2. McGraw-Hill Education (Asia) Slide 2
Management Accounting and Cost
Accounting
Management Accounting
relates to the provision of appropriate information, including cost
information for decision-making, planning, control, and
performance evaluation.
Cost accounting
defines costs and valuates inventories to help managers to run
businesses
Garrison, Noreen, Brewer, Cheng & Yuen
Management Accounting and Cost Accounting
• are intertwined and
• the terms are sometimes interchangeable
their functions are to help companies make better decisions
3. McGraw-Hill Education (Asia) Slide 3
World Merchandise Trade Volume By Major
Product Group, 1950-2009 (Volume Indices, 1950=100)
Manufactures
Fuels and mining
products
Agricultural
products
100
1000
10000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Log. scale
5000
2500
500
250
Source: World Trade Organization, International Trade Statistic 2010
Garrison, Noreen, Brewer, Cheng & Yuen
4. McGraw-Hill Education (Asia) Slide 4
0
5
10
15
20
25
30
35
40
45
North America South and Central
America
Europe Commonwealth of
Independent States
(CIS)
Africa Middle East Asia
2009
Source: World Trade Organization, International Trade Statistic 2010
%
Regional Shares In World Merchandise
Exports, 2009
Garrison, Noreen, Brewer, Cheng & Yuen
5. McGraw-Hill Education (Asia) Slide 5
Distribution of Fortune Global 500
companies between 2005 and 2010
Fortune Global 500 2010 2009 2007 2005
Australia 8 9 8 9
China 46 37 24 16
India 8 7 6 5
Japan 71 68 67 81
Malaysia 1 1 1 1
Singapore 2 2 1 1
South Korea 10 14 14 11
Taiwan 8 6 6 2
Thailand 1 1 1 1
Asia Pacific 155 145 128 127
US 139 140 162 176
Canada 11 14 16 13
Europe 184 188 183 178
Others 11 13 11 6
500 500 500 500
Garrison, Noreen, Brewer, Cheng & Yuen
6. McGraw-Hill Education (Asia) Slide 6
Top 10 Companies of Fortune Global 500
(ranked by revenue)
2010 2009
RankCompany
Revenues Profits
RankCompany
Revenues Profits
($ millions) ($ millions) ($ millions) ($ millions)
1 Wal-Mart Stores 408,214 14,335 1 Royal Dutch Shell 458,361 26,277
2 Royal Dutch Shell 285,129 12,518 2 Exxon Mobil 442,851 45,220
3 Exxon Mobil 284,650 19,280 3 Wal-Mart Stores 405,607 13,400
4 BP 246,138 16,578 4 BP 367,053 21,157
5 Toyota Motor 204,106 2,256 5 Chevron 263,159 23,931
6 Japan Post Holdings 202,196 4,849 6 Total 234,674 15,500
7 Sinopec 187,518 5,756 7 ConocoPhillips 230,764 -16,998
8 State Grid 184,496 -343 8 ING Group 226,577 -1,067
9 AXA 175,257 5,012 9 Sinopec 207,814 1,961
10 China National Petroleum 165,496 10,272 10 Toyota Motor 204,352 -4,349
Garrison, Noreen, Brewer, Cheng & Yuen
source: http://money.cnn.com/magazines/fortune/global500/2010/full_list/index.html
7. McGraw-Hill Education (Asia) Slide 7
Internet Penetration Rate And Borderless
Trading Potential
The Internet fuels globalization
by providing companies with greater
access to geographically dispersed
customers, employees, and suppliers.
As of June 2010, more than 71% of
the world's population was still
not connected to the Internet.
Garrison, Noreen, Brewer, Cheng & Yuen
8. McGraw-Hill Education (Asia) Slide 8
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.
Garrison, Noreen, Brewer, Cheng & Yuen
9. McGraw-Hill Education (Asia) Slide 9
Customer Value Propositions
Understand and respond to
individual customer needs.
Customer
Intimacy
Strategy
Operational
Excellence
Strategy
Deliver products and services
faster, more conveniently,
and at lower prices.
