Managerial Accounting Fifth Canadian Edition PDF

Managerial Accounting Fifth Canadian Edition Chapter 1 Introduction to Managerial Accounting Copyright © 2024 Pearson Canada Inc....

Managerial Accounting Fifth Canadian Edition Chapter 1 Introduction to Managerial Accounting Copyright © 2024 Pearson Canada Inc. 1-1 Learning Objectives (1 of 2) 1. Identify managers’ four primary responsibilities. 2. Distinguish financial accounting from managerial accounting. 3. Describe organizational structure and the roles and skills required of management accountants, within the organization. 4. Describe the role of CPA Canada, and apply its guidelines for ethical behaviour. 5. Discuss and analyze the implications of regulatory and business trends. Copyright © 2024 Pearson Canada Inc. 1-2 Learning Objectives (2 of 2) 6. Describe a lean production system. 7. Describe and use the costs of quality framework. 8. Describe foundational concepts in data analytics. Copyright © 2024 Pearson Canada Inc. 1-3 Objective 1 Identify managers’ four primary responsibilities. Copyright © 2024 Pearson Canada Inc. 1-4 Managers’ Primary Responsibilities Exhibit 1-1 Copyright © 2024 Pearson Canada Inc. 1-5 Planning Planning involves two main activities: 1. Setting goals and objectives for the organization; e.g. “We will provide the highest quality product in North America” 2. Determining how to achieve them – Use the best quality ingredients. – Establish good relationships with suppliers to achieve this. – Market to an elite clientele. These plans are divided into specific tasks, timelines and costs to create budgets and determine feasibility. Copyright © 2024 Pearson Canada Inc. 1-6 Directing Motivating managers and staff to implement the plans and achieve the organization’s goals through the day-to- day operations​. Examples: – Using daily/weekly product sales data to determine which menu items are generating the most sales. – Use that information to determine menu and marketing strategies. Copyright © 2024 Pearson Canada Inc. 1-7 Controlling Evaluating results of operations against plans and making adjustments, as needed. Examples: – Comparing budgeted sales with actual sales and take corrective action. – Comparing budgeted product costs against actual product costs and take corrective action, as needed. Ensure actual results meet planned results. Copyright © 2024 Pearson Canada Inc. 1-8 Decision Making The most important function of mangers is to Make Decisions.​ Management is continually making decisions while planning, directing, and controlling supports these decisions.​ Examples:​ Location of new restaurants​ Which restaurants to refurbish​ Staffing​ Prices of meals​ Menu items to offer​ Copyright © 2024 Pearson Canada Inc. 1-9 Quick Check: Functions of Managers Identifying alternative courses of a. Planning​ action and choosing among them ​ b. Decision making​ Running the company on a day-to- c. Directing​ day basis ​ Determining whether the d. Controlling​ company’s units are operating according to plan ​ Setting goals and objectives for the company and determining strategies to achieve them​ Copyright © 2024 Pearson Canada Inc. 1 - 10 Functions of Managers Identifying alternative courses of a. Planning​ action and choosing among them b b. Decision making​ Running the company on a day-to- c. Directing​ day basis c Determining whether the d. Controlling​ company’s units are operating according to plan d Setting goals and objectives for the company and determining strategies to achieve them​ a Copyright © 2024 Pearson Canada Inc. 1 - 11 Objective 2 Distinguish financial accounting from managerial accounting. Copyright © 2024 Pearson Canada Inc. 1 - 12 Managerial vs. Financial Accounting Issue​ Financial​ Managerial​ User​ External​ Internal​ Time​ Past​ Future​ Period​ Fiscal Year​ Any​ GAAP, IFRS, Tax, Regulations​ OSC​ None​ Audits​ Mandatory​ Not Required​ Accuracy, Verifiabilit Relevance, Timeli Focus​ y​ ness​ Scope​ Consolidated​ Segmented​ Copyright © 2024 Pearson Canada Inc. 1 - 13 Quick Check: Managerial or Financial? Are the following statements more descriptive of managerial accounting or financial accounting information?​ a. Describes historical transactions with external parties​ b. Is not required by any authoritative body, such as the provincial securities commissions​ c. Reports on the company’s subunits, such as products, geographical areas, and departments​ d. Is intended to be used by creditors and investors​ e. Is formatted in accordance with ASPE or IFRS​ f. Utilized by readers to support decision making. Copyright © 2024 Pearson Canada Inc. 1 - 14 Managerial or Financial Accounting? Are the following statements more descriptive of managerial accounting or financial accounting information?