and confidentiality, the IFACs code deals with

the accountants ethical responsibilities in: Taxes

IndependenceFees and commissions

Advertising and solicitationHandling of monies

Cross-border activities.

The Code of Ethics for ProfessionalAccountants, issued by the InternationalFederation of Accountants (IFAC), govern the

activities of professional accountants worldwide.

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Corporate Governance

The system bywhich a company is directed

and controlled.

Board ofDirectors

Top

Management

Stockholders

To pursue

objectives of

Incentives andmonitoring for

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Corporate Governance

And the communities inwhich the company operates.

An effective corporate governance systemshould also protect the interests of the

companys other stakeholders .

Employees Customers SuppliersCreditors

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h S b O l A f 2002


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The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 was intended to protect the

interests of those who invest in publicly traded companies byimproving the reliability and accuracy of corporate financialreports and disclosures. Six key aspects of the legislation include:

The Act requires both the CEO and CFO to certify in writing

that their companys financial statements and disclosures fairly represent the results of operations.

The Act establishes the Public Company Accounting OversightBoard to provide additional oversight of the audit profession.

The Act places the power to hire, compensate and terminatepublic accounting firms in the hands of the audit committee.

The Act places restrictions on audit firms, such as prohibitingpublic accounting firms from providing a variety of non-audit

services to an audit client.

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Th S b O l A f 2002


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The Sarbanes-Oxley Act of 2002

The Act requires that a companys annual report contain an internal control report that is accompanied by an opinion fromthe companys audit firm about the fairness of that report.

The Act establishes severe penalties for certain behaviors,

such as: Up to 20 years in prison for altering or destroying any

documents that may eventually be used in an officialproceeding.

Up to 10 years in prison for retaliating against awhistle blower.

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E i Ri k M


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Enterprise Risk Management

A process usedby a company to

proactively identifyand manage risk.

Once a company identifies its risks, perhaps themost common risk management tactic is to reduce

risks by implementing specific controls.

Should I try to avoid the risk,share the risk, accept therisk, or reduce the risk?

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E i Ri k M


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Enterprise Risk ManagementExamples of Controls to

Examples of Business Risks Reduce Business Risks Products harming customers Develop a formal and rigorous

new product testing program Losing market share due to the Develop an approach for legally

unforeseen actions of competitors gathering information aboutcompetitors' plans and practices

Poor weather conditions shutting Develop contingency plans for

down operations overcoming weather-relateddisruptions

Website malfunction Thoroughly test the websitebefore going "live" on the Internet

A supplier strike halting the flow Establish a relationship with twoof raw materials companies capable of providing

raw materials Financial statements unfairly Count the physical inventory on

reporting the value of inventory hand to make sure that it agreeswith the accounting records

An employee accessing Create passwords barriers thatunauthorized information prohibit employees from obtaining

information not needed to do their

jobs

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Certified Management Accountant


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Certified Management Accountant

A management accountantwho has the necessary qualifications and

who passes a rigorous professional exam earnsthe right to be known as a Certified

Management Accountant (CMA).

Information about becoming a CMA and the CMAprogram can be accessed on the IMAs website at

www.imanet.org or by calling 1-800-638-4427.

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E d f Ch t 1
http://www.imanet.org/http://www.imanet.org/


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End of Chapter 1

management acc chp1

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