© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen

Managerial Accounting and the

Business Environment
Chapter 1 (Topic 1)

© 2015 McGraw-Hill Education

 Comparison of Financial and Managerial
Accounting
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on relevance

versus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focuses on segments

the whole organization of an organization

6. GAAP Must follow GAAP Need not follow GAAP

and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 3

 Work of Management

Planning
Planning
Controlling
Controlling
Decision
Decision
Making
Making

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 4

 Planning

Establish
Establish Goals.
Goals.

Specify
Specify How
How Goals
Goals
Will
Will Be
Be Achieved.
Achieved.

Develop
Develop Budgets.
Budgets.

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 5

 Controlling

The
The control
control function
function gathers
gathers feedback
feedback to
to
ensure
ensure that
that plans
plans are
are being
being followed.
followed.

Feedback
Feedback inin the
the form
form ofof performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 6

 Decision Making

Decision
Decision making
making involves
involves
making
making a selection among
competing alternatives.

What
What should
should
we
we be
be selling?
selling?
Who
Who should
should
we
we be
be serving?
serving?
How
How should
should
we
we execute?
execute?
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 7
 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; examples including
 FIFO, weighted average inventory valuation technique
 Job costing, Process costing, Activity-based costing
 Cost allocation techniques
Management Accounting and Cost Accounting
• are intertwined and
• the terms are sometimes interchangeable
 their functions are to help companies make better decisions

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 8

 A Strategic View of Managerial Accounting

A strategy
is a “game plan”
that enables a company
to attract customers
by distinguishing itself
from competitors.

The
The focal
focal point
point of
of a
company’s
company’s strategy
strategy should
should
be its target customers.

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 9

 Customer Value Propositions
Customer
Understand and respond to
Intimacy
individual customer needs.
Strategy

Operational Deliver products and services

Excellence faster, more conveniently,
Strategy and at lower prices.

Product
Leadership Offer higher quality products.
Strategy
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 10
 Value Creation:
Value-added activities and processes
 Create value to stakeholders
 Need to pay attention to value-added (vs. non-value-
added) activities and processes
 Possible techniques focusing on value-added activities and
processes include:
 Activity-based costing and management
 Lean production
 Just-in-time inventory management and production
 Theory of Constraints
 Kaizen costing
 Life-cycle costing
 Target pricing and costing
 Quality management, e.g. total quality management and six sigma

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 11

 Value Creation:
Different Perspectives
 External Perspectives – Value chain management
 Suppliers (upstream)
 Customers (downstream)
 Internal Perspectives – Value chain management
 Business processes (examples mentioned in slide 17)
 Leadership Perspective
 Leaders who can unite behaviors of fellow employees
 Need to consider intrinsic and extrinsic motivating factors
 Need to be aware of cognitive biases that adversely affect
planning, controlling and decision making.
 Cultural Perspective
 National and organizational cultures
 Power distance, individualism, uncertainty avoidance, masculinity
and long-term orientation
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 12
 Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.

Product Customer
R&D Design Manufacturing Marketing Distribution Service

Business functions making up the value chain

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 13

 Managerial Accounting:
Beyond the Numbers
In addition to the External, Internal, Leadership and
Cultural Perspectives, the following four business
management perspectives also go beyond the
numbers to enable intelligent planning, control, and
decision making:
• An Ethics Perspective
• A Corporate Governance Perspective
• An Enterprise Risk Management Perspective
• A Corporate Social Responsibility and
Sustainability Perspective

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 14

 An Ethics Perspective
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.
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.

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 15

 An Ethics Perspective:
IMA Guidelines for Ethical Behavior
Recognize
Recognize and
and
communicate
communicate professional
professional
limitations
limitations that
that preclude
preclude
responsible
responsible judgment.
judgment.

Maintain
Maintain Follow
Follow applicable
applicable
professional
professional Competence laws,
laws, regulations
regulations
competence.
competence. and
and standards.
standards.

Provide
Provide accurate,
accurate, clear,
clear,
concise,
concise, and
and timely
timely decision
decision
support
support information.
information.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 16
 An Ethics Perspective:
IMA Guidelines for Ethical Behavior

Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.

Do
Do not
not use
use
confidential
confidential
information
information forfor Confidentiality
Confidentiality
unethical
unethical or
or illegal
illegal
advantage.
advantage.

Ensure
Ensure that
that subordinates
subordinates do
do
not
not disclose
disclose confidential
confidential
information.
information.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 17
 An Ethics Perspective:
IMA Guidelines for Ethical Behavior

Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise others
others
of
of potential
potential conflicts.
conflicts.
Refrain
Refrain from
from
conduct
conduct that
that
would
would prejudice
prejudice Integrity
carrying
carrying out
out
duties
duties ethically.
ethically.
Abstain
Abstain from
from activities
activities that
that
might
might discredit
discredit the
the
profession.
profession.

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 18

 An Ethics Perspective:
IMA Guidelines for Ethical Behavior
Communicate
Communicate information
information
fairly
fairly and
and objectively.
objectively.

Disclose
Disclose delays
delays or
or
deficiencies
deficiencies inin information
information
Credibility
Credibility timeliness,
timeliness, processing,
processing, or or
internal
internal controls.
controls.

Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa user’s
user’s
understanding
understanding of of reports
reports
and
and recommendations.
recommendations.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 19
 A Corporate Governance Perspective

The system by
which a company is directed
and controlled.
Board of Incentives and
Directors monitoring for

Top To pursue
Management objectives of

Stockholders
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 20
 An Enterprise Risk Management Perspective
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
Once aa company
company identifies
identifies its
its risks,
risks, perhaps
perhaps the
the
most
most common
common risk
risk management
management tactictactic is
is to
to reduce
reduce
risks by implementing specific
specific controls.
controls.
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 21
 An Enterprise Risk Management Perspective
Examples of Business Risks
● Products harming customers
● Losing market share due to the
unforeseen actions of competitors
● Poor weather conditions shutting
down operations
● Website malfunction
● A supplier strike halting the flow
of raw materials
● Financial statements unfairly
reporting the value of inventory
● An employee accessing
unauthorized information
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen
Examples of Controls to
Reduce Business Risks
● Develop a formal and rigorous
new product testing program
● Develop an approach for legally
gathering information about
competitors' plans and practices
● Develop contingency plans for
overcoming weather-related
disruptions
● Thoroughly test the website
before going "live" on the Internet
● Establish a relationship with two
companies capable of providing
raw materials
● Count the physical inventory on
hand to make sure that it agrees
with the accounting records
● Create password-protected barriers
that prohibit employees from
obtaining information not needed
to do their jobs
22
 Corporate Social Responsibility &
Sustainability Perspective
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.

Environmental
Customers Employees Suppliers Communities Stockholders & Human Rights
Advocates

CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 23

 Corporate Social Responsibility &
Sustainability Perspective
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
© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 24
 Professional Qualification of Management
Accountants
• 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 CMA Canada CMA

(previously known as The Society of Management Accountants of Canada) Canada

The Chartered Institute of Management Accountants CIMA UK FCMA , ACMA

The Institute of Certified Management Accountants of ICMA Australia CMA

Australia

- CMA Philippines Philippines CMA

- CMA Indonesia Indonesia CMA

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 25
 End of Chapter 1

© 2015 McGraw-Hill Education Garrison, Noreen, Brewer, Cheng & Yuen 26