Managerial Accounting PDF

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen Managerial Accounting and the Business Environment Chapter 1 (Topic 1) © 2015 McGraw-Hill Education Comparison of Financial and Managerial Accounting Financial Accounting Managerial Accounting External persons who make finan...

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen Managerial Accounting and the Business Environment Chapter 1 (Topic 1) © 2015 McGraw-Hill Education Comparison of Financial and Managerial Accounting Financial Accounting Managerial Accounting External persons who make financial decisions Managers who plan for and control an organization Historical perspective Future emphasis 3. Verifiability versus relevance Emphasis on verifiability Emphasis on relevance for planning and control 4. Precision versus timeliness Emphasis on precision Emphasis on timeliness 5. Subject Primary focus is on the whole organization Focuses on segments of an organization 6. GAAP Must follow GAAP and prescribed formats Need not follow GAAP or any prescribed format Mandatory for external reports Not Mandatory 1. Users 2. Time focus 7. Requirement © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 2 Work of Management Planning Controlling Decision Making © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 3 Planning Establish Goals. Specify How Goals Will Be Achieved. Develop Budgets. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 4 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. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 5 Decision Making Decision making involves making a selection among competing alternatives. What should we be selling? © 2015 McGraw-Hill Education Who should we be serving? Garrison, Noreen, Brewer, Cheng & Yuen How should we execute? 6 Management Accounting and Cost Accounting  Management Accounting   relates to the provision of appropriate information, including cost information for decision-making, planning, control, and performance evaluation. Cost accounting  defines costs and valuates inventories to help managers to run businesses; examples including    FIFO, weighted average inventory valuation technique Job costing, Process costing, Activity-based costing Cost allocation techniques Management Accounting and Cost Accounting • are intertwined and • the terms are sometimes interchangeable  their functions are to help companies make better decisions © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 7 A Strategic View of Managerial Accounting 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. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 8 Customer Value Propositions 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. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 9 Value Creation: Value-added activities and processes   Create value to stakeholders Need to pay attention to value-added (vs. non-valueadded) activities and processes  Possible techniques focusing on value-added activities and processes include:         Activity-based costing and management Lean production Just-in-time inventory management and production Theory of Constraints Kaizen costing Life-cycle costing Target pricing and costing Quality management, e.g. total quality management and six sigma © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 10 Value Creation: Different Perspectives  External Perspectives – Value chain management    Internal Perspectives – Value chain management   Suppliers (upstream) Customers (downstream) Business processes (examples mentioned in slide 17) Leadership Perspective  Leaders who can unite behaviors of fellow employees    Need to consider intrinsic and extrinsic motivating factors Need to be aware of cognitive biases that adversely affect planning, controlling and decision making. Cultural Perspective  National and organizational cultures  Power distance, individualism, uncertainty avoidance, masculinity and long-term orientation © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 11 Process Management A business process is a series of steps that are followed in order to carry out some task in a business. R&D Product Design Customer Manufacturing Marketing Distribution Service Business functions making up the value chain © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 12 Managerial Accounting: Beyond the Numbers In addition to the External, Internal, Leadership and Cultural Perspectives, the following four business management perspectives also go beyond the numbers to enable intelligent planning, control, and decision making: • An Ethics Perspective • A Corporate Governance Perspective • An Enterprise Risk Management Perspective • A Corporate Social Responsibility and Sustainability Perspective © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 13 An Ethics Perspective All Professional Management Accountants Bodies issue their own Code of Conduct but they all share similar fundamental principles and conceptual approaches as the one issued by the Institute of Management Accountants. The Institute of Management Accountants’ (IMA) Statement of Ethical Professional Practice consists of two parts that offer guidelines for:  Ethical behavior.  Resolution for an ethical conflict. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 14 An Ethics Perspective: IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment. Maintain professional competence. Competence Follow applicable laws, regulations and standards. Provide accurate, clear, concise, and timely decision support information. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 15 An Ethics Perspective: IMA Guidelines for Ethical Behavior Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for unethical or illegal advantage. Confidentiality Ensure that subordinates do not disclose confidential information. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 16 An Ethics Perspective: IMA Guidelines for Ethical Behavior Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically. Integrity Abstain from activities that might discredit the profession. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 17 An Ethics Perspective: IMA Guidelines for Ethical Behavior Communicate information fairly and objectively. Credibility Disclose delays or deficiencies in information timeliness, processing, or internal controls. Disclose all relevant information that could influence a user’s understanding of reports and recommendations. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 18 A Corporate Governance Perspective The system by which a company is directed and controlled. Board of Directors Incentives and monitoring for Top Management To pursue objectives of Stockholders © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 19 An Enterprise Risk Management Perspective A process used by a company to proactively identify and manage risk. Should I try to avoid the risk, share 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. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 20 An Enterprise Risk Management Perspective Examples of Business Risks ● Products harming customers ● ● Losing market share due to the unforeseen actions of competitors ● ● Poor weather conditions shutting down operations ● ● Website malfunction ● ● A supplier strike halting the flow of raw materials ● ● Financial statements unfairly reporting the value of inventory ● ● An employee accessing unauthorized information ● © 2015 McGraw-Hill Education Examples of Controls to Reduce Business Risks Develop a formal and rigorous new product testing program Develop an approach for legally gathering information about competitors' plans and practices Develop contingency plans for overcoming weather-related disruptions Thoroughly test the website before going "live" on the Internet Establish a relationship with two companies capable of providing raw materials Count the physical inventory on hand to make sure that it agrees with the accounting records Create password-protected barriers that prohibit employees from obtaining information not needed to do their jobs Garrison, Noreen, Brewer, Cheng & Yuen 21 Corporate Social Responsibility & Sustainability Perspective 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. © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 22 Corporate Social Responsibility & Sustainability Perspective Examples of Corporate Social Responsibility Companies should provide customers with: Companies and their suppliers should provide ● Safe, high quality products that are fairly employees with: priced ● Safe and humane working conditions ● Competent, courteous, and rapid delivery ● Non-discriminatory treatments and the of products and services right to organize and file grievances ● Full disclosure of product-related risks ● Fair compensation ● Easy to use information systems for ● Opportunities for training, promotion, shopping and tracking orders and personal development 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 ● Hassle-free acceptance of timely and plant closings complete deliveries ● Resources that support charities, schools, ● Cooperative rather than unilateral and civic activities actions ● Reasonable access to media sources Companies should provide stockholders with: Companies should provide environmental ● Competent management and human rights advocates with: ● Easy access to complete and accurate ● Greenhouse gas emissions data financial information ● Recycling and resource conservation data ● Full disclosure of enterprise risks ● Child labor transparency ● Honest answers to knowledgeable ● Full disclosure of suppliers located in questions developing countries © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 23 Professional Qualification of Management Accountants • Traditional accounting qualifications, e.g. Chartered Accountants (ACA), Certified Public Accountants (CPA) and Chartered Certified Accountants (ACCA) • Management accountants qualifications, e.g.: Institution Abbrev Country Qualification The Institute of Management Accountants IMA US CMA Certified Management Accountants of Canada (previously known as The Society of Management Accountants of Canada) CMA Canada Canada CMA The Chartered Institute of Management Accountants CIMA UK FCMA , ACMA The Institute of Certified Management Accountants of Australia ICMA Australia CMA - CMA Philippines Philippines CMA - CMA Indonesia Indonesia CMA © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 24 End of Chapter 1 © 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 25