Prologue
Managerial Accounting and the
Business Environment
PowerPoint Authors:
Jon A. Booker, Ph.D., CPA, CIA
Charles W. Caldwell, D.B.A., CMA
Susan Coomer Galbreath, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
P-2
Globalization
Reduction in
tariffs and quotas
Improvements in
global
transportation
systems
Expansion of
Internet usage
Increasing
sophistication in
international
markets
P-3
The Global Marketplace
Companies that
have been
successful in their
local markets may
suddenly find
themselves facing
competition from
halfway around the
globe.
P-4
The Global Marketplace
New Markets
New
Customers
New
Workers
P-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
P-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
P-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.
P-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.
P-9
Process Management
A business
process is a
series of steps
that are followed
in order to carry
out some task in
a business.
P-10
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.
P-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.
P-12
Lean Production
Step 5
Continuously
pursue perfection
in the business
process
Step 1
Identify value in
specific products
and 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
P-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.
P-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
P-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
P-16
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.
P-17
Six Sigma
The DMAIC framework is the most
common framework used to guide Six
Sigma process improvement efforts.
Define
Measure
Analyze
Improve
Control
P-18
Six Sigma
Six Sigma
improvements can
only increase
profits in two
ways:
1. Decrease costs
2. Increase sales
P-19
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.
P-20
Code of Conduct for Management Accountants –
IMA’s Statement of Ethical Professional Practice
Part One
Competence
Confidentiality
Integrity
Credibility
Part Two
Resolution of Ethical Conflict
P-21
Standards of Ethical Conduct
Maintain
professional competence.
Follow applicable laws,
regulations, and
standards.
Competence
Prepare accurate, clear,
concise, and timely
decision support
information.
Recognize and
communicate professional
limitations that preclude
responsible judgment.
P-22
Standards of Ethical Conduct
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.
P-23
Standards of Ethical Conduct
Abstain from activities that
might discredit the
profession.
Integrity
Mitigate conflicts of interest
and advise others of
potential conflicts.
Refrain from
conduct that
would prejudice
carrying out duties
ethically.
P-24
Standards of Ethical Conduct
Communicate information
fairly and objectively.
Disclose delays or
deficiencies in
information
timeliness,
processing, or
internal controls.
Credibility
Disclose all relevant
information that could
influence a user’s
understanding of reports
or recommendations.
P-25
Guidelines for Resolution of an
Ethical Conflict
Resolution of Ethical Conflict
Follow the established policies of the organization.
For unresolved ethical conflicts:

Discuss the conflict with immediate superior.

Initiate discussion with levels above immediate supervisor
only with the supervisor’s knowledge (assuming the
supervisor is not involved).
P-26
Standards of Ethical Conduct
Resolution of Ethical Conflict (Continued)
▫ Maintain confidentiality.
▫ Clarify relevant ethical issues by confidential discussion with
an objective advisor.
▫ Consult your own attorney.
P-27
Company Codes of Conduct
Many companies have adopted formal
ethics codes of conducts that provide
broad guidelines for proper behavior.
P-28
Codes of Conduct on the
International Level
The International Federation of Accountants’
(IFAC) Guidelines on Ethics for Professional
Accountants governs the activities of all
accountants throughout the world.
P-29
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.
P-30
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.
P-31
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.
P-32
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.
P-33
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.
P-34
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.
P-35
Examples of Controls to Reduce
Examples of Business Risks
Business Risks
Intellectual assets being stolen from
Create firewalls that prohibit computer
computer files
hackers from computing or stealing
intellectual property
Products harming customers
Develop a formal and rigorous new
product-testing program
Losing market share due to the
Formalize an approach for legally
unforeseen actions of competitors
gathering information about
competitors' plans and practices
Poor weather conditions shutting down Develop contingency plans for
operations
overcoming any disruptions due to
weather
A website malfunctioning
Develop a pilot testing program before
going "live" on the Internet
A supplier strike halting the flow of raw Establish a relationship with two
materials
companies capable of providing
needed raw materials
An incentive compensation system
Create a balanced set of performance
causing employees to make poor
measures that motivates the desired
decisions
behavior
Financial statements unfairly reporting Count the physical inventory on hand
the value of inventory
to make sure that it agrees with the
accounting inventory
An employee stealing assets
Segregate duties so that the same
employee does not have physical
custody of an asset and the ability to
account for it
An employee accessing unauthorized
Create password-protected barriers
information
that prohibit employees from obtaining
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
Create a report that tracks key metrics
employment opportunity laws
related to compliance with the laws
Identifying
and
Controlling
Business
Risks
P-36
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
Stockholders
CSR extends beyond legal compliance
to include voluntary actions that satisfy
stakeholder expectations.
Environmental
& Human Rights
Advocates
P-37
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
P-38
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 1800-638-4427.
Higher
Compensation
P-39
End of Prologue