​ a. Describes historical transactions with external parties​ FA b. Is not required by any authoritative body, such as the provincial securities commissions​MA c. Reports on the company’s subunits, such as products, geographical areas, and departments​MA d. Is intended to be used by creditors and investors FA e. Is formatted in accordance with ASPE or IFRS​FA f. Utilized by readers to support decision making. BOTH Copyright © 2024 Pearson Canada Inc. 1 - 15 Objective 3 Describe organizational structure and the roles and skills required of management accountants within the organization. Copyright © 2024 Pearson Canada Inc. 1 - 16 Typical Organizational Structure Exhibit 1-3 Copyright © 2024 Pearson Canada Inc. 1 - 17 The Changing Roles of Management Accountants Management Accountants have senior roles as managers, internal consultants and advisors, in every part of the organization and in every industry.​ Impact of technology has fostered change in the role from “bean counter” to senior management and advisor – Ensuring accurate financial records – Planning, analyzing, and interpreting accounting data – Providing decision support Copyright © 2024 Pearson Canada Inc. 1 - 18 The Skills Required for Management Accountants Exhibit 1-4 Copyright © 2024 Pearson Canada Inc. 1 - 19 Quick Check: Accounting roles The following is a list of job duties or descriptions. Determine if is the responsibility of the treasurer, the controller, or the internal auditor. a. Perform cash counts at branch offices. b. Prepare journal entries for month-end closing. c. Issue company stock. d. Ensure that the company’s internal controls are functioning properly. e. Create an analysis about whether to lease or buy a delivery truck. f. Calculate the cost of a product. g. Issue company bonds. Copyright © 2024 Pearson Canada Inc. 1 - 20 Accounting roles in the organization The following is a list of job duties or descriptions. Determine if is the responsibility of the treasurer, the controller, or the internal auditor. a. Perform cash counts at branch offices. Controller b. Prepare journal entries for month-end closing. Controller c. Issue company stock. Treasurer d. Ensure that the company’s internal controls are functioning properly. Auditor e. Create an analysis about whether to lease or buy a delivery truck. Treasurer f. Calculate the cost of a product. Controller g. Issue company bonds. Treasurer Copyright © 2024 Pearson Canada Inc. 1 - 21 Objective 4 Describe the role of CPA Canada and apply its guidelines for ethical behaviour. Copyright © 2024 Pearson Canada Inc. 1 - 22 Professional Accounting Designations in Canada and Ethical Guidelines (1 of 2) Now one professional accounting designation in Canada: Chartered Public Accountant (CPA) – Merger of the three legacy designations (CMA, CA, CGA) Ethics means doing the right thing, specifically following all rules and regulations in both the letter and the spirit of the laws. For accountants, these rules are documented in GAAP, IFRS, Tax and OSC rules, regulations and laws (among others).​ The rules support the economic stability in every country. Failing to behave ethically can have international economic consequences.​ Copyright © 2024 Pearson Canada Inc. 1 - 23 Professional Accounting Designations in Canada and Ethical Guidelines (2 of 2) Examples of unethical behaviour – Allowing reimbursement of false expense reports – Manipulating income – Performing tasks not qualified to perform – Breaking confidentiality requirements Copyright © 2024 Pearson Canada Inc. 1 - 24 CPA Ethical Guidelines Professional Behaviour Integrity and Due Care Objectivity Professional Competence Confidentiality Copyright © 2024 Pearson Canada Inc. 1 - 25 CPA Guidelines for Ethical Behaviour Exhibit 1-5 Guideline Evidence Example Adherence to Rules of Compilation of allowed and No ownership interest in an Professional Conduct disallowed behaviours audit client Adherence to laws and professional Having the requisite standards for knowledge and knowledge to perform Enabling Competencies behaviour certain tasks Recognition of ethical issues that Planning and identifying Assessing the Situation may arise in work to be performed possible