ACCOUNTING &

BUSINESS DECISIONS

ACTG 6910

Presented by Charles Kile, Ph.D.

Professor of AccountingMiddle Tennessee State University

4:20 pm - 5:40 pmBUSINESS AND AEROSPACE BUILDING S314

Required Textbook:

Accounting for Decision Making & Control by Jerold Zimmerman, 8th editionISBN: 9780078025747 Copyright year: 2013;

Available through the campus bookstore. 

Optional Reading: “Guests of the Kremlin”By Robert G. EmmensThe updated and reprinted Guests of the Kremlin was reprinted in 2007 by Ishi Press with Pictures, Maps and Introductions.

Available in Paperback, 342 Pages, ISBN-13: 978-0-923891-81-7, ISBN: 0-923891-81-1 

Do you ever wonder why there are so many accountants?

Do you ever wonder why accounting is so prevalent throughout our society?

Let’s “Put the Accountants Out of Business”

WHY ARE THERE SO MANY ACCOUNTANTS?

WHY ACCOUNTING?

Accounting is part of the system that helps determine . . .

Who makes decisions over resources

What those people do with the resources

We Live in a Finite World

• There are few, if any resources that are infinite (plentiful);

• Most are finite (limited).• Such limitations impose severe

restrictions (binding constraints) upon what we can do.

Two Compelling Questions

• Because of such limitations in the physical world within which we live, the two most compelling issues at any level in life are probably

• Who makes decisions over resources?• What do those people decide to do

with those resources?

Organizations Don’t Make Decisions!

People within organizations Do

Most decisions made by people within the organizations are not what a rational, altruistic, value-maximizing government or organization would make.

Why People within Organizations Make Suboptimal Decisions

• Human psychology does not lend itself to making rational decisions.

• People making the decisions do not have the incentives to make decisions that maximize the organization’s value.

People within Organizations Make Suboptimal Decisions

• Human psychology does not lend itself to making rational decisions.

• People making the decisions do not have the incentives to make decisions that maximize the organization’s value.

EXAMPLES

Chinese Government 1949

Mao Zedong proclaims that China will be under the “leadership of the Communist Party of China”

Tiananmen Square, BeijingOctober 1, 1949

Agrarian Reform Law 1950

• Land was to be taken and “given” to the peasants

• Over 1 million landowners were executed.

• Most of the remaining were “reeducated”

Redistribution of LandOver 300 million peasants became landowners over the next two years.

• People happily received free land and Mao gained their support.

Collective Farm Program 1953

People share the work on the land within their collective.

• People are organized into “collectives”• But, collectives did not lead to increased

production.

The Great Leap Forward 1958

Mao abandons the strict Soviet model for a pure Communist design.Cooperatives are replaced with Communes.Everything comes under complete government control.

China’s Entire Economy was to be Built on . . .

STEEL

GRAIN

Mao Introduces RevolutionaryNew Farming Methods

People share the work on the land within their collective.

• Land ownership illegal. • The government owns the land• People are organized into “collectives”

The Great Leap to Somewhere

The Great Leap Forward launches the largest peacetime mobilization of personnel as Mao removes 50 million people from the farms and reassigns them to construction projects.

Estimated Grain OutputDuring China’s

Great Leap Forward

The Great Leap Forward: Anatomy of a Central Planning DisasterWei LiUniversity of Virginia, Cheung Kong Graduate School of Business, and Centre for Economic Policy ResearchDennis Tao YangVirginia Polytechnic Institute &State University

People are Instructed to Bring the Excess Grain to be Exported

Unfortunately, there was no excess grain.

Instead, there was a shortage.

However, grain was exported anyway on the basis of fabricated results.

Making the Great Famine the deadliest disasterin history.

Between 30 and 42 million people starved as a direct result of Mao’s resource management.

“Steel” Production in China

Backyard furnaces were prevalent throughout every commune.

While people starve,90 million workers are diverted to a misguided national effort to overtake the Western industrialized nations in steel production.