Product
Leadership
Strategy
Offer higher quality products.
Garrison, Noreen, Brewer, Cheng & Yuen
10. McGraw-Hill Education (Asia) Slide 10
Learning Objective 1
Understand the role of
management accountants
in an organization.
Garrison, Noreen, Brewer, Cheng & Yuen
11. McGraw-Hill Education (Asia) Slide 11
Corporate Organization Chart
Purchasing Personnel Vice President
Operations
Treasurer Controller
Chief Financial
Officer
President
Board of Directors
Organizational Structure
Decentralization is the delegation of decision-
making authority throughout an organization.
Garrison, Noreen, Brewer, Cheng & Yuen
12. McGraw-Hill Education (Asia) Slide 12
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.
Garrison, Noreen, Brewer, Cheng & Yuen
13. McGraw-Hill Education (Asia) Slide 13
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.
Garrison, Noreen, Brewer, Cheng & Yuen
14. McGraw-Hill Education (Asia) Slide 14
Learning Objective 2
Understand the basic
concepts underlying Lean
Production, the Theory of
Constraints, and Six
Sigma.
Garrison, Noreen, Brewer, Cheng & Yuen
15. McGraw-Hill Education (Asia) Slide 15
Process Management
Business functions making up the value chain
Product Customer
R&D Design Manufacturing Marketing Distribution Service
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.
Garrison, Noreen, Brewer, Cheng & Yuen
16. McGraw-Hill Education (Asia) Slide 16
Process Management
There are three approaches to
improving business processes . . .
Lean
Production
Theory of
Constraints (TOC)
Six
Sigma
Garrison, Noreen, Brewer, Cheng & Yuen
17. McGraw-Hill Education (Asia) Slide 17
Traditional “Push” Manufacturing Company
Forecast Sales Order components
Produce goods in
anticipation of Sales
Make Sales from
Finished Goods
Inventory
Store Inventory
Store
Inventory
Garrison, Noreen, Brewer, Cheng & Yuen
18. McGraw-Hill Education (Asia) Slide 18
Traditional “push”
manufacturing
Traditional “Push” Manufacturing Company
Large
inventories
Finished
goods
Raw
materials
Work in
process
Materials waiting
to be processed.
Completed products
awaiting sale.
Partially completed products
requiring more work before
they are ready for sale.
Garrison, Noreen, Brewer, Cheng & Yuen
19. McGraw-Hill Education (Asia) Slide 19
Lean Production
The lean thinking
model is a five
step approach.
Identify value
in specific
products/services.
Identify the
business process
that delivers value.
Organize work
arrangements around
the flow of the
business process.
Create a pull
system that responds
to customer orders.
Continuously pursue
perfection in the
business process.
Garrison, Noreen, Brewer, Cheng & Yuen
20. McGraw-Hill Education (Asia) Slide 20
Customer places
an order
Create Production
Order
Generate component
requirements
Production begins
as parts arrive
Goods delivered
when needed
Components
are ordered
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.
Garrison, Noreen, Brewer, Cheng & Yuen
21. McGraw-Hill Education (Asia) Slide 21
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.
Garrison, Noreen, Brewer, Cheng & Yuen
22. McGraw-Hill Education (Asia) Slide 22
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.
Theory of Constraints
Garrison, Noreen, Brewer, Cheng & Yuen
23. McGraw-Hill Education (Asia) Slide 23
4. Recognize that
the weakest link
is no longer so.
1. Identify the
weakest link.
2. Allow the
weakest link to
set the tempo.
3. Focus on
improving
the weakest
link.
Only actions
that strengthen
the weakest link
in the “chain”
improve the
process.
Theory of Constraints
Garrison, Noreen, Brewer, Cheng & Yuen
24. McGraw-Hill Education (Asia) Slide 24
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.
Garrison, Noreen, Brewer, Cheng & Yuen
25. McGraw-Hill Education (Asia) Slide 25
Six Sigma
Stage Goals
Define ● Establish the scope and purpose of the project.
● Diagram the flow of the current process.
● Establish the customer's requirements for the
process.
