Chapter 1

Managerial Accounting & the

Business Environment
 Managerial Accounting and
Financial Accounting

Managerial accounting Financial accounting

provides information provides information
for managers inside an to stockholders,
organization who creditors and others
direct and control who are outside
its operations. the organization.

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 Differences Between 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. Requirements Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format

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 Organizational Structure
Decentralization is the delegation of decision-making
authority throughout an organization.

Corporate Organization Chart

Board of Directors

President

Purchasing Personnel Vice President Chief Financial

Operations Officer

Treasurer Controller

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 Line and Staff Relationships
Line positions are directly
related to achievement of
basic product objectives
of an organization.
 Example: Production
supervisors in a
manufacturing plant.
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Staff positions support and
assist line positions.
 Example: Cost
accountants in the
manufacturing plant.
 Marketing, sales, admin.
 Executive management
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 Management Accountants

Help management pursue the firm’s goals

Internal consultants or business analysts
Time spent interpreting data vs creating it
Physically positioned in operating department
Work on cross-functional teams
Extensive face-to-face communications
Actively involved in decision making
Trusted advisors

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 The Changing Business
Environment

Growth of the internet

Accelerated pace in
innovation of products Business environment
and services changes in the past
International competition twenty years

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 The Changing Business
Environment

New tools for

managers!

Just-In-Time
Total Quality
Management
Process Reengineering
Theory of Constraints

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 Just-in-Time (JIT) Concept

Receive
customer Complete products
orders. just in time to
ship customers.

Schedule
production,
pull system.

Receive materials Complete parts

just in time for just in time for
production. assembly into products.

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 JIT Requirements

Focused Zero production

factory layout defects

Reduced Flexible
setup time workforce

JIT purchasing
Fewer, but more ultra-reliable suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
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 Benefits of a JIT System

Reduced Freed-up funds

inventory Freed-up space
costs

Greater
Higher quality customer
products satisfaction

More rapid
Increased response to
throughput customer orders

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 Total Quality Management
“Do it right the first time”
Where are we?
Benchmarking
Where do we want to go?
Plan

Do we need How do
to change Act Do we start?
the plan? is
Collect data

Check Continuous
Improvement
How are we doing?
Evaluate data.
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 Process Reengineering

Anticipated results:
A business process Process is simplified.
is diagrammed Process is completed
in detail. in less time.
Costs are reduced.
Opportunities for
errors are reduced.

Every step in The process is

the business redesigned to include
process must only those steps that make
be justified. our product more valuable.
Eliminate non-value added
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 Theory of Constraints

A sequential process of identifying and removing

constraints in a system.

Restrictions or barriers that impede

progress toward an objective

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 Theory of Constraints

Only actions
2. Identify
that strengthen
the weakest link process
in the “chain” constraints
improve the
process.

1. Measure 3. Eliminate
process bottlenecks
capacity

4. Coordinate
processes
See Exh 1-5, Pg 22
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 Importance of Ethics
in Accounting
Ethical accounting practices build trust and
promote loyal, productive relationships with
users of accounting information.
Many companies and professional
organizations, such as the Institute
of Management Accountants (IMA),
have written codes of ethics which
serve as guides for employees.
 Code of Conduct for Management
Accountants
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 IMA Code of Ethics for
Management Accountants

Four broad areas of

responsibility:
Maintain a high level of
professional competence
Treat sensitive matters with
confidentiality
Maintain personal integrity
Be objective in all
disclosures

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 IMA Code of Ethics for
Management Accountants
Follow applicable laws,
regulations and
standards.

Maintain
professional Competence
competence.

Prepare complete and clear

reports after appropriate
analysis.
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 IMA Code of Ethics for
Management Accountants
Do not disclose confidential
information unless legally
obligated to do so.

Do not use
confidential
information for Confidentiality
personal
advantage.

Ensure that subordinates do

not disclose confidential
information.
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 IMA Code of Ethics for
Management Accountants
Avoid conflicts of interest
and advise others of
potential conflicts.

Do not subvert
organization’s
legitimate Integrity
objectives.

Recognize and
communicate personal and
professional limitations.
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 IMA Code of Ethics for
Management Accountants
Avoid activities that could
affect your ability to
perform duties.

Refrain from Refuse gifts

activities or favors
that could Integrity that might
discredit the influence
profession. behavior.

Communicate
unfavorable as well as
favorable information.
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 IMA Code of Ethics for
Management Accountants

Communicate information
fairly and objectively.

Objectivity

Disclose all information

that might be useful to
management.

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 IMA Code of Ethics for
Management Accountants
Resolution of Ethical Conflict
Follow established policies.
For unresolved ethical conflicts:
 Discuss the conflict with immediate
superior.
 If supervisor involved, go up chain
 If immediate superior is the CEO,
consider the board of directors or
the audit committee.
 Except where legally prescribed,
maintain confidentiality.
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 IMA Code of Ethics for
Management Accountants
Resolution of Ethical Conflict
Clarify issues in a confidential
discussion with
an objective advisor.
Consult an attorney as to legal
obligations.
The last resort is to resign.

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 End of Chapter 1

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