Brewer/Garrison/Noreen
Introduction to
Managerial Accounting
Third Edition
Prologue-1
Prologue
Managerial Accounting
and the Business
Environment
McGraw-Hill /Irwin
© The McGraw-Hill Companies, Inc., 2007
Globalization
Reduction in
tariffs and
quotas
Improvements
in global
transportation
systems
Expansion of
Internet usage
Increasing
sophistication in
international
markets
Prologue-3
The Global Marketplace
Companies that have
been successful in
their local markets
may suddenly find
themselves facing
competition from
halfway around the
globe.
Prologue-4
The Global Marketplace
New Markets
New
Customers
New
Workers
Prologue-5
Strategy
A strategy is a “game plan” that enables a
company to attract customers by
distinguishing itself from competitors.
Customer
Intimacy
Operational
Excellence
Product
Leadership
Prologue-6
Organizational Structure
An organization is a group of people
united for a common purpose.
Corporate Organization Chart
Board of Directors
President
Purchasing
Personnel
Vice President
Operations
Chief Financial
Officer
Treasurer
Controller
Prologue-7
The Functional View of Organizations
Line positions are
directly related to the
achievement of the
basic objectives of an
organization.

Example: Production
supervisors in a
manufacturing plant.
Staff positions support
and assist line
positions.

Example: Cost
accountants in the
manufacturing plant.
Prologue-8
The Chief Financial Officer (CFO)
A member of the top management team
which is responsible for:


Providing timely and relevant data to support
planning and control activities.
Preparing financial statements for external
users.
Prologue-9
Process Management
A business
process is a
series of steps
that are followed
in order to carry
out some task in
a business.
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Value Chain
Business Functions Making Up the Value Chain
Research
and
Production
Product
Design
Manufacturing
Marketing
Distribution
Customer
Service
A value chain consists of the major
business functions that add value to a
company’s products and services.
Prologue-11
Lean Production
Traditional Thinking
• Minimize unit costs by
maximizing output.
• Keep everyone busy.
Idleness wastes money.
• Push products through
the system even if
unsold inventory piles
up in warehouses.
Prologue-12
Lean Production
Step 5
Continuously
pursue perfection
in the business
process
Step 1
Identify value in
specific
products/services
Step 2
Identify the
business process
that delivers value
Step 3
Organize work
arrangements
around the flow of
the business
process
Step 4
Create a pull
system that
responds to
customer orders
Prologue-13
Supply Chain Management
The term supply chain management is commonly
used to refer to the coordination of business
processes across companies to better serve end
consumers.
Prologue-14
Theory of Constraints (TOC)
A sequential process of identifying and
removing constraints in a system.
Restrictions or barriers that impede
progress toward an objective
Prologue-15
Theory of Constraints (TOC)
Step 1
Identify the
weakest link in
the chain, which
is the constraint
Step 4
If improvement
efforts are
successful, the
weakest link will
improve
Step 2
Do not place a
greater strain on
the system than
the weakest link
can handle
Step 3
Concentrate
improvement
efforts on
strengthening the
weakest link
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Six Sigma
A process improvement method that relies on
customer feedback and fact-based data gathering
and analysis techniques to drive process
improvements.
Six Sigma is
sometimes
associated with the
slogan zero defects.
Prologue-17
Six Sigma
The DMAIC framework is the most common
framework used to guide Six Sigma process
improvement efforts.
Define
Measure
Analyze
Improve
Control
Prologue-18
Six Sigma
Six Sigma
improvements can
only increase
profits in two
ways:
1. Decrease costs
2. Increase sales
Prologue-19
Technology in Business
E-Commerce
Prologue-20
Technology in Business
Most companies
used to
implement
specific software
programs to
support specific
business
functions.
Prologue-21
Technology in Business
Enterprise
Systems
Prologue-22
The Importance of Ethics in Business
Ethical practices in business build trust
and promote productive relationships.
They are necessary for the functioning
of a market economy.
Prologue-23
Code of Conduct for Management
Accountants
Part One
Competence
Confidentiality
Integrity
Objectivity
Part Two
Resolution of Ethical Conflict
Prologue-24
Standards of Ethical Conduct
Follow applicable laws,
regulations and
standards.
Maintain
professional
competence.
Competence
Prepare complete and clear
reports after appropriate
analysis.
Prologue-25
Standards of Ethical Conduct
Do not disclose confidential
information unless legally
obligated to do so.
Do not use
confidential
information for
personal
advantage.
Confidentiality
Ensure that subordinates do
not disclose confidential
information.
Prologue-26
Standards of Ethical Conduct
Communicate
unfavorable as
well as favorable
information.
Refuse gifts or favors
that might influence
behavior.
Avoid activities
that could affect
your ability to
perform duties.
Integrity
Refrain from
activities that
could discredit
the profession.
Do not subvert
organization’s
legitimate
objectives.
Avoid conflicts of
interest and advise
others of potential
conflicts.
Recognize and
communicate personal
and professional
limitations.
Prologue-27
Standards of Ethical Conduct
Communicate information
fairly and objectively.
Objectivity
Disclose all information
that might be useful to
management.
Prologue-28
Standards of Ethical Conduct
Resolution of Ethical Conflict
Follow the established policies of the organization.
For unresolved ethical conflicts:

