Horngren’s Cost Accounting: A Managerial

Emphasis
Eighth Canadian Edition

Chapter 1
The Accountant’s Vital Role
in Decision Making

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Learning Objectives (1 of 2)
1. Explain how management accounting data are
essential to the process of rational operational
and strategic decision making.
2. Explain how business functions help
management accountants organize accounting
information.
3. Identify the five steps of decision making and the
role of relevant accounting information.

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Learning Objectives (2 of 2)
4. Describe key guidelines management
accountants follow and roles they assume to
support management decisions.
5. Distinguish among corporate governance,
professional codes of conduct, ethics, and
corporate social responsibility.

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Cost Accounting
• Measures and reports financial and non-financial
information related to the cost of acquiring and
using resources.
• Provides information on the accumulation and
recovery of costs.

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Cost Management
• Identifying, reporting and analyzing costs of
operations.
• An integral part of management strategies.

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Financial Accounting
• Focus on reporting to external parties (investors,
regulators and others) with the goal of fairly
presenting the economic health of a company.
• Uses standardized reports such as:
– statement of financial position
– statement of comprehensive income
– statement of cash flow
• Based on GAAP and IFRS.

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Management Accounting
• Measures, analyzes, and reports financial and
non-financial information to internal management.
• Goal is to use past performance to predict the
future.

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Managerial and Financial Accounting
Comparison
Blank Managerial Financial
Help Managers Make Communicate Financial
Purpose
Decisions Position
Primary Users Managers of the Organization External Users
Focus Future-Oriented Past-Oriented
Rules Cost-Benefit GAAP, IFRS
Time span Hourly to Many Years Annual/Quarterly
Behavioural Influences Managers & Other
Influences Managers
implications Employees

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Strategy
• Specifies how an entity accomplishes its
objectives by matching capabilities with
opportunities
• Describes how an entity will compete
• Two broad strategies:
1. Cost Leadership - quality products/services at low
prices (LG)
2. Value Leadership - unique, higher-value
products/services (Apple Inc.)

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Supply-Chain Analysis
• Supply Chain is the flow of goods, services and
information:
– from their initial sources to delivery of finished products
– across all organizations playing a role in bringing
products to consumers
• Cost management integrates and coordinates
activities in the supply chain to reduce costs.

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Key Success Factors (KSF)
• Customers expect increasing performance
through value chain & supply chain
• KSF essential to successful performance:
– Lower costs, greater efficiency
– Higher quality through Total Quality Management
– Improved timeliness (new product development;
customer response)
– Innovation in products and services
• Performance on KSF’s can be benchmarked
relative to competitors
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The 5 Step Decision-Making Process
1. Identify the problem and uncertainties.
2. Obtain information.
3. Make predictions about the future.
4. Decide on one of the available alternatives.
5. Implement the decision, evaluate performance and
learn.
• Planning: a purposeful analysis of information to
select and rank goals (Steps 1 – 4):
• Control: measure and evaluate performance and take
corrective action (Step 5).
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Key Management Accounting Guidelines
and Organization Structure
• Cost-benefit approach
– Net benefits from using resources should exceed cost of
those resources
• Behavioural and technical considerations
– Motivate employees to try to achieve the goals of the
organization
– Systems are not confined to technical matters
– Include the role of individuals and groups

• Different costs for different purposes

– One concept does not fit all purposes (e.g. external reports
versus internal evaluation)
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Corporate Structure
• Management:
– Line Management directly responsible for completing
routine tasks to attain operating goals
– Staff Management provide advice/assistance and
indirectly support line management
• Chief Financial Officer (CFO)
– Senior officer overseeing financial operations of the
organization (controllership, audit, treasury, tax, risk
management, investor relations)

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Governance
• Corporate governance
– Activities to ensure legal compliance and fiduciary
responsibilities are met
– Board of Directors (BOD) responsible for holding CEO,
CFO and COO accountable for the quality of financial
information and organizational outcomes
– To ensure no conflict of interest, BOD must be
independent from CEO, CFO, COO

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Professional Ethics
• Professional Ethics: ethical obligation of
accountants responsible for financial information
provided to internal/external parties
– Bill 198C (Canada) and Sarbanes-Oxley Act (US):
 Internal control, governance, monitoring managers,
financial/non-financial disclosure practices of public
corporations
 Criminal penalties for managers/accountants who do not meet
the standards
 Process for whistleblowers
– CPA Canada provides guidelines for CPA codes of
conduct
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Corporate Social Responsibility (CSR)
• Corporate Social Responsibility
– voluntary integration of social and environmental
concerns into business decisions
– Triple Bottom Line – profit, people, planet
• Sustainability Accounting
– reporting on financial/non-financial activities impacting
society, environment and financial aspects of an
organization’s performance
• Alternative Reporting
– based on specific goals and strategies
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