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- 1. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 1 The Changing Role of Managerial Accounting in a Dynamic Business Environment
- 2. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 1
- 3. Managerial accounting is the process of Identifying Measuring Analyzing Interpreting Communicating information Define Managerial Accounting
- 4. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 2
- 5. Managing Resources, Activities, and People An organization . . . Acquires Resources Hires People Organized set of activities Decision Making Planning Directing Controlling
- 6. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 3
- 7. How Managerial Accounting Adds Value to the Organization • Providing information for decision making and planning. • Assisting managers in directing and controlling activities. • Motivating managers and other employees towards organization’s goals. • Measuring performance of activities, managers, and other employees. • Assessing the organization’s competitive position.
- 8. The Balanced Scorecard Financial Perspective Goals Measures Customer Perspective Goals Measures Operations Perspective Goals Measures Innovation Perspective Goals Measures How do we look to owner’s? How do customers see us? How can we continue to improve? In which activities must we excel?
- 9. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 4
- 10. Managerial versus Financial Accounting Accounting System (accumulates financial and managerial accounting data in the cost accounting system) Managerial Accounting Information for decision making, planning, and controlling an organization’s operations. Financial Accounting Published financial statements and other financial reports. Internal Users External Users
- 11. Managerial versus Financial Accounting Managerial Accounting Financial Accounting Users of Information Managers, within the organization. Interested parties, outside the organization. Regulation Not required and unregulated, since it is intended only for management. Required and must conform to generally accepted accounting principles. Regulated by the Financial Accounting Standards Board, and, to a lesser degree, the Securities and Exchange Commission. Source of Data The organization's basic accounting system, plus various other sources, such as rates of effective products manufactured, physical quantities of material and labor used in production, occupancy rates in hotels and hospitals, and average take-off delays in airlines. Almost exclusively drawn from the organization's basic accounting system, which accumulates financial information. Nature of Reports and Procedures Reports often focus on subunits within the organization, such as departments, divisions, geographical regions, or product lines. Based on a combination of historical data, estimates, and projections of future events. Reports focus on the enterprise in its entirety. Based almost exclusively on historical transaction data.
- 12. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 5
- 13. • A staff position supports and assists line positions. – Example: A cost accountant in the manufacturing plant. Line and Staff Positions • A line position is directly involved in achieving the basic objectives of an organization. – Example: A production supervisor in a manufacturing plant.
- 14. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 6
- 15. Controller The chief managerial and financial accountant responsibility for: – Supervising accounting personnel – Preparation of information and reports, managerial and financial – Analysis of accounting information – Planning and decision making
- 16. Treasurer Responsible for raising capital and safeguarding the organization’s assets. – Supervises relationships with financial institutions. – Work with investors and potential investors. – Manages investments. – Establishes credit policies. – Manages insurance coverage
- 17. Internal Auditor Responsible for reviewing accounting procedures, records, and reports in both the controller’s and the treasurer’s area of responsibility. – Expresses an opinion to top management regarding the effectiveness of the organizations accounting system.
- 18. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 7
- 19. Major Themes in Managerial Accounting Managerial Accounting Information and Incentives Costs and Benefits Evolution and Adaptation Behavioral Issues
- 20. Evolution and Adaptation in Managerial Accounting Service vs. Manufacturing Firms Emergence of New Industries Global Competition Focus on the Customer Cross-Functional Teams Computer-Integrated Manufacturing Product Life Cycles Time-Based Competition Information and Communication Technology Just-in-Time Inventory Total Quality Management Continuous Improvement Change E-Business
- 21. Objectives Measure the cost of resources consumed. Identify and eliminate non-value-added costs. Cost Management Systems Cost Management System
- 22. Objectives Determine efficiency and effectiveness of major activities. Identify and evaluate new activities that can improve performance. Cost Management Systems Cost Management System
- 23. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 8
- 24. Product Design Research and Development Strategic Cost Management and the Value Chain Securing raw materials and other resources Production Marketing Distribution Customer Service Start
- 25. Theory of Constraints A sequential process of identifying and removing constraints in a system. Restrictions or barriers that impede progress toward an objective
- 26. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 9
- 27. Ethical Climate of Business The corporate scandals experienced over the last few years have shown us that unethical behavior in business is wrong in a moral sense and can be disastrous in the economy. In addition to Sarbanes-Oxley, there will likely be more reforms in corporate governance and accounting.
