The Accountant’s Role in the Organization

1. The Accountant’s Rolein the Organization Chapter 1 1/31/05

2. Learning Objective 1 Describe how cost accounting supports management accounting and financial accounting.

3. Management Accounting It measures and reports financial and nonfinancial information that helps internal managers make decisions to fulfill the goals of an organization.

4. Financial Accounting Its focus is on reporting to external parties. It measures and records business transactions. It provides financial statements based on generally accepted accounting principles.

5. Cost Accounting It provides information for both management accounting and financial accounting. It measures and reports financial and nonfinancial data relating to the cost of acquiring or using resources of the firm.

6. Cost Management It describes the activities of managers in short-term and long-term planning and control of costs. It includes the continuous reduction of costs. It is a key part of general management strategies and their implementation.

7. Learning Objective 2 Understand how management accountants affect strategic decisions.

8. Strategic Cost Management Developing strategy Providing quality products at low cost Providing unique products or services Building resources and capabilities Implementing strategy

9. Strategic Cost Management Building resources and capabilities to meet the firm’s objectives in the Marketplace Current Assets Long-Term Productive Assets Intangible Assets Cash Accounts Receivable Inventory Patents, trademarks, research capability, distribution network Machinery & Equip, Buildings, Computers, Software

10. Learning Objective 3 Distinguish between the planning and control decisions of managers.

11. Planning and Controlling Management Decision Management Accounting System Planning Budgets Feedback Accounting System Control Performance Evaluation Performance Reports

12. Planning and Controlling What is planning? Setting goals Predicting results Deciding how to attain goals Communicating the goals to the entire organization

13. Planning and Controlling What is control? Deciding and taking actions Deciding on performance evaluation and feedback

14. Planning and Controlling What are budgets? They are quantitative expressions of a proposed plan of action. They aid in the coordination and implementation of the plan.

15. Planning and Controlling What are performance reports? These are reports that compare actual results with budgeted amounts. Evaluation of actual performance versus budget

16. Performance Report Example Boone Shop, July 2003 BudgetActualVariance Revenues $59,000 $60,000 $1,000 F Cost of goods sold 42,000 43,400 1,400 U Wages 6,700 7,000 300 U General 1,300 900 400 F Fixed costs 5,000 5,000 0 Operating income $ 4,000 $ 3,700 $ 300 U

17. Performance Report Example Actual cost of goods sold were 72% of revenues instead of the budgeted 71%. Budget%Actual% Revenues $59,000 100 $60,000 100 Cost of goods sold 42,000 71 43,400 72 Gross margin $17,000 29 $16,600 28

18. Feedback This involves managers examining past performance and systematically exploring alternative ways to make better informed decisions in the future. Why did cost of goods sold increase? How can that be prevented in the future?

19. Learning Objective 4 Distinguish among the problem- solving, scorekeeping, and attention-directing roles of management accountants.

20. Problem Solving This involves comparative analysis for decision making. This role asks: Of the several alternatives available, which is the best? Which computer system should we buy? Which product line should we emphasize? Which plant should be shut down?

21. Scorekeeping This involves accumulating data and reporting reliable results to all levels of management. This role asks: How is the business doing? Are we generating enough sales? Are our costs under control? Are we generating sufficient cash flow?

22. Attention Directing This involves helping managers properly focus their attention. This role asks: Which opportunities and problems should be emphasized first. Attention directing should focus on all opportunities to add value to an organization, not just cost-reduction opportunities.

23. Learning Objective 5 Identify four themes managers need to consider for attaining success.

24. 1. Customer Focus The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained. Adding value for the customer. i.e., frequent flyer miles

25. 2. Value Chain Analysis This theme has two related aspects: 1. Treat each of the business functions in the value chain as an essential and valued contributor. See Exhibit 1-4, page 10 2. Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function.

26. 3. Key Success Factors These are operational factors that directly affect the economic viability of the organization. Cost– organizations are under continuous pressure to reduce costs. Quality – customers are expecting higher levels of quality.

27. 3. Key Success Factors Time – organizations are under pressure to complete activities faster and to meet promised delivery dates more reliably. Innovation – there is now heightened recognition that a continuing flow of innovative products or services is a prerequisite to the ongoing success of most organizations.

28. Continuous Improvementand Benchmarking Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organizations. You must keep up or stay ahead!

29. Learning Objective 6 Describe the set of business functions in the value chain.

30. Value Chain The term “value chain” refers to the sequence of business functions in which usefulness is added to the products or services of an organization. The term “value” is used because as the usefulness of the product or service is increased, so is its value to the customer.

31. Value Chain Management accountants provide decision support for managers in the following six business functions:

32. Value Chain R & D Design Production Management Accounting Marketing Distribution Service

33. Value Chain Functions Research and Development It is the process that is conducted to generate and experiment with ideas related to new products, services, or processes. These ideas may or may not result in new products.

34. Value Chain Functions Design It is the detailed planning and engineering of ideas that will become new products, services, or processes. How to configure the product, how to build it, what features it will have, functionality, efficient use of resources, etc.

35. Value Chain Functions Production It is the acquisition, coordination, and assembly of resources to produce a product or deliver a service. Raw materials, machinery and equipment, facilities, skilled workers, etc.

36. Value Chain Functions Marketing It is the manner by which companies promote and sell their products or services to customers or prospective customers. Advertising, direct contact, market research, beta sites, etc.

37. Value Chain Functions Distribution It is the delivery of products or services to the customer. Direct sales, distribution network, retail outlets, E-Commerce, etc.

38. Value Chain Functions Service It is the after-sale support activities provided to customers. Includes warranty, product support, updates to software, hotline for problem solving, etc.

39. Learning Objective 7 Describe three ways management accountants support managers.

40. Key Guidelines 1. Cost-benefit approach 2. Full recognition of behavioral as well as technical considerations 3. Using different costs for different purposes

41. Cost-Benefit Approach A cost-benefit approach should be used in order to spend resources if they promote decision making that better attains organization goals in relation to the costs of those resources used. For example, will I earn more than what it costs me to make it? Would a new budget process provide more benefit that it would cost?

42. Behavioral and TechnicalConsiderations A management accounting system should have two simultaneous missions for providing information: 1. To help managers make wise economic decisions 2. To help managers and other employees to aim and strive for goals of the organization, add value to products and help employees perform better.

43. Different Costs forDifferent Purposes A cost concept used for the external reporting purpose need not be the appropriate concept for the purpose of internal routine reporting to managers. We do not have to follow GAAP for internal reporting purposes. So we can use various non-GAAP cost systems to evaluate performance within the firm.

44. Learning Objective 8 Understand how cost management accounting fits into an organization’s structure.

45. Organization Chart

46. Controller’s Responsibilities(Chief Accounting Officer)

47. Learning Objective 9 Understand what professional ethics mean to management accountants.

48. Professional Ethics Competence Integrity Confidentiality Objectivity

49. Competence • Maintain level of professional competence, i.e. continuing professional education • Perform duties in accordance with relevant laws, regulations and standards • Prepare complete and clear reports supported by relevant and reliable information

50. Integrity • Avoid actual or apparent conflicts of interest • Refuse any gift or favor that would appear to influence your behavior or actions • Do not subvert the goals of the organization • Realize and communicate professional limitations • Communicate unfavorable as well as favorable info • Refrain from actions that would discredit the firm • Do not engage in any unethical activities