Discuss the conflict with immediate superior.
Prologue-29
Standards of Ethical Conduct
Resolution of Ethical Conflict
Follow the established policies of the organization.
For unresolved ethical conflicts:

Discuss the conflict with immediate superior.

Maintain confidentiality.

Clarify relevant ethical issues by confidential discussion with
an objective advisor.

Consult your own attorney.

Resign.
Prologue-30
Codes of Conduct
Company
Many companies have adopted formal
ethics codes of conducts that provide broad
guidelines for proper behavior.
Prologue-31
Codes of Conduct
International
The International Federation of Accountants’
(IFAC) Guidelines on Ethics for Professional
Accountants governs the activities of all
accountants throughout the world.
Prologue-32
Corporate Governance
Corporate governance is the
system by which a company is
directed and controlled.
If properly implemented, it should
provide incentives for the board
of directors and top management
to pursue objectives that are in
the interests of the company’s
owners and it should provide for
effective monitoring of
performance.
Prologue-33
The Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to
protect the interests of those who invest in publicly
traded companies by improving the reliability and
accuracy of corporate financial reports and
disclosures.
Prologue-34
The Sarbanes-Oxley Act of 2002
1. Requires CEO/CFO
certification.
2. Establishes the PCAOB.
3. Places power to hire,
compensate and
terminate auditors with the
audit committee.
Prologue-35
The Sarbanes-Oxley Act of 2002
4. Prohibits a variety of
non-audit services for
audit clients.
5. Requires annual report on
internal control.
6. Establishes severe
penalties for criminal acts.
Prologue-36
Enterprise Risk Management
A process used by a
company to
proactively identify
the business risks
that it faces and to
develop responses to
those risks that
enable the company
to be reasonably
assured of satisfying
stakeholder
expectations.
Prologue-37
Enterprise Risk Management
Companies should
identify foreseeable
risks before they
occur. Once a risk
has been identified,
a company can
respond in various
ways such as
accepting, avoiding,
sharing, or reducing
the risk.
Prologue-38
Examples of Controls to Reduce
Examples of Business Risks
Business Risks
Create firewalls that prohibit computer
Intellectual assets being stolen from
hackers from computing or stealing
computer files
intellectual property
Develop a formal and rigorous new productProducts harming customers
testing program
Formalize an approach for legally gathering
Losing market share due to the unforeseen information about competitors' plans and
actions of competitors
practices
Poor weather conditions shutting down
Develop contingency plans for overcoming
operations
any disruptions due to weather
Develop a pilot testing program before
A website malfunctioning
going "live" on the Internet
Establish a relationship with two
A supplier strike halting the flow of raw
companies capable of providing needed raw
materials
materials
Create a balanced set of performance
An incentive compensation system causing measures that motivates the desired
employees to make poor decisions
behavior
Count the physical inventory on hand to
Financial statements unfairly reporting the make sure that it agrees with the
value of inventory
accounting inventory
Segregate duties so that the same
employee does not have physical custody
An employee stealing assets
of an asset and the ability to account for it
Create password-protected barriers that
An employee accessing unauthorized
prohibit employees from obtaining
information
information not needed to do their jobs
Inaccurate budget estimates causing
Implement a rigorous budget review
excessive or insufficient production
process
Failing to comply with equal employment
Create a report that tracks key metrics
opportunity laws
related to compliance with the laws
Identifying
and
Controlling
Business
Risks
Prologue-39
The Certified Management Accountant
(CMA)
Rigorous
Professional
Exam
Greater
Responsibilities
Information about becoming a CMA and the
CMA program can be accessed on the IMA’s
website at www.imanet.org or by calling
1-800-638-4427.
Higher
Compensation
Prologue-40
End of Prologue
Prologue-41