1-11 - 1111111h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 1

1-11 - 1111111h11111ythtrCopyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 1


Chapter 1

Managerial Accounting, the Business Organization, and

Professional Ethics

Managerial Accounting, the Business Organization, and

Professional Ethics

Chapter 1


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


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


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


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:


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.


Process of gathering, organizing, and communicating financial information

Accounting Information System

Roles of Accounting InformationLearningObjective 2


Scorekeeping: Evaluate

organizational performance Attention Directing:

Compare actual results to expected

Problem Solving: Assess possible courses of action

Roles of Accounting Information


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.


The Nature of Planning and Controlling


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


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


Influences on Accounting Systems

Generally accepted accounting principles (GAAP)

Foreign Corrupt Practices Act

Internal controls

Management audits

Sarbanes-Oxley ActInternal auditors


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.


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


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


The Value Chain

Customer Focus

Research and

Development

Research and

Development

ProductAnd

Service or

ProcessDesign

ProductionMarketing

Distribution

Customer Service

LearningObjective 5


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


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.


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)


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:


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.


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


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


IMA Statement of Ethical Professional Practice


IMA Statement of Ethical Professional Practice (cont’d)


Ethics

No regulation can be as effective in ensuring reliability as high

ethical standards of accountants.

IntegrityTrust

Reliability


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.


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.


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