Chapter 1 - Chapter 1 M anager ial Accounting and the...

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Unformatted text preview: Chapter 1 M anager ial Accounting and the Business Envir onment Managerial Accounting Concerned with providing information to managers people inside an organization who direct and control operations. Comparison of Financial and Managerial Accounting Imports into the United States 300 US Imports (billions of $) 250 200 150 100 50 - Canada China Germany Japan Mexico United Kingdom 1990 1995 Years 2000 2004 Exports from the United States 200 US Exports (billions of $) 180 160 140 120 100 80 60 40 20 - Canada China Germany Japan Mexico United Kingdom 1990 1995 Years 2000 2004 Internet Usage The Internet fuels globalization by providing companies with greater access to geographically dispersed customers, employees, and suppliers. The number of internet users more than doubled during the first four years of the new millennium. Strategy A strategy is a "game plan" that enables a company to attract customers by distinguishing itself from competitors. The focal point of a company's strategy should be its target customers. Customer Value Propositions Customer Intimacy Strategy Understand and respond to individual customer needs. Operational Excellence Strategy Product Leadership Strategy Deliver products and services faster, more conveniently, and at lower prices. Offer higher quality products. Work of Management Planning Directing and Motivating Controlling Planning Identify alternatives. Select alternative that does the best job of furthering organization's objectives. Develop budgets to guide progress toward the selected alternative. Directing and Motivating Directing and motivating involves managing day-to-day activities to keep the organization running smoothly. Employee work assignments. Routine problem solving. Conflict resolution. Effective communications. Controlling The control function ensures that plans are being followed. Feedback in the form of performance reports that compare actual results with the budget are an essential part of the control function. Planning and Control Cycle Formulating longand short-term plans (Planning) Comparing actual to planned performance (Controlling) Exhibit 1-2 Begin Decision Making Implementing plans (Directing and Motivating) Measuring performance (Controlling) Organizational Structure Decentralization is the delegation of decisionmaking authority throughout an organization. C o r p o r a te O r g a n iz a tio n C h a r t B o a r d o f D ir e c to r s P r e s id e n t P u r c h a s in g P e rs o n n e l V ic e P r e s id e n t O p e r a tio n s C h ie f F in a n c ia l O ffic e r C o n tr o lle r T re a s u re r The Chief Financial Officer (CFO) A member of the top management team responsible for: Providing timely and relevant data to support planning and control activities. Preparing financial statements for external users. Line and Staff Relationships Line positions are directly related to 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. Process Management A business process is a series of steps that are followed in order to carry out some task in a business. R&D Product Design Customer Manufacturing Marketing Distribution Service Business functions making up the value chain Process Management There are three approaches to improving business processes . . . Theory of Constraints (TOC) Lean Production Six Sigma Traditional "Push" Manufacturing Company Forecast Sales Order components Store Inventory Make Sales from Finished Goods Inventory Store Inventory Produce goods in Anticipation of Sales Traditional "Push" Manufacturing Company Traditional "push" manufacturing Raw materials Materials waiting to be processed. Large inventories Work in process Finished goods Completed products awaiting sale. Partially completed products requiring more work before they are ready for sale. 1) Lean Production Identify value in specific products/services. Identify the business process that delivers value. Exhibit 1-6 The lean thinking model is a five step approach. Organize work arrangements around the flow of the business process. Continuously pursue perfection in the business process. Create a pull system that responds to customer orders. Lean Production The five step process results in a "pull" manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times. Customer Places an Order Create Production Order Generate Component Requirements Goods Delivered when needed Production Begins as Parts Arrive Components are Ordered Lean Production Lean thinking may be used to improve business processes that link companies together. The term supply chain management refers to the coordination of business processes across companies to better serve end consumers. 2) of Constraints A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success. The constraint in a system is determined by the step that has the smallest capacity. Theory of Constraints Only actions that strengthen the weakest link in the "chain" improve the process. 2. Allow the weakest link to set the tempo. 