Measure ● Gather baseline performance data related to
the existing process.
● Narrow the scope of the project to the most
important problems.
Analyze ● Identify the root cause(s) of the problems
identified in the Measure stage.
Improve ● Develop, evaluate, and implement solutions
to the problems.
Control ● Ensure that problems remain fixed.
● Seek to improve the new methods over time.
The Six Sigma DMAIC Framework
Garrison, Noreen, Brewer, Cheng & Yuen
27. McGraw-Hill Education (Asia) Slide 27
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.
Garrison, Noreen, Brewer, Cheng & Yuen
All Professional Management Accountants Bodies issue their
own Code of Conduct but they all share similar fundamental
principles and conceptual approaches as the one issued by
the Institute of Management Accountants.
28. McGraw-Hill Education (Asia) Slide 28
Competence
Follow applicable
laws, regulations
and standards.
Maintain
professional
competence.
Provide accurate, clear,
concise, and timely decision
support information.
IMA Guidelines for Ethical Behavior
Recognize and
communicate professional
limitations that preclude
responsible judgment.
Garrison, Noreen, Brewer, Cheng & Yuen
29. McGraw-Hill Education (Asia) Slide 29
Confidentiality
Do not disclose confidential
information unless legally
obligated to do so.
Ensure that subordinates do
not disclose confidential
information.
Do not use
confidential
information for
unethical or illegal
advantage.
IMA Guidelines for Ethical Behavior
Garrison, Noreen, Brewer, Cheng & Yuen
30. McGraw-Hill Education (Asia) Slide 30
Mitigate conflicts of
interest and advise others
of potential conflicts.
Abstain from activities that
might discredit the
profession.
Refrain from
conduct that
would prejudice
carrying out
duties ethically.
Integrity
IMA Guidelines for Ethical Behavior
Garrison, Noreen, Brewer, Cheng & Yuen
31. McGraw-Hill Education (Asia) Slide 31
Communicate information
fairly and objectively.
Disclose all relevant
information that could
influence a user’s
understanding of reports
and recommendations.
Credibility
IMA Guidelines for Ethical Behavior
Disclose delays or
deficiencies in information
timeliness, processing, or
internal controls.
Garrison, Noreen, Brewer, Cheng & Yuen
32. McGraw-Hill Education (Asia) Slide 32
Follow employer’s established policies.
For an unresolved ethical conflict:
Discuss the conflict with immediate supervisor or
next highest uninvolved manager.
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.
IMA Guidelines for Resolution of an Ethical
Conflict
Garrison, Noreen, Brewer, Cheng & Yuen
33. McGraw-Hill Education (Asia) Slide 33
Follow employer’s established policies.
For an unresolved ethical conflict:
Except where legally prescribed, maintain
confidentiality.
Clarify issues in a confidential discussion with an
objective advisor.
Consult an attorney as to legal obligations.
IMA Guidelines for Resolution of an Ethical
Conflict
Garrison, Noreen, Brewer, Cheng & Yuen
34. McGraw-Hill Education (Asia) Slide 34
Abandoning ethical standards in business would
lead to a lower quality of life with less
desirable goods and services at higher prices.
Why Have Ethical Standards?
Without ethical standards in business, the
economy, and all of us who depend on it for
jobs, goods, and services, would suffer.
Ethical standards in business are essential for a
smooth functioning economy.
Garrison, Noreen, Brewer, Cheng & Yuen
35. McGraw-Hill Education (Asia) Slide 35
Company Codes of Conduct
Employees Customers Suppliers
And to the communities in
which the company operates.
Broad-based statements of a
company’s responsibilities to:
Garrison, Noreen, Brewer, Cheng & Yuen
36. McGraw-Hill Education (Asia) Slide 36
Codes of Conduct on the International Level
In addition to integrity and objectivity, resolution of ethical
conflicts, competence, and confidentiality, the IFAC’s code
deals with the accountant’s ethical responsibilities in:
Taxes,
Independence,
Fees and commissions,
Advertising and solicitation,
Handling of monies, and
Cross-border activities.