- 28. Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Learning Objective 10
- 29. Managerial Accounting as a Career Professional Organizations Institute of Management Accountants (IMA) Publishes Management Accounting and research studies. Administers Certified Management Accountant program Develops Standards of Ethical Conduct for Management Accountants
- 31. End of Chapter 1
Editor's Notes
- Managerial accounting is an integral part of the management process. It is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit an organization’s goals. (LO1)
- In pursuing its goals, an organization acquires resources, hires people, and then engages in an organized set of activities. It is up to the management team to make the best use of the organization’s resources, activities, and people in achieving the organization’s goals. The day-to-day work of the management team comprises four activities: • Decision making • Directing operational activities • Planning • Controlling (LO2)
- Managerial accountants add value to an organization by providing information, assisting in directing and controlling activities, motivating managers and employees towards the organization’s goals, measuring performance, and assessing the organization’s competitive position. (LO3)
- The balanced scorecard is a model of business performance evaluation that balances measures of financial performance, internal operations, innovation and learning, and customer satisfaction. If an organization is to remain viable in a changing and ever more competitive business environment, its managers need to continually ask the questions emphasized in the balanced scorecard. (LO3)
- Both managerial and financial accounting information draw upon data from an organization’s basic accounting system. One part of that system, the cost accounting system, accumulates cost data for both managerial and financial accounting. Managerial accounting information is used for decision making, planning, directing, and controlling an organization's operations, and assessing its competitive position. It is intended for managers of all levels within the organization. Financial accounting information is used to prepare the published financial statements and other financial reports. It is intended for external Users, such as stockholders, financial analysts, lenders, unions, consumer groups, and governmental agencies. (LO4)
- This exhibit summarizes the differences between managerial and financial accounting. Managerial accounting reports are intended for managers within the organization and are not subject to any regulation. The data is drawn from the basic accounting system as well as other sources. The reports often focus on departments or subunits and are based on historical data, estimates and future projections. Financial accounting reports are intended for external users and are subject to regulation. The data is drawn almost completely from the basic accounting system and are almost exclusively historical. (LO4)
- Line positions are directly involved in providing goods and services while staff positions support the line positions. Management accountants are staff positions that need to work closely with line management. (LO5)
- The chief financial office, also known as the controller, is the title given to the top managerial and financial accountant. This person is responsible for accounting personnel and preparing the information and reports used in both managerial and financial accounting. The CFO is an integral member of the management team, often involved in planning and decision making at all levels and across all functional areas. (LO6)
- The treasurer typically is responsible for raising capital and safeguarding the organization’s assets. In addition, the treasurer manages the organization’s investments, its credit policy and its insurance coverage. (LO6)
- The internal auditor is responsible for reviewing the accounting procedures, records and reports in both the controller’s and the treasurer’s areas. The internal auditor expresses an opinion to top management about the effectiveness of the accounting system. (LO6)
- Managerial accounting is driven by the need for information. It is intended to assist in decision-making, but often it is also intended to influence a manager’s decision. Reactions to managerial accounting information can have a large impact on an organization. A managerial accountant’s understanding of human behavior can help him or her to be more effective provider of information. There are costs and benefits to providing managerial accounting information. The costs include compensation of personnel, purchase and operations of computers, and the time spent by users reading and understanding the information. Benefits include improved decisions, more effective planning, improved efficiency, and better control of operations. Managerial accounting concepts and tools are still evolving. Also, as business environments change, managerial accounting information must also be adapted. (LO7)
- Managerial accounting information must be adapted to reflect the changes in the business environment. The changes shown here are especially pertinent to managerial accounting. (LO7)
- A cost management system is a planning and control system with four objectives: Measure the cost of resources consumed in the organization’s significant activities Identify and eliminate non-value-added costs. These are costs of activities that can be eliminated without deteriorating quality, performance or value. (LO7)
- Determine the efficiency and effectiveness of all major activities Identify and evaluate new activities that can improve future performance The emphasis on the organization’s activities is crucial to the goal of producing quality goods and services at the lowest possible cost. (LO7)
- Usually many activities are involved in securing basic raw materials and turning them into valuable products or services. The set of linked, value- creating activities, ranging from securing basic raw materials and energy to the ultimate delivery of products and services, is called the value chain. Although there may be only one organization involved in a particular value chain, usually there are many. (LO8)
- Managers should carefully examine the chain of linked activities in order to identify any constraints that prevent the organization from reaching a higher level of achievement. This approach is often called the theory of constraints. The most cost effective ways to ease the most limiting constraints are sought. When these constraints are relaxed, the organization can reach a higher level of goal attainment. (LO8)
- The stream of corporate scandals has taught us that not only is unethical behavior in business wrong in a moral sense, but it also can be disastrous to the business and the economy. There will most likely be reforms in corporate governance and accounting. The Sarbanes-Oxley Act is one example. These scandals have served as a wake-up call to focus more on ethical issues in practice and teaching. (LO9)
- Managerial accountants are providers of information and are often in touch with the heartbeat of the organization. They frequently interact with sales personnel, finance specialists, production people and managers at all levels. To keep up with new developments in their field, management accountants often belong to one or more professional organizations. The largest is the Institute of Management Accountants. The IMA publishes journals, administers the Certified Management Accountant program, and develops ethical standards for its members. (LO10)
- As professionals, managerial accountants have an obligation to themselves, their colleagues, and their organizations to adhere to high standards of ethical conduct. In recognition of this obligation, the IMA has developed the following ethical standards for its members, who are practitioners of managerial accounting and financial management. (LO10)