conflicts of interest Anticipation of issues and Scrutinizing ethical constraints identification of possible to determine the best way Integrative Analysis alternatives forward Conclude/Advise and A clear and transparent decision Communicate based on the ethical analysis Source: Karen W. Braun, Wendy M. Tietz, and Louis Beaubien, Managerial Accounting, 3rd Ed., © 2018, Pearson Education, Inc., NewÏork, NY. Copyright © 2024 Pearson Canada Inc. 1 - 26 Steps to Resolve Ethical Dilemmas Follow company’s policies for reporting unethical behaviour If not resolved: – Discuss with immediate supervisor (if not involved) – Discuss with objective advisor – Consult an attorney regarding legal obligations and rights Not all unethical behaviour is illegal, but all illegal behaviour is unethical. Copyright © 2024 Pearson Canada Inc. 1 - 27 Quick Check: Ethical Guidelines Which ethical standard is described? a. Communicate information fairly and objectively. b. Refrain from using confidential information for unethical or illegal advantage. c. Inform all relevant parties regarding the appropriate use of confidential information. d. Monitor subordinates’ activities to ensure compliance. e. Mitigate actual conflicts of interest. f. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. g. Maintain an appropriate level of professional expertise by continually developing knowledge and skills. Copyright © 2024 Pearson Canada Inc. 1 - 28 Ethical Guidelines (1 of 2) Which ethical standard is described? a. Communicate information fairly and objectively. Competence and objectivity. b. Refrain from using confidential information for unethical or illegal advantage. Confidentiality. c. Inform all relevant parties regarding the appropriate use of confidential information. Confidentiality. d. Monitor subordinates’ activities to ensure compliance. Integrity and Due Care. Copyright © 2024 Pearson Canada Inc. 1 - 29 Ethical Guidelines (2 of 2) e. Mitigate actual conflicts of interest. Integrity and competence. f. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. Integrity and competence. g. Maintain an appropriate level of professional expertise by continually developing knowledge and skills. Competence. Copyright © 2024 Pearson Canada Inc. 1 - 30 Objective 5 Discuss and analyze the implications of regulatory and business trends. Copyright © 2024 Pearson Canada Inc. 1 - 31 Regulatory and Business Issues The business world is continually changing: Sarbanes-Oxley Act of 2002 (SOX) in the USA International Financial Reporting Standards (IFRS) Extensible Business Reporting Language (XBRL) Shifting economy Globalization Sustainability Copyright © 2024 Pearson Canada Inc. 1 - 32 Tools for Time-Based Competition (1 of 2) Integrated Reporting – Concise and integrated communication – Information on how strategy, governance, performance and prospects lead to the creation of value – All elements of value creation, not just financial Copyright © 2024 Pearson Canada Inc. 1 - 33 Tools for Time-Based Competition (2 of 2) Advanced Information Systems – Enterprise resource planning (ERP) systems – Help companies save money and respond quickly to changes, and can replace hundreds of separate software systems Web-enabled Business – An important means of supply-chain management Copyright © 2024 Pearson Canada Inc. 1 - 34 Objective 6 Describe a lean production system. Copyright © 2024 Pearson Canada Inc. 1 - 35 Characteristics of a Lean Production System Production occurs in self-contained cells Broad employee roles – they do many things and contribute to production improvements Small batches produced just-in-time Shortened set-up times Shortened manufacturing cycle times Emphasis on quality Copyright © 2024 Pearson Canada Inc. 1 - 36 Traditional System versus JIT System Exhibit 1-8 Copyright © 2024 Pearson Canada Inc. 1 - 37 Total Quality Management (TQM) Goal is to provide customers with superior products and services Continually set higher goals for quality International Organization for Standardization (ISO) Copyright © 2024 Pearson Canada Inc. 1 - 38 Objective 7 Describe and use the costs of quality framework. Copyright © 2024 Pearson Canada Inc. 1 - 39 Four Types of Quality Costs Exhibit 1-10 Copyright © 2024 Pearson Canada Inc. 1 - 40 Candent’s Cost of Quality Report Exhibit 1-11 *The percentage of total is computed as the total cost of the category divided by the total costs of quality. For example: 6.1% = $125,000 ÷ $2,060,000. Copyright © 2024 Pearson Canada Inc. 1 - 41 Quick Check – Cost of Quality (1 of 4) Fierenze Inc. makes electronic components. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. a. Costs of electronic components returned by customers b. Costs incurred by customer representatives travelling to customer sites to repair defective products c. Lost profits from lost sales due to reputation for less- than-perfect products d. Costs of inspecting components in Fierenze’s production processes. Copyright © 2024 Pearson Canada Inc. 1 - 42 Quick Check – Cost of Quality (2 of 4) e. Salaries of engineers who are designing components to withstand electrical overloads f. Costs of reworking defective components after discovery by company inspectors Copyright © 2024 Pearson Canada Inc. 1 - 43 Quick Check – Cost of Quality (3 of 4) Fierenze Inc. makes electronic components. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. a. Costs of electronic components returned by customers External Failure b. Costs incurred by customer representatives travelling to customer sites to repair defective products External Failure c. Lost profits from lost sales due to reputation for less- than-perfect products External Failure Copyright © 2024 Pearson Canada Inc. 1 - 44 Quick Check – Cost of Quality (4 of 4) d. Costs of inspecting components in Fierenze’s production processes. Appraisal e. Salaries of engineers who are designing components to withstand electrical overloads Prevention f. Costs of reworking defective components after discovery by company inspectors Internal Copyright © 2024 Pearson Canada Inc. 1 - 45 Objective 8 Describe foundational concepts in data analytics. ​ Copyright © 2024 Pearson Canada Inc. 1 - 46 Data Analytics What is data analytics? ​ – A process of collecting, summarizing, analyzing, interpreting, and transforming data into relevant information to support decision-making. This provides actionable insights to advance the organizational goals.​ What’s New? ​ – The sheer volume, speed, accessibility, and variety of data that is readily available. ​ – The tools that are available to collect and analyze data.​ Copyright © 2024 Pearson Canada Inc. 1 - 47 Benefits Of Excellent Data Analytics​ Utilizing Science to support decisions.​ Quicker with technology and speed of information​ Efficiency with gathering and utilizing information​ Enhances adaptation to rapid change.​ Drives innovation​ Copyright © 2024 Pearson Canada Inc. 1 - 48 Data analytics – process Step 1: Identify the issue​. Step 2: Collect Data​. Sept 3: Utilize tools and technology​. Step 4: Transform the data into relevant information​. Step 5: Communicate the information to decision makers.​ Step 6: Act; choose and implement the plan​. Copyright © 2024 Pearson Canada Inc. 1 - 49 Quick Check Copyright © 2024 Pearson Canada Inc. 1 - 50 Quick Check – Chapter One (1 of 3) 1. (Learning Objective 1) Which of the following is not one of the four primary responsibilities of management? a. Controlling b. Costing c. Directing d. Planning 2. (Learning Objective 2) Which of the following is true about managerial accounting? a. IFRS and ASPE require managerial accounting. b. Internal decision makers use managerial accounting. c. Public accountants audit managerial accounting reports. d. Managerial accounting reports are usually prepared on an annual basis. Copyright © 2024 Pearson Canada Inc. 1 - 51 Quick Check – Chapter One (2 of 3) 3. (Learning Objective 2) Which of the following is a characteristic of financial accounting information? a. Emphasizes relevance b. Focuses on the future more than the past c. Provides detailed information about parts of the company, not just the company as a whole d. Emphasizes reliability 4. (Learning Objective 3) What company position is in charge of raising the firm’s capital? a. Director of internal audit b. Controller c. COO d. Treasurer Copyright © 2024 Pearson Canada Inc. 1 - 52 Quick Check – Chapter One (3 of 3) 5. (Learning Objective 3) Which of the following statements is true? a. The COO reports to the CFO. b. The treasurer reports to the CEO. c. The internal audit department reports to the audit committee. d. The controller reports to the internal auditor. 6. (Learning Objective 4) A management accountant who refuses an expensive gift from a software salesperson meets the ethical standard of a. professional behaviour. b. confidentiality. c. integrity and due care. d. professional competence. Copyright © 2024 Pearson Canada Inc. 1 - 53