Week 1 - Introduction to Management Accounting

1. Week 1 - Introduction to Management Accounting strategy information technology chapter 1

2. Balanced Scorecard Financial Perspective Goals Measures Customer PerspectiveInternal Process Perspective Goals Measures Goals Measures Growth and Learning Perspective Goals Measures

3. Traditional Architecture Inventory Management Billing Finance Order Entry Accounts Receivable Interface Interface Interface Interface

4. Enterprise Resource Planning Inventory Management Billing Finance Order Entry Accounts Receivable Implementing SAP greatly reduces the number of interfaces and reconciliations Audit & Reconciliation

5. Chapter OneIntroduction: The Role, History, and Direction of ManagementAccounting

6. Learning Objectives • Explain the need for management accounting information. • Explain the differences between management accounting and financial accounting. • Provide a brief historical description of management accounting. • Identify and explain the emerging themes of management accounting. • Describe the role of management accountants in an organization.

7. Learning Objectives (continued) • Explain the importance of ethical behavior for managers and management accountants. • Identify the three forms of certification available to management accountants.

8. Management Accounting Information Systems Special Reports Product Costs Customer Costs Performance Reports Personal Communication Collecting Measuring Storing Analyzing Reporting Managing Economic Events Inputs Processes Outputs Users

9. Accounting Information Needs of Managers • Managers need accounting information and need to know how to use it. • Accounting information can help managers identify problems, solve problems, and evaluate performance. • Accounting information is used in all organizations: manufacturing, merchandising, and service.

10. Conceptual Framework of Management Accounting • Cost Accounting Systems (Part I of Text) • Managerial Decision Making (Part II of Text) • Planning & Control Systems (Part III of Text)

11. Conceptual Framework of Management Accounting (cont’d) • Cost Accounting Systems (Part I of Text) • ‘Know your costs’ • The how to of ‘cost accumulation & allocation’

12. Conceptual Framework of Management Accounting (cont’d) • Managerial Decision Making (Part II of Text) • ‘What difference will it make’ when a choice is to be made between alternative courses of action? • We assume economically-rational organizations and de-emphasize the role of individual decision-makers

13. Conceptual Framework of Management Accounting (cont’d) • Planning & Control Systems (Part III of Text) • Focus on how organizations run by delegation & accountability • Information asymmetry (subordinate knows what superior does not know) results in problems of harmony of objectives. We assume economically rational decision makers who have their own goals within the organization

14. Financial and Management Accounting Management Accounting Financial Accounting Accounting Information System 1. Internal focus 2. Limited rules 3. Future oriented 4. Internal evaluation 5. Detailed information about segments 6. Broad, covers many many disciplines 1. External focus 2. Rigid rules 3. Historical focus 4. External evaluation 5. Information about the whole firm 6. More self-contained

15. The History of Management Accounting Management accounting developed to meet management’