Prologue-1 Brewer/Garrison/Noreen Introduction to Managerial Accounting Third Edition.

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Brewer/Garrison/Noreen

Introduction to Managerial Accounting

Third Edition

ProloguePrologue

© The McGraw-Hill Companies, Inc., 2007McGraw-Hill /Irwin

Managerial Accounting and the Business

Environment

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Globalization

Reduction in tariffs and

quotas

Improvements in global

transportation systems

Expansion of Internet usage

Increasing sophistication in

international markets

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The Global Marketplace

Companies that have been successful in their local markets may suddenly find themselves facing competition from

halfway around the globe.

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The Global Marketplace

New Markets

New Customers

New Workers

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Strategy

A strategy is a “game plan” that enables a company to attract customers by

distinguishing itself from competitors.

Customer Intimacy

Operational Excellence

Product Leadership

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Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T rea surer C ontro ller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

Organizational Structure

An organization is a group of peopleunited for a common purpose.

An organization is a group of peopleunited for a common purpose.

Decentralizatio

n

decision–making

Decentralization

decision–making

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The Functional View of Organizations

Line positions are directly related to the 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.

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The Chief Financial Officer (CFO)

A member of the top management team which is responsible for: Providing timely and relevant data to support

planning and control activities. Preparing financial statements for external

users.

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A business process is a

series of steps that are followed in order to carry out some task in

a business.

Process Management

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Value Chain

ResearchResearchandand

ProductionProduction

ResearchResearchandand

ProductionProduction

ProductProductDesignDesignProductProductDesignDesign ManufacturingManufacturingManufacturingManufacturing MarketingMarketingMarketingMarketing DistributionDistributionDistributionDistribution

CustomerCustomerServiceService

CustomerCustomerServiceService

Business Functions Making Up the Value Chain

A value chain consists of the major business functions that add value to a

company’s products and services.

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Lean Production

Traditional Thinking

• Minimize unit costs by maximizing output.

• Keep everyone busy. Idleness wastes money.

• Push products through the system even if unsold inventory piles up in warehouses.

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Lean Production

Step 1 Identify value in

specific products/services

Step 2 Identify the

business process that delivers value

Step 3 Organize work arrangements

around the flow of the business

process

Step 4 Create a pull system that responds to

customer orders

Step 5 Continuously

pursue perfection in the business

process

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Supply Chain Management

The term supply chain management is commonly used to refer to the coordination of business

processes across companies to better serve end consumers.

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Theory of Constraints (TOC)

A sequential process of identifying and removing constraints in a system.

Restrictions or barriers that impedeprogress toward an objective

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Theory of Constraints (TOC)

Step 1 Identify the

weakest link in the chain, which is the

constraint

Step 2 Do not place a

greater strain on the system than the weakest link

can handle

Step 3 Concentrate improvement

efforts on strengthening the

weakest link

Step 4 If improvement

efforts are successful, the

weakest link will improve

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Six Sigma

A process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive

process improvements.

Six Sigma is sometimes

associated with the slogan zero defects.

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Six Sigma

The DMAIC framework is the most common framework used to guide Six Sigma process

improvement efforts.

DefineMeasureAnalyzeImproveControl

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Six Sigma

Six Sigma improvements can

only increase profits in two

ways:

1. Decrease costs

2. Increase sales

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Technology in Business

E-Commerce

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Most companies used to

implement specific software

programs to support specific

business functions.

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Enterprise Systems

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The Importance of Ethics in Business

Ethical practices in business build trust and promote productive relationships. They are necessary for the functioning

of a market economy.

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Code of Conduct for Management Accountants

Part One

Competence

Confidentiality

Integrity

Objectivity

Part One

Competence

Confidentiality

Integrity

Objectivity

Part Two

Resolution of Ethical Conflict

Part Two


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Standards of Ethical Conduct

Follow applicable laws, regulations and

standards.