The Code of Ethics for Professional
Accountants, issued by the International
Federation of Accountants (IFAC), governs the
activities of professional accountants worldwide.
Garrison, Noreen, Brewer, Cheng & Yuen
37. McGraw-Hill Education (Asia) Slide 37
Corporate Governance
The system by
which a company is directed
and controlled.
Board of
Directors
Top
Management
Stockholders
To pursue
objectives of
Incentives and
monitoring for
Garrison, Noreen, Brewer, Cheng & Yuen
38. McGraw-Hill Education (Asia) Slide 38
The Sarbanes-Oxley Act of 2002
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 company’s 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.
Garrison, Noreen, Brewer, Cheng & Yuen
39. McGraw-Hill Education (Asia) Slide 39
The Sarbanes-Oxley Act of 2002
(continued)
The Act requires a public company’s independent auditor
to issue an opinion on the effectiveness of the company’s
internal control over financial reporting to accompany
management’s assessment, and both are included in the
company’s 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.”
Garrison, Noreen, Brewer, Cheng & Yuen
40. McGraw-Hill Education (Asia) Slide 40
Enterprise Risk Management
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.
Should I try to avoid the risk,
share the risk, accept the
risk, or reduce the risk?
Garrison, Noreen, Brewer, Cheng & Yuen
41. McGraw-Hill Education (Asia) Slide 41
Enterprise Risk Management
Examples of Controls to
Examples of Business Risks Reduce Business Risks
● Products harming customers ● Develop a formal and rigorous
new product testing program
● Losing market share due to the ● Develop an approach for legally
unforeseen actions of competitors gathering information about
competitors' plans and practices
● Poor weather conditions shutting ● Develop contingency plans for
down operations overcoming weather-related
disruptions
● Website malfunction ● Thoroughly test the website
before going "live" on the Internet
● A supplier strike halting the flow ● Establish a relationship with two
of raw materials companies capable of providing
raw materials
● Financial statements unfairly ● Count the physical inventory on
reporting the value of inventory hand to make sure that it agrees
with the accounting records
● An employee accessing ● Create password-protected barriers
unauthorized information that prohibit employees from
obtaining information not needed
to do their jobs
Garrison, Noreen, Brewer, Cheng & Yuen
42. McGraw-Hill Education (Asia) Slide 42
Corporate Social Responsibility
CSR extends beyond legal compliance
to include voluntary actions that satisfy
stakeholder expectations.
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.
Customers Employees CommunitiesSuppliers Stockholders
Environmental
& Human Rights
Advocates
Garrison, Noreen, Brewer, Cheng & Yuen
43. McGraw-Hill Education (Asia) Slide 43
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
Examples of Corporate Social Responsibility
Garrison, Noreen, Brewer, Cheng & Yuen
44. McGraw-Hill Education (Asia) Slide 44
Sustainability Reporting
Garrison, Noreen, Brewer, Cheng & Yuen
Global Reporting Initiative (GRI)
•promotes a systematic and standardized approach
o to corporate social responsibility and embed it in corporate culture;
o to stimulate demand for sustainability information;
thus benefitting both reporting organizations and report users.
International Federation of Accountants (IFAC) Sustainability Framework
•Organizations should
o achieve a “Triple Bottom-Line”
financial, social, and environmental goals
(or 3Ps: Profit, People, and Planet)
promote a sound corporate governance and ethical responsibility
to ensure financial success through ethical operations and
transactions;
promote cultural diversity and equality;
provide opportunities for social and economic development of the communities;
and
minimize environmental damages, and provide a safe working and living
environment for the communities.
