18
The Changing Business
Environment: A Manager’s
Perspective
The Role of Management Accounting
OBJECTIVE 1: Distinguish management
accounting from financial accounting and
explain how management accounting
supports the management process.
Table 1: Comparison of Management and
Financial Accounting
Figure 1: Overview of the Planning
Framework
Figure 2: The Supply Chain
Exhibit 1: A Management Accounting
Report
The Role of Management Accounting
• Like financial accounting, management
accounting assists decision makers by
providing pertinent information and
communicating the information through
reports.
The Role of Management Accounting
• Management accounting differs from
financial accounting in many respects:
– Primary users
• Management accounting information: managers,
employees, supply chain partners
• Financial accounting information: owners or
stockholders, lenders, customers, government
agencies
The Role of Management Accounting
• Management accounting differs from
financial accounting in many respects:
(cont.)
– Report format
• Management accounting: flexible format, driven by
user’s needs
• Financial accounting: based on generally accepted
accounting principles
The Role of Management Accounting
• Management accounting differs from
financial accounting in many respects:
(cont.)
– Purpose of reports
• Management accounting: to provide information for
planning, control, performance measurement, and
decision making
• Financial accounting: to report on past performance
The Role of Management Accounting
• Management accounting differs from
financial accounting in many respects:
(cont.)
– Nature of information
• Management accounting: objective and verifiable
for decision making; more subjective for planning
(relies on estimates)
• Financial accounting: historical, objective, and
verifiable
The Role of Management Accounting
• Management accounting differs from
financial accounting in many respects:
(cont.)
– Units of measure
• Management accounting: dollars at historical,
current market, or projected values; physical
measures of time or number of objects
• Financial accounting: dollars at historical and
current market values
The Role of Management Accounting
• Management accounting differs from
financial accounting in many respects:
(cont.)
– Frequency of reports
• Management accounting: prepared as needed; may
or may not be on a periodic basis
• Financial accounting: prepared on a periodic basis
(minimum of once a year)
The Role of Management Accounting
• Management accounting provides relevant
information at each stage of the
management process.
– Planning stage: Management accounting
provides information for the planning process,
which involves a mission statement, the
development of strategic, tactical, and
operating objectives, and the formulation of a
business plan.
The Role of Management Accounting
• Management accounting provides relevant
information at each stage of the
management process.
– Performing stage: Managers implement the
business plan, using management accounting
information to manage the supply chain and
make optimal use of resources.
The Role of Management Accounting
• Management accounting provides relevant
information at each stage of the
management process.
– Evaluating stage: Management accounting
complements the efforts of managers at this
stage to compare actual performance with the
performance goals they established in the
planning stage, analyze any significant
differences, and correct the problems.
The Role of Management Accounting
• Management accounting provides relevant
information at each stage of the
management process.
– Communicating stage: Management
accounting reports communicate the results of
managers’ efforts in the planning, performing,
and evaluating stages.
The Role of Management Accounting
• The key to producing accounting reports
that clearly communicate accurate
information is to apply the four w’s: why,
who, what, and when.
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Value Chain Analysis
OBJECTIVE 2: Describe the value chain and
its usefulness in analyzing a business.
Figure 3: The Value Chain
Exhibit 2: Value Chain Analysis
Value Chain Analysis
• The value chain conceives of each step in
the manufacture of a product or the delivery
of a service as a link in a chain that adds
value to the product or service.
Value Chain Analysis
• The primary processes that add value to a
product or service include research and
development, design, supply, production,
marketing, distribution, and customer
service.
Value Chain Analysis
• The value chain also includes support
services (such as human resources, legal
services, information services, and
management accounting); these services are
necessary for promoting the effectiveness
and efficiency of the primary processes, but
they do not add value to the product or
service.
Value Chain Analysis
• Value chain analysis enables a company to
focus on its core competencies.
• Value chain analysis often results in a
decision to outsource a product or service.
©2011 Cengage Learning All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Continuous Improvement
OBJECTIVE 3: Identify the management
tools used for continuous improvement.
Figure 4: The Continuous Improvement
Environment
Continuous Improvement
• The concept of continuous improvement,
which evolved in response to an increase in
global competition, has given rise to
several important management tools, all of
which rely on management accounting
information:
– Just-in-time (JIT) operating philosophy
– Total quality management (TQM)
• Costs of quality
Continuous Improvement
• The concept of continuous improvement,
which evolved in response to an increase in
global competition, has given rise to
several important management tools, all of
which rely on management accounting
information: (cont.)
– Activity-based management (ABM)
• Value-adding activities
• Nonvalue-adding activities
• Activity-based costing (ABC)
Continuous Improvement
• The concept of continuous improvement,
which evolved in response to an increase in
global competition, has given rise to
several important management tools, all of
which rely on management accounting
information: (cont.)
– Theory of constraints (TOC)
Continuous Improvement
• All these tools are designed to
– Reduce production or service costs and
delivery time
– Improve product or service quality
– Increase customer satisfaction
©2011 Cengage Learning All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Performance Measures: A Key to
Achieving Organizational Objectives
OBJECTIVE 4: Explain the balanced
scorecard and its relationship to
performance measures.
