Managerial Accounting and the Business Environment

Chapter 1

2010 The McGraw-Hill Companies, Inc.

Managerial vs. Financial

Why keep two sets of books?

2010 The McGraw-Hill Companies, Inc.

Globalization
It Has Changed the world.

2010 The McGraw-Hill Companies, Inc.

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Imports to the US (billions)

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Canada China Germany

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Japan Mexico United Kingdom

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Exports from the US (billions)

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Internet Usage The Internet fuels globalization by providing companies with greater access to geographically dispersed customers, employees, and suppliers.

As of 2008, more than 78% of the world's population was still not connected to the Internet.
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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 companys 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

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Offer higher quality products.

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Learning Objective 1

Understand the role of management accountants in an organization.

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Learning Objective 2

Understand the basic concepts underlying Lean Production, the Theory of Constraints, and Six Sigma.

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Learning Objective 3

Understand the importance of upholding ethical standards.

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Learning Objective 1

Understand the role of management accountants in an organization.

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Organizational Structure
Decentralization is the delegation of decisionmaking authority throughout an organization.

Corporate Organization Chart

Board of Directors President Purchasing Personnel Vice President Operations Chief Financial Officer Controller
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Treasurer
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Line and Staff Relationships

Line positions are directly related to 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.

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The Chief Financial Officer (CFO)

A member of the top management team responsible for:

Providing timely and relevant data to support planning and control activities. Preparing financial statements for external users.

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Learning Objective 2

Understand the basic concepts underlying Lean Production, the Theory of Constraints, and Six Sigma.

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Process Management
A business process is a series of steps that are followed in order to carry out some task in a business.
Product Design Customer Manufacturing Marketing Distribution Service

R&D

Business functions making up the value chain

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Process Management
There are three approaches to improving business processes . . .
Theory of Constraints (TOC) Lean Production Six Sigma

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Traditional Push Manufacturing Company

Forecast Sales

Order components

Store Inventory

Make Sales from Finished Goods Inventory

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Store Inventory

Produce goods in anticipation of Sales

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Traditional Push Manufacturing Company Traditional push manufacturing Large inventories

Raw materials
Materials waiting to be processed.

Work in process

Finished goods
Completed products awaiting sale.

Partially completed products requiring more work before they are ready for sale.
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Lean Production
Identify value in specific products/services. Identify the business process that delivers value.

The lean thinking model is a five step approach.

Organize work arrangements around the flow of the business process.

Continuously pursue perfection in the business process.

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Create a pull system that responds to customer orders.

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Lean Production
The five step process results in a pull manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times.

Customer places an order

Create Production Order

Generate component requirements

Goods delivered when needed

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Production begins as parts arrive

Components are ordered

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Lean Production
Lean thinking can be used to improve business processes that link companies together.

The term supply chain management refers to the coordination of business processes across companies to better serve end consumers.
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Theory of Constraints
A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success.

The constraint in a system is determined by the step that has the smallest capacity.

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Theory of Constraints
Only actions that strengthen the weakest link in the chain improve the process.

2. Allow the weakest link to set the tempo.

1. Identify the weakest link.

3. Focus on improving the weakest link.

4. Recognize that the weakest link is no longer so.

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Six Sigma
A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no more than 3.4 defects per million opportunities. Sometimes associated with the term zero defects.

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Learning Objective 3

Understand the importance of upholding ethical standards.

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Code of Conduct for Management Accountants

The Institute of Management Accountants (IMA) Statement of Ethical Professional Practice consists of two parts that offer guidelines for: Ethical behavior. Resolution for an ethical conflict.

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IMA Guidelines for Ethical Behavior

Recognize and communicate professional limitations that preclude responsible judgment.

Maintain professional competence.

Competence
Provide accurate, clear, concise, and timely decision support information.

Follow applicable laws, regulations and standards.

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IMA Guidelines for Ethical Behavior

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.

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IMA Guidelines for Ethical Behavior

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.

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IMA Guidelines for Ethical Behavior

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 users understanding of reports and recommendations.
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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.
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Company Codes of Conduct

Broad-based statements of a companys responsibilities to:

Employees

Customers

Suppliers

And to the communities in which the company operates.

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Corporate Governance
The system by which a company is directed and controlled.

Board of Directors

Incentives and monitoring for

Top Management

To pursue objectives of

Stockholders
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The Sarbanes-Oxley Act of 2002 (SOX)

The Sarbanes-Oxley Act of 2002 was 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. Six key aspects of the legislation include: The Act requires both the CEO and CFO to certify in writing that their companys financial statements and disclosures fairly represent the results of operations. The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession. The Act places the power to hire, compensate, and terminate public accounting firms in the hands of the audit committee. The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client.
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The Sarbanes-Oxley Act of 2002

(continued) The Act requires a public companys independent auditor

to issue an opinion on the effectiveness of the companys

internal control over financial reporting to accompany managements assessment, and both are included in the companys annual report. The Act establishes severe penalties for certain behaviors, such as: Up to 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding. Up to 10 years in prison for retaliating against a whistle blower.
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Enterprise Risk Management

Should I try to avoid the risk, share the risk, accept the risk, or reduce the risk?

A process used by a company to proactively identify and manage risk.

Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.
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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

Stockholders

Environmental & Human Rights Advocates

CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.
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Certified Management Accountant

A management accountant who has the necessary qualifications and who passes a rigorous professional exam earns the right to be known as a Certified Management Accountant (CMA).

Information about becoming a CMA and the CMA program can be accessed on the IMAs website at www.imanet.org or by calling 1-800-638-4427.
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End of Chapter 1

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