45. McGraw-Hill Education (Asia) Slide 45
Sustainability Reporting:
GRI Registered Companies
Garrison, Noreen, Brewer, Cheng & Yuen
Examples of GRI Registered Companies
Asia: Air China, AsusTek, Canon, Reliance Industries, Samsung
Securities, SingTel
Europe: Air France-KLM, BP, Daimler, Nestle, Nokia
United States: AT&T, Dell, ExxonMobil, Intel, Johnson & Johnson
46. McGraw-Hill Education (Asia) Slide 46
Professional Qualification of Management
Accountants
Garrison, Noreen, Brewer, Cheng & Yuen
• Traditional accounting qualifications e.g. Chartered Accountants (ACA), Certified
Public Accountants (CPA) and Chartered Certified Accountants (ACCA)
• Management accountants qualifications, e.g.:
Institution Abbrev Country Qualification
The Institute of Management Accountants IMA US CMA
Certified Management Accountants of Canada
(previously known as The Society of Management Accountants of Canada)
CMA
Canada
Canada CMA
The Chartered Institute of Management Accountants CIMA UK FCMA , ACMA
The Institute of Certified Management Accountants of
Australia
ICMA Australia CMA
- CMA Philippines Philippines CMA
- CMA Indonesia Indonesia CMA
- CMA Sri Lanka Sri Lanka CMA
- CMA India India CMA
The Institute of Cost and Works Accountants of India ICWAI India FICWA, AICWA
Chapter 1: Managerial Accounting and the Business Environment.
This chapter describes the larger business environment within which management accounting operates. It is divided into nine sections: (1) management accounting and globalization, (2) strategy, (3) organizational structure, (4) process management, (5) the importance of ethics in business, (6) corporate governance, (7) enterprise risk management, (8) corporate social responsibility and Sustainability reporting, and (9) the professional qualifications of Management Accountants.
Management accounting is one of the core functions of businesses to help plan, evaluate and control businesses. It relates to the provision of appropriate information for decision-making.
It is critical that management accounting information is prepared, provided, and used on a timely basis. Late information is no information.
It is important for management accounting information to be relevant, and such relevant information needs to be obtained efficiently and effectively.
Cost-benefit evaluation is a key concept in management accounting.
Cost accounting defines costs and valuates inventories to help managers to run businesses. It intertwines with Management Accounting and the terms are sometimes interchangeable.
With the fast changing globalised economy, Management Accounting play an important role in supporting management to make quick and relevant decisions.
The World Merchandise Trade Volume data show enormous increases in global trading activities from 1950 to 2009; in particular, the manufacturing sector.
The Regional Shares In World Merchandise Exports data show that Europe and Asia had the lion shares (total of 70%) of the world merchandise exports.
European companies consistently form the strongest foundation of the Fortune Global 500 totaling 184 companies in 2010
From 2005 to 2010, among the Fortune Global 500 companies, China companies increased almost 3 folds from 16 to 46 (a gain of 30 companies) whereas US companies reduced from 176 to 139 (a drop of 37 companies)
In the second half of 2010, China officially overtook Japan as the second biggest economy in the world, reflecting the growing power of China companies.
The number of Fortune 500 Global firms from Taiwan and India companies trailed closely behind South Korea and were comparable with Australia, forming another powerful group in the Asia-Pacific region.
Asian and China companies not only increase in the total numbers on the Fortune Global 500 list but also are taking more top spots.
Four out of ten companies in 2010 were from Asia (2 from Japan and 2 from China). There were only two Asian companies on the top 10 in 2009 (1 from China and 1 from Japan).
Together with the earlier slides, data show the important contribution of Asia companies to the world economy.
7
8
9
Learning objective number 1 is to understand the role of management accountants in an organization.
11
12
13
Learning objective number 2 is to understand the basic concepts underlying Lean Production, the Theory of Constraints, and Six Sigma.
15
16
17
18
19
20
21
22
23
24
25
Learning objective number 3 is to understand the importance of upholding ethical standards.
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions. CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.
Stakeholders include groups, such as customers, employees, suppliers, communities, stockholders, and environmental and human rights advocates, whose interests are tied to the company’s performance.
This slide presents examples of corporate social responsibilities that are of interest to the six stakeholder groups just mentioned.
GRI and IFAC play an important role in promoting sustainability reporting. The triple bottom-line concept is critical for long-term sustainability of businesses.
Eurpoean companies led the pack in sustainability reporting followed by Asian companies. The growing trend of adopting GRI sustainability reporting standards is encouraging. It increased from 10 companies in 1999 to 1,772 companies in 2010.