Figure 5: The Balanced Scorecard for
Good Foods Store
Performance Measures: A Key to
Achieving Organizational Objectives
• Performance measures
– Quantitative tools that gauge an organization’s
performance in relation to a specific process,
activity, or task
– May be financial or nonfinancial
Performance Measures: A Key to
Achieving Organizational Objectives
• Performance measures (cont.)
– Financial performance measures include
• Return on investment
• Net income as a percentage of sales
• Costs of poor quality as a percentage of sales
Performance Measures: A Key to
Achieving Organizational Objectives
• Performance measures (cont.)
– Nonfinancial performance measures include
•
•
•
•
Number of customer complaints
Number of orders shipped the same day
Hours of inspection
Time to fill an order
Performance Measures: A Key to
Achieving Organizational Objectives
• Performance measures (cont.)
– Performance measures are useful in reducing
waste and inefficiencies in operating activities.
Performance Measures: A Key to
Achieving Organizational Objectives
• Performance measures are used in all stages
of the management process.
– Planning stage: Managers establish
performance measures that will motivate
employees to fulfill the company’s mission and
achieve its objectives.
– Performing stage: Performance measures guide
and motivate actual performance and assist in
assigning costs.
Performance Measures: A Key to
Achieving Organizational Objectives
• Performance measures are used in all stages
of the management process. (cont.)
– Evaluating stage: Managers use performance
measures to analyze significant differences
between actual and planned performance.
– Communicating stage: Performance
measurement information is used in
communicating performance evaluations and
developing new budgets.
Performance Measures: A Key to
Achieving Organizational Objectives
• Balanced scorecard
– Approach to performance measurement that
links the perspectives of an organization’s four
stakeholder groups to the organization’s
mission, objectives, resources and performance
measures.
Performance Measures: A Key to
Achieving Organizational Objectives
• Balanced scorecard (cont.)
– Stakeholders have one of four perspectives:
•
•
•
•
Financial perspective
Learning and growth perspective
The business’s internal procedures
A customer perspective
Performance Measures: A Key to
Achieving Organizational Objectives
• Balanced scorecard (cont.)
– The balanced scorecard enables a company to
determine whether it is making continuous
improvement in its operations.
Performance Measures: A Key to
Achieving Organizational Objectives
• Benchmarking is a technique for
determining a company’s competitive
advantage by comparing its performance
with that of its closest competitors in the
same industry.
– Benchmarks are measures of the best practices
in an industry.
©2011 Cengage Learning All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Standards of Ethical Conduct
OBJECTIVE 5: Identify the standards of
ethical conduct for management
accountants.
Exhibit 3: Statement of Ethical
Professional Practice
Exhibit 3: Statement of Ethical
Professional Practice
Standards of Ethical Conduct
• Management accountants must adhere to
standards of ethical conduct.
Standards of Ethical Conduct
• Standards of ethical conduct for
management accountants emphasize
competence, confidentiality, integrity, and
credibility.
– Competence standards require management
accountants to
• Develop their knowledge and skills on an ongoing
basis.
• Perform duties in accordance with relevant laws
and technical standards.
Standards of Ethical Conduct
• Standards of ethical conduct for
management accountants emphasize
competence, confidentiality, integrity, and
credibility.
– Competence standards require management
accountants to (cont.)
• Provide decision support and recommendations that
are accurate, clear, concise, and timely.
• Recognize and communicate professional
limitations or other constraints that would preclude
performance of responsibilities.
Standards of Ethical Conduct
• Standards of ethical conduct for
management accountants emphasize
competence, confidentiality, integrity, and
credibility. (cont.)
– Confidentiality standards require them to
• Refrain from disclosing confidential information
except when authorized or legally required to
disclose it.
• Inform all relevant parties regarding appropriate use
of confidential information. Make sure that
subordinates refrain from disclosing confidential
information.
Standards of Ethical Conduct
• Standards of ethical conduct for
management accountants emphasize
competence, confidentiality, integrity, and
credibility. (cont.)
– Confidentiality standards require them to
• Refrain from using or appearing to use confidential
information for unethical or illegal advantage.
Standards of Ethical Conduct
• Standards of ethical conduct for
management accountants emphasize
competence, confidentiality, integrity, and
credibility. (cont.)
– Integrity standards require them to
• Avoid conflicts of interest and mitigate any actual
conflicts of interest.
• Refrain from activities that would prejudice their
ability to carry out their duties ethically.
• Refrain from activities that would discredit the
profession.
Standards of Ethical Conduct
• Standards of ethical conduct for
management accountants emphasize
competence, confidentiality, integrity, and
credibility. (cont.)
– Credibility standards require them to
• Communicate information fairly and objectively.
• Fully disclose all relevant information that could
influence a user’s understanding of the material.
• Disclose delays or deficiencies in information,
timeliness, processing, or internal controls in
conformance with organization policy and/or
applicable law.
©2011 Cengage Learning All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.