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1-11 - 1111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 1
1-11 - 2111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 2
Chapter 1
Managerial Accounting, the Business Organization, and
Professional Ethics
Managerial Accounting, the Business Organization, and
Professional Ethics
Chapter 1
1-11 - 3111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 3
When you have finished studying this chapter, you should be able to:
1.Explain why accounting is essential for decision makers and managers.
2. Describe the major users and uses of accounting information.
3. Explain the role of budgets and performance reports in planning and control.
Chapter 1 Learning Objectives
1-11 - 4111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 4
4. Describe cost-benefit and behavioral issues involved in designing an accounting system.
5. Discuss the role accountants play in the company’s value-chain functions.
6. Identify current trends in management accounting.
7. Explain why ethics and standards of ethical conduct are important to accountants.
Chapter 1 Learning Objectives
1-11 - 5111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 5
Why Accounting is Essential for Decision Makers and Managers
Planning describes how the organization will achieve its objectives.
Accounting information is used in decision making for planning and
control.
Control is the processof implementing plansand evaluating if objectives are achieved.
LearningObjective 1
1-11 - 6111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 6
Users of Accounting Information
Managers
Stockholders, Suppliers,
Banks, Government
Authorities
Process of identifying, measuring, accumulating,analyzing, preparing, interpreting, and communicating information used by:
Management Accounting
Financial Accounting
Develops information for external decision makers:
1-11 - 7111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 7
Management Accounting and Your Career
The Certified Management Accountant (CMA)
CMAs must pass an examination covering
(1)Financial planning, performance
and control, and
(2) Financial decision making.
1-11 - 8111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 8
Process of gathering, organizing, and communicating financial information
Accounting Information System
Roles of Accounting InformationLearningObjective 2
1-11 - 9111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 9
Scorekeeping: Evaluate
organizational performance Attention Directing:
Compare actual results to expected
Problem Solving: Assess possible courses of action
Roles of Accounting Information
1-11 - 10111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 10
Planning and Control
Accounting information helps managers plan and control the organization’s operations.
Planning: Setting objectives and outlining how the objectives will be obtained.
Control: Implementing plans and using feedback to evaluate the attainment of objectives.
1-11 - 11111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 11
The Nature of Planning and Controlling
1-11 - 12111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 12
Budget and Performance Reports
Budget: quantitative expression of a plan of action
Performance reports: compare actual results with budgeted amounts provide feedback by comparing results with plans highlight variances
Variances: deviations from plans
LearningObjective 3
1-11 - 13111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 13
Performance Reports
Budget Actual VarianceSales $50,000 $50,000 0Less:
Ingredients 22,000 24,500 $2,500 UStore labor 12,000 11,600 400 F Other labor 6,000 6,050 50 UUtilities, etc. 4,500 4,500 0
Total expenses $44,500 $46,650 $2,150 UOperating income $ 5,500 $ 3,350 $2,150 U
U= Unfavorable – actual exceeds budgetF – Favorable – actual is less than budget
Mayfair Starbucks Store, March 31, 20X1
1-11 - 14111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 14
Influences on Accounting Systems
Generally accepted accounting principles (GAAP)
Foreign Corrupt Practices Act
Internal controls
Management audits
Sarbanes-Oxley ActInternal auditors
1-11 - 15111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 15
Sarbanes-Oxley Act Sarbanes-Oxley Act
In 2002, the Sarbanes-Oxley Act requiredchief executive officers to sign a
statement verifying the accuracy ofthe company’s financial statements.
In 2002, the Sarbanes-Oxley Act requiredchief executive officers to sign a
statement verifying the accuracy ofthe company’s financial statements.
External auditors must examine and report on the company’s internal control system.
External auditors must examine and report on the company’s internal control system.
1-11 - 16111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 16
Cost-Benefit and Behavioral Considerations
Cost-benefit balance
Behavioral implications
Weigh estimatedcosts against
probable benefits.
The system must provide accurate, timely budgets and performance reports in a form useful to managers.
Managers must use accounting reports, or the reports
create no benefits.
LearningObjective 4
1-11 - 17111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 17
Product Life Cycle
Product life cycle refers to the variousstages through which a product passes.
No Sales Sales Growth Stable Sales Level Low sales No sales
ProductDevelopment
Introduction to Market Mature Market
Phase out Product
1-11 - 18111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 18
The Value Chain
Customer Focus
Research and
Development
Research and
Development
ProductAnd
Service or
ProcessDesign
ProductionMarketing
Distribution
Customer Service
LearningObjective 5
1-11 - 19111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 19
Accounting’s Position in the Organization
Preparesstandardized
reports
Collectsand compiles information
Interprets and analyzes information
Is involved in decision making
Management accountant’s role as consultant
1-11 - 20111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 20
Line and Staff AuthorityLine and Staff Authority
Line managers: directly involved with
making and selling products or services.
Staff managers: Advisory – support line managers.
Cross-functional teams: Found in modern, “flatter” organizations; Functional areas work together
in decision-making process.
1-11 - 21111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 21
Controller and Treasurer Function
Planning for control Reporting and interpreting Evaluating and consulting Tax administration Government reporting Protection of assets Economic appraisal
Treasurer Functions
Provision of capital Investor relations Short-term financing Banking and custody Credits and collections Investments Risk management (insurance)
Controller Functions
Chief Financial Officer (CFO)
1-11 - 22111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 22
Current Trends in Management Accounting
Shifting from a manufacturing-basedto a service-based economy
Increased global competition
Advances in technology
Changes in business processes
LearningObjective 6
Adaption to changes:
1-11 - 23111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 23
Current Trends in Management Accounting
The service sector now accounts for more than 80% of the employment in the United States.
Common characteristics of service organizations
1. Labor is a major component of costs.2. Output is usually difficult to measure.3. Service organizations cannot store their
major inputs and outputs.
1-11 - 24111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 24
Major Influences on Management Accounting
Business process reengineering:Just-in-time (JIT) philosophy
Lean manufacturingComputer-integrated manufacturing
Six sigma
Advances in technology:E-commerce
Enterprise resource planning (ERP)B2C and B2B
1-11 - 25111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 25
Standards of Ethical Conduct
The Institute of Management Accountants (IMA)Statement of Ethical Professional Practice for
Management Accounting MembersRequires members to adhere
to a code of conduct regarding: Competence,
Confidentiality, Integrity, and
Credibility.
LearningObjective 7
1-11 - 26111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 26
IMA Statement of Ethical Professional Practice
1-11 - 27111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 27
IMA Statement of Ethical Professional Practice (cont’d)
1-11 - 28111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 28
Ethics
No regulation can be as effective in ensuring reliability as high
ethical standards of accountants.
IntegrityTrust
Reliability
1-11 - 29111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 29
Ethical Dilemmas
Managers must choose an alternative and there are:
Significant value conflicts among differing interests.
Real alternatives that are all justifiable, and
Significant consequences on stakeholders in the situation.
1-11 - 30111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 30
Unethical Behavior Temptations
1. Emphasis on short-term results: Pressure to meet expected profit numbers.
2. Ignoring the small stuff: Large misdeeds often result from many small ones.
3. Economic cycles: Downturn markets reveal what an upturn market conceals. Vigilance in all stages of economic markets maintains high ethical standards.
4. Accounting rules: Avoid creative interpretations of the rules. Practice
full and fair disclosure to convey company’s performance.
1-11 - 31111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 31
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.