Chapter 0 Managerial Accounting Prologue.pdf

MANAGERIAL ACCOUNTING: AN OVERVIEW Financial and Managerial Accounting: Seven Key Differences blank Financial Accounting Managerial Accounting External persons who make Managers who plan for and control 1. Users...

MANAGERIAL ACCOUNTING: AN OVERVIEW Financial and Managerial Accounting: Seven Key Differences blank Financial Accounting Managerial Accounting External persons who make Managers who plan for and control 1. Users financial decisions an organization 2. Time focus Historical perspective Future emphasis 3. Verifiability versus Emphasis on objectivity and Emphasis on relevance relevance verifiability 4. Precision versus Emphasis on precision Emphasis on timeliness timeliness Primary focus is on companywide 5. Subject Focus on segment reports reports Must follow GAAP/IFRS and Not bound by GAAP/IFRS or any 6. Rules prescribed formats prescribed format 7. Requirement Mandatory for external reports Not Mandatory Work of Management Planning. Controlling. Decision Making. Planning Establish goals. Specify how goals will be achieved. Develop budgets.  Controlling The control function gathers feedback to ensure that plans are being followed. Feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function.  Decision Making Decision making involves making a selection among competing alternatives. What should we be selling? Who should we be serving? How should we execute?  Planning Controlling Decision Making How much should we Is the budgeted price cut Should we sell our budget for TV, print, increasing unit sales as services as one bundle and Internet expected? or sell them separately? advertising? Are we accumulating too Should we sell directly How many salespeople much inventory during the to customers or use a should we plan to hire holiday shopping season? distributor? to serve a new territory?  Planning Controlling Decision Making How many units should Did we spend more or less Should we transfer we plan to produce than expected for the units production of a next period? we actually produced? component part to an overseas supplier? How much should we Are we achieving our goal Should we redesign our budget for next of reducing the number of manufacturing process period’s utility expense? defective units produced? to lower inventory levels?  Planning Controlling Decision Making How much should we Is our employee retention Should we hire an on- plan to spend for rate exceeding our goals? site medical staff to occupational safety lower our health care training? Are we meeting our goal costs? of completing timely How much should we performance appraisals? Should we hire plan to spend on temporary workers or employee recruitment full-time employees? advertising? Managerial Accounting: Planning, Controlling, and Decision Making The primary purpose of this course is to teach measurement skills that managers use to support planning, controlling, and decision making activities. Planning. Controlling. Decision making. Managerial Accounting: Measurement Skills Measurement skills help managers answer important questions. How should I create a financial plan for next year? How well am I performing relative to my plan?  Managerial Accounting: Business Management Perspectives Six Business Management Perspectives that go beyond the numbers to enable intelligent planning, control, and decision making: 1. An Ethics Perspective. 2. A Strategic Management Perspective. 3. An Enterprise Risk Management Perspective. 4. A Corporate Social Responsibility Respective. 5. A Process Management Prospective. 6. A Leadership Perspective.  An Ethics Perspective The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practice provides guidelines for ethical behavior. Competence Confidentiality Integrity Credibility Recognize and Do not disclose Mitigate conflicts of Communicate information communicate confidential information interest and advise fairly and objectively. professional limitations unless legally obligated others of potential Disclose delays or that preclude to do so. conflicts. deficiencies in information responsible judgment. Do not use confidential Refrain from conduct that timeliness, processing, or Follow applicable laws, information for unethical would prejudice carrying internal controls. regulations, and or illegal advantage. out duties ethically. Disclose all relevant standards. Ensure that subordinates Abstain from activities information that could Provide accurate, clear, do not disclose that might discredit the influence a user’s concise, and timely confidential information. profession. understanding of reports decision support and recommendations. information. Maintain professional competence.  IMA Guidelines for Resolution of an Ethical Conflict 1 Follow employer’s established policies. If this does not work, consider the following: Discuss the conflict with immediate supervisor or next highest uninvolved managerial level. If immediate supervisor is the CEO, consider the board of directors or the audit committee. Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved.  IMA Guidelines for Resolution of an Ethical Conflict 2 If following employer’s established policies for conflict resolution do not work, consider these additional practices: Except where legally prescribed, maintain confidentiality. Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations.  Why Have Ethical Standards? Ethical standards in business are essential for a smooth functioning economy. Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer. Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices.  A Strategic Management Perspective A strategy is a “game plan” that enables a company to attract customers by distinguishing itself from competitors. The focal point of a company’s strategy should be its target customers. Customer Intimacy Strategy Understand and respond to individual customer needs. Operational Excellence Strategy Deliver products and services faster, more conveniently, and at lower prices. Product Leadership Strategy Offer higher quality products.  An Enterprise Risk Management Perspective A process used by a company to proactively identify and manage risk. This includes considering whether to avoid the risk, accept the risk, or reduce the risk? Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.  Identifying and Controlling Business Risks Examples of Business Risks Examples of Controls to Reduce Business Risks Intellectual assets stolen from computer Create firewalls that prohibit computer hackers from corrupting or files. stealing intellectual property. Products harming customers. Develop a formal and rigorous new product testing program. Losing market share due to the unforeseen Develop an approach for legally gathering information about actions of competitors. competitors’ plans and practices. Poor weather conditions shutting down Develop contingency plans for overcoming weather-related operations. disruptions. A website malfunctioning. Thoroughly test the website before going “live” on the Internet. A supply strike halting the flow of raw Establish a relationship with two companies capable of providing materials. needed materials.  Types of Internal Controls for Financial Reporting Type of Control Classification Description Authorizations Preventive Requiring management to formally approve certain types of transactions. Reconciliations Detective Relating data sets to one another to identify and resolve discrepancies. Separating responsibilities related to authorizing transactions, recording Segregation of duties Preventive transactions, and maintaining custody of the related assets. Physical safeguards Preventive Using cameras, locks, and physical barriers to protect assets. Comparing actual performance to various benchmarks to identify Performance reviews Detective unexpected results. Maintaining records Detective Maintaining written and/or electronic evidence to support transactions. Using controls such as passwords and access logs to ensure appropriate Information systems security Preventive/Detective data restrictions. A Corporate Social Responsibility Perspective 1 Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions. Customers. Employees. Suppliers. Communities. Stockholders. Environmental & Human Rights Advocates. CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.  Examples of Corporate Social Responsibility Companies should provide customers with: Companies and their suppliers should provide employees with: Safe, high quality products that are fairly priced. Safe and humane working conditions. Competent, courteous, and rapid delivery of products and Non-discriminatory treatment and the right to organize and file services. grievances. Full disclosure of product-related risks. Fair compensation. Easy to use information systems for shopping and tracking Opportunities for training, promotion, and personal development. orders. Companies should provide suppliers with: Companies should provide communities with: Fair contract terms and prompt payments. Payment of fair taxes. Reasonable time to prepare orders. Honest information about plans such as plant closings. Hassle-free acceptance of timely and complete deliveries. Resources that support charities, schools, and civic activities. Cooperative rather than unilateral actions. Reasonable access to media sources. Companies should provide stockholders with: Companies should provide environmental and human rights Competent management. advocates with: Easy access to complete and accurate financial Greenhouse gas emissions data. information. Recycling and resource conservation data. Full disclosure of enterprise risks. Child labor transparency. Honest answers to knowledgeable questions. Full disclosure of suppliers located in developing countries.  A Process Management Perspective A business process is a series of steps that are followed in order to carry out some task in a business. Business functions making up the value chain Research and Customer Product Design Manufacturing Marketing Distribution Development Service  Lean Production Customer places an order → Create Production Order → Generate component requirements → Components are ordered → Production begins as parts arrive → Goods delivered when needed. Lean Production is often called Just-In-Time (JIT) production.  Lean Production Traditional Manufacturing Produce goods in anticipation of Sales → Store Inventory → Make Sales from Finished Goods Inventory. Lean Production Benefits Because lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold. The lean approach also results in fewer defects, less wasted effort, and quicker customer response times than traditional production methods.  A Leadership Perspective Organizational leaders unite the behavior of employees around two common themes—pursuing strategic goals and making optimal decisions. Factors that influence behavior: Intrinsic Motivation. Extrinsic Incentives. Cognitive Bias. END OF PROLOGUE