Prepare complete and clear reports after appropriate

analysis.

Maintain professional competence.

Competence

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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 personal

advantage.

Confidentiality

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Integrity

Communicate unfavorable as

well as favorable information.

Refuse gifts or favors that might influence

behavior.

Avoid activities that could affect

your ability to perform duties.

Refrain from activities that

could discredit the profession.

Do not subvert organization’s

legitimate objectives.

Avoid conflicts of interest and advise others of potential

conflicts.

Recognize and communicate personal

and professional limitations.

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Objectivity

Communicate information fairly and objectively.

Disclose all information that might be useful to

management.

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Follow the established policies of the organization.

For unresolved ethical conflicts:

Discuss the conflict with immediate superior.





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Maintain confidentiality.

Clarify relevant ethical issues by confidential discussion with an objective advisor.

Consult your own attorney.

Resign.





Maintain confidentiality.

Clarify relevant ethical issues by confidential discussion with an objective advisor.

Consult your own attorney.

Resign.

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Codes of Conduct

CompanyMany companies have adopted formal

ethics codes of conducts that provide broad guidelines for proper behavior.

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Codes of Conduct

International

The International Federation of Accountants’ (IFAC) Guidelines on Ethics for Professional Accountants governs the

activities of all accountants throughout the world.

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Corporate Governance

Corporate governance is the system by which a company is

directed and controlled.

If properly implemented, it should provide incentives for the board

of directors and top management to pursue objectives that are in the interests of the company’s

owners and it should provide for effective monitoring of

performance.

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The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is 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.

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1.Requires CEO/CFO certification.

2.Establishes the PCAOB.

3.Places power to hire, compensate and terminate auditors with the audit committee.

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4.Prohibits a variety of non-audit services for audit clients.

5.Requires annual report on internal control.

6.Establishes severe penalties for criminal acts.

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Enterprise Risk Management

A process used by a company to

proactively identify the business risks that it faces and to

develop responses to those risks that

enable the company to be reasonably

assured of satisfying stakeholder

expectations.

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Enterprise Risk Management

Companies should identify foreseeable

risks before they occur. Once a risk

has been identified, a company can

respond in various ways such as

accepting, avoiding, sharing, or reducing

the risk.

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Examples of Business RisksExamples of Controls to Reduce

Business Risks

Intellectual assets being stolen from computer files

Create firewalls that prohibit computer hackers from computing or stealing intellectual property

Products harming customersDevelop a formal and rigorous new product-testing program

Losing market share due to the unforeseen actions of competitors

Formalize an approach for legally gathering information about competitors' plans and practices

Poor weather conditions shutting down operations

Develop contingency plans for overcoming any disruptions due to weather

A website malfunctioningDevelop a pilot testing program before going "live" on the Internet

A supplier strike halting the flow of raw materials

Establish a relationship with two companies capable of providing needed raw materials

An incentive compensation system causing employees to make poor decisions

Create a balanced set of performance measures that motivates the desired behavior

Financial statements unfairly reporting the value of inventory

Count the physical inventory on hand to make sure that it agrees with the accounting inventory

An employee stealing assets

Segregate duties so that the same employee does not have physical custody of an asset and the ability to account for it

An employee accessing unauthorized information

Create password-protected barriers that prohibit employees from obtaining information not needed to do their jobs

Inaccurate budget estimates causing excessive or insufficient production

Implement a rigorous budget review process

Failing to comply with equal employment opportunity laws

Create a report that tracks key metrics related to compliance with the laws

Identifying and

Controlling Business

Risks

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The Certified Management Accountant (CMA)

Rigorous Professional

Exam

Greater Responsibilities

Higher Compensation

Information about becoming a CMA and the CMA program can be accessed on the IMA’s

website at www.imanet.org or by calling 1-800-638-4427.

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End of Prologue

Prologue-1 Brewer/Garrison/Noreen Introduction to Managerial Accounting Third Edition.

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