1. CHAPTER 1
The Changing Role of Managerial Accounting in a Dynamic Business Environment
Chapter 1: The Changing Role of Managerial Accounting in a Dynamic Business Environment
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2. Learning Objective 1
Learning Objective 1. Define managerial accounting and describe its role in the management process.
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3. Define Managerial Accounting
Managerial accounting is the process of
Identifying
Measuring
Analyzing
Interpreting
Communicating information
Managerial accounting is an integral part of the management process. It is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization’s goals. (LO1)
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4. Learning Objective 2
Learning Objective 2. Explain four fundamental management processes that help organizations attain their goals.
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5. Managing Resources, Activities, and People
An organization . . .
Directing
Decision
Making
Acquires Resources
Organized set
of activities
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)
Planning
Controlling
Hires People
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6. Learning Objective 3
Learning Objective 3. List and describe five objectives of managerial accounting activity.
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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 subunits, activities, managers, and other employees.
Assessing the organization’s competitive position.
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)
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8. The Balanced Scorecard
Financial Perspective
Goals Measures
How do we look to owners?
In which activities must we excel?
Customer Perspective
Goals Measures
Operations Perspective
Goals Measures
How do customers see us?
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)
How can we continue to improve?
Innovation Perspective
Goals Measures
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9. Learning Objective 4
Learning Objective 4. Explain the major differences between managerial and financial accounting.
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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.
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)
Internal
Users
External
Users
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11. Managerial versus Financial Accounting
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 are 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 are drawn almost completely from the basic accounting system and are almost exclusively historical. (LO4)
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12. Learning Objective 5
Learning Objective 5. Describe the accounting and finance structure in an organization.
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13. 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.
A staff position supports and assists line positions.
Example: A cost accountant in the manufacturing plant.
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)
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14. Learning Objective 6
Learning Objective 6. Describe the roles of an organization’s chief financial officer (CFO) or controller, treasurer, and internal auditor.
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15. Controller
The chief managerial and financial accountant is responsible for:
Supervising accounting personnel.
Preparation of information and reports, managerial and financial.
Analysis of accounting information.
Planning and decision making.
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)
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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.
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)
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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 organization’s accounting system.
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)
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18. Learning Objective 7
Learning Objective 7. Understand and explain the value chain concept.
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19. Strategic Cost Management and the Value Chain
Product
Design
Production
Research
and
Development
Marketing
Securing raw
materials and
other resources
Distribution
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. (LO7)
Customer
Service
Start
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20. Learning Objective 8
Learning Objective 8. Explain how investments in capacity affect managerial decision making.
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21. Capacity
Theoretical Capacity is the upper limit on the amount of goods or services if everything works perfectly.
Practical capacity allows for normal occurrences such as cash register downtime and cashier fatigue or illness.
Theoretical capacity is the upper limit on the amount of goods or services if everything works perfectly.
Practical capacity allows for normal occurrences such as cash register downtime and cashier fatigue or illness.
Most managers believe that practical capacity is a much more useful measure of capacity. (LO8)
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22. Cost Management Systems
Objectives
Measure the cost of resources consumed.
Identify and eliminate non-value-added costs.
Cost Management System
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. (LO8)
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23. Cost Management Systems
Objectives
Determine efficiency and effectiveness of major activities.
Identify and evaluate new activities that can improve performance.
Cost Management System
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. (LO8)
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24. Learning Objective 9
Learning Objective 9. Discuss the professional organizations and certifications in the field of managerial accounting.
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25. 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
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. (LO9)
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26. Learning Objective 10
Learning Objective 10. Describe the ethical responsibilities and ethical standards that apply to managerial accounting.
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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.
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. (LO10)
I am sure we can all think of a few corporate scandals. Examples: Enron, Tyco. WorldCom, and Arthur Anderson to name a few.
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28. Competence Confidentiality Integrity Credibility Professional Ethics
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)
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29. End of Chapter 1
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