CHAPTER 1
Managerial
Accounting and
the Business
Environment
Prepared by
Shannon Butler,
CPA, CA
Carleton University
© 2018 McGraw-Hill Education
Work of Management
• Every organization has managers
who perform several major activities
such as:
• Planning
• Controlling
• Directing and Motivating
• Decision making
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Planning
Identify
alternatives.
Select alternative that does
the best job of furthering
organization’s objectives.
Develop budgets to guide
progress toward the
selected alternative.
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Directing and Motivating
Directing and motivating involves
managing day-to-day activities to keep the
organization running smoothly.
•
•
•
•
Employee work assignments.
Routine problem solving.
Conflict resolution.
Effective communications.
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Controlling
• The control function ensures 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.
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Decision Making
 The most basic managerial skill is the
ability to make intelligent, data driven
decisions. Many of these decisions revolve
around the following three questions:
• What should we be selling?
• Who should we be serving?
• How should we execute?
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Planning and Control Cycle
Formulating long and
short-term plans
(Planning)
Comparing
actual to planned
performance
(Controlling)
Decision
Making
Implementing
plans (Directing
and Motivating)
Measuring performance
(Controlling)
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Strategy
• 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.
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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.
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Comparison of Financial and
Managerial Accounting
Accounting
•
•
•
•
Recording
Estimating
Organizing
Summarizing
Financial
Accounting
Financial and
Operational Data
Managerial
Accounting
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Comparison of Financial and
Managerial Accounting
Financial Accounting
1. Users
2. Time focus
External persons who
make financial decisions
Managerial Accounting
Managers who plan for
and control an organization
Historical perspective
Future emphasis
3. Verifiability
versus relevance
Emphasis on
objectivity and verifiability
Emphasis on
relevance
4. Precision versus
timeliness
Emphasis on
precision
Emphasis on
timeliness
Primary focus is on
companywide reports
Focus on
segment reports
5. Subject
6. Rules
7. Requirement
Must follow
GAAP/ASPE/IFRS
Mandatory for
external reports
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Not bound by
GAAP/ASPE/IFRS
Not
Mandatory
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Business Process Management
• A business process is a series of steps
that are followed in order to carry out
some task in a business.
• A value chain consists of the major
business functions that add value to a
company’s products and services.
• Business functions making up the value
chain 
Research and
Development
Product Manufacturing
Design
Marketing
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Distribution
Customer
Service
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Business Process Management
• There are two areas that focus on
managing and improving business
processes:
1. Lean Production
2. Enterprise Risk Management
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Lean Production
• Organizes resources around the flow of
business processes.
• Only produces units in response to
customer orders.
• Often called just-in-time (JIT) production.
• Number of units produced tends to equal
the number of units sold, therefore
minimal inventory.
• Fewer defects, less waste effort and
quicker customer response times.
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Enterprise Risk Management
• Every business strategy or decision
involves risks.
• Enterprise risk management is a process
used to proactively identify and manage
these risks.
• Companies should identify foreseeable
risks before they occur.
• Can reduce risks by implementing
specific controls to mitigate the identified
foreseeable risks.
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Enterprise Risk Management
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
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 passwords barriers that
prohibit employees from obtaining
information not needed to do their
jobs
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Ethics and Corporate Social
Responsibility
•
Accountants must maintain a level of
competence appropriate to their
designation.
• Confidentiality
• Integrity
• Objectivity
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Ethics and Corporate Social
Responsibility
•
Confidentiality  is essential because of the
importance of the information they analyze.
•
Integrity  is maintained by avoiding conflicts of
interest with their employers or clients, by
communicating the limits of professional
competence, and by not accepting favours that
would compromise their judgment.
•
Objectivity  must be present in communications,
so that recipients can receive both favourable and
unfavourable information.
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Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.
Customers
Employees
Suppliers
Communities Shareholders
Environmental
& Human Rights
Advocates
CSR extends beyond legal compliance
to include voluntary actions that satisfy
stakeholder expectations.
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Managing Employees
• Leaders must be able to unite the
behaviours of employees around two
common themes – pursuing strategic
goals and making optimal decisions.
• Therefore, intrinsic motivation, extrinsic
incentives, and cognitive biases need to
be understood how they influence
human behaviour.
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Managing Employees
• Intrinsic Motivation  Motivation that
comes from within us.
• Extrinsic Incentives  A way to
highlight important goals and to
motivate employees to achieve them by
offering a type of reward.
• Cognitive Biases  Everyone possess
cognitive biases, or distorted thought
processes; it is important for leaders to
recognize this.
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