Managerial Accounting: An Overview PROLOGUE Managerial Accounting Seventeenth edition P-2 Financial and Managerial Accounting: Seven Key Differences 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 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 Must follow GAAP / IFRS and prescribed formats Not bound by GAAP / IFRS or any prescribed format Mandatory for external reports Not Mandatory 1. Users 2. Time focus 5. Subject 6. Rules 7. Requirement ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-3 Work of Management Planning Controlling Decision Making ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-4 Planning Establish Goals. Specify How Goals Will Be Achieved. Develop Budgets. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-5 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-6 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? ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-7 Accounting Majors The IMA estimates that more than 80% of professional accountants in the U.S. work in non-public accounting environments. Employers expect accounting majors to have strong financial accounting skills, but they also expect application of the planning, controlling, and decision making skills that are the foundation of managerial accounting. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-8 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 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-9 Managerial Accounting: Measurement Skills Measurement How should I create a financial skills help plan for next year? managers answer How well am I performing important relative to my plan? questions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-10 Managerial Accounting: Understanding the Broader Context This book teaches measurement skills that managers use on the job every day. Managers need to apply these measurement skills in a broader business context to enable intelligent planning, control, and decision making. This context includes topics such as: 1. Big Data 2. Ethics 3. Strategic Management 4. Enterprise Risk Management 5. Corporate Social Responsibility 6. Process Management 7. Leadership ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-11 Big Data Big Data refers to large collections of data that are gathered from inside or outside a company to provide opportunities for ongoing reporting and analysis. The 5 ‘Vs’: Variety refers to the data formats in which information is stored. Volume refers to the continuously expanding quantity of data that companies must gather, cleanse, organize. Velocity speaks to the rate at which data is received and acted on by organizations. Value implies that the time and money organizations expend to analyze Big Data. Veracity refers to the fact that users expect their data to be accurate and trustworthy. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-12 Data Analytics Data analytics refers to the process of analyzing data with the aid of specialized systems and software to draw conclusions about the information they contain Managers often communicate the findings from their data analysis to others through the use of data visualization techniques, such as graphs, charts, maps, and diagrams. Data analytics can be used for descriptive, diagnostic, predictive, and prescriptive purposes. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-13 Ethics The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practice provides 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-14 IMA Guidelines: Confidentiality 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-15 IMA Guidelines: Integrity 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-16 IMA Guidelines: Credibility 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-17 IMA Guidelines for Resolution of an Ethical Conflict – Part 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-18 IMA Guidelines for Resolution of an Ethical Conflict – Part 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-19 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-20 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-21 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-22 Enterprise Risk Management 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-23 Identifying and Controlling Business Risks Examples of Business Risks ● Intellectual assets stolen from computer files ● ● Products harming customers ● ● Losing market share due to the unforeseen actions of competitors ● ● Poor weather conditions shutting down operations ● ● A website malfunctioning ● ● A supply strike halting the flow of raw materials ● Examples of Controls to Reduce Business Risks Create firewalls that prohibit computer hackers from corrupting or stealing intellectual property 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 needed materials ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-24 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. Segregation of duties Preventive Separating responsibilities related to authorizing transactions, recording transactions, and maintaining custody of the related assets. Physical safeguards Preventive Using cameras, locks, and physical barriers to protect assets. Performance reviews Detective Comparing actual performance to various benchmarks to identify unexpected results. Maintaining records Detective Maintaining written and/or electronic evidence to support transactions. Information systems security Preventive/ Detective Using controls such as passwords and access logs to ensure appropriate data restrictions. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-25 A Corporate Social Responsibility 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-26 Examples of Corporate Social Responsibility 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 treatment 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 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-27 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. R&D Product Design Manufacturing Marketing Distribution Customer Service Business functions making up the value chain ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-28 Lean Production Customer places an order Create Production Order Generate component requirements Goods delivered when needed Production begins as parts arrive Components are ordered Lean Production is often called Just-In-Time (JIT) production. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-29 Lean Production: Traditional Manufacturing Traditional Manufacturing Produce goods in anticipation of Sales Store Inventory Make Sales from Finished Goods Inventory ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-30 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. ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-31 Leadership 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 ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. P-32 End of Prologue ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