3. Focus on improving the weakest link. 4. Recognize that the weakest link is no longer so. 1. Identify the weakest link. 3) Six Sigma A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no more than 3.4 defects per million opportunities. Sometimes associated with the term zero defects. Six Sigma The Six Sigma DMAIC Framework Stage Goals Define Establish the scope and purpose of the project. Diagram the flow of the current process. Establish the customer's requirements for the process. Measure Gather baseline performance data related to the existing process. Narrow the scope of the project to the most important problems. Analyze Identify the root cause(s) of the problems identified in the Measure stage. Improve Develop, evaluate, and implement solutions to the problems. Control Ensure that problems remain fixed. Seek to improve the new methods over time. Exhibit 1-8 E-Commerce E-commerce refers to business conducted using the Internet. In addition to companies, traditional businesses, such as banks and retailers, continue to expand their Internet presence. The growth in e-commerce is occurring because the Internet has important advantages over more conventional marketplaces for many kinds of transactions. Enterprise Systems A single software system that integrates data across an organization, thereby enabling all employees to have simultaneous access to a common set of data. All data are recorded only once in the company's centralized database. The unique data elements contained within a database can be linked together. Code of Conduct for Management Accountants The Institute of Management Accountant's (IMA) Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management have two major parts, which offer guidelines for: Ethical behavior. Resolution for an ethical conflict. IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment. Maintain professional competence. Competence Provide accurate, clear, concise, and timely decision support information. Follow applicable laws, regulations and standards. IMA Guidelines for Ethical Behavior Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for unethical or illegal advantage. Confidentiality Ensure that subordinates do not disclose confidential information. IMA Guidelines for Ethical Behavior Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically. Integrity Abstain from activities that might discredit the profession. IMA Guidelines for Ethical Behavior Communicate information fairly and objectively. Disclose delays or deficiencies in information timeliness, processing, or internal controls. Credibility Disclose all relevant information that could influence a user's understanding of reports and recommendations. IMA Guidelines for Resolution of an Ethical Conflict Follow employer's established policies. For unresolved ethical conflicts: Discuss the conflict with immediate supervisor or next highest uninvolved manager. If immediate supervisor is the CEO, consider the board of directors or the audit committee. Contact with levels above the immediate supervisor should only be initiated with the supervisor's knowledge, assuming the supervisor is not involved. IMA Guidelines for Resolution of an Ethical Conflict For unresolved ethical conflicts (cont.): Except where legally prescribed, maintain confidentiality. Clarify issues in a confidential discussion with an objective advisor. Consult an attorney as to legal obligations. Why Have Ethical Standards? Ethical standards in business are essential for a smooth functioning advanced market economy. Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer. Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices. Company Codes of Conduct Broad-based statements of a company's responsibilities to: Employees Customers Suppliers And to the communities in which the company operates. Codes of Conduct on the International Level The Code of Ethics for Professional Accountants, issued by the International Federation of Accountants (IFAC), govern the activities of professional accountants worldwide. In addition to competence, objectivity, independence, and confidentiality, the IFAC's code deals with the accountant's ethical responsibilities in: Taxes Independence Fees and commissions Advertising and solicitation Handling of monies Cross-border activities. Corporate Governance The system by which a company is directed and controlled. Board of Directors Incentives and monitoring for Top Management To pursue objectives of Stockholders Corporate Governance An effective corporate governance system should also protect the interests of the company's other stakeholders. Employees Customers Creditors Suppliers And the communities in which the company operates. The Sarbanes-Oxley Acttoof 2002 The Sarbanes-Oxley Act of 2002 was intended protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures. Six key aspects of the legislation include: The Act requires both the CEO and CFO to certify in writing that their company's financial statements and disclosures fairly represent the results of operations. The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession. The Act places the power to hire, compensate and terminate public accounting firms in the hands of the audit committee. The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client. The Sarbanes-Oxley Act of 2002 The Act requires that a company's annual report contain an internal control report that is accompanied by an opinion from the company's audit firm about the fairness of that report. a. The Act establishes severe penalties for certain behaviors, such as: Up to 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding. Up to 10 years in prison for retaliating against a "whistle blower." Enterprise Risk Management A process used by a company to proactively identify and manage risk. Should I try to avoid the risk, share the risk, accept the risk, or reduce the risk? Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls. Enterprise Risk Management 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 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 passwords barriers that prohibit employees from obtaining information not needed to do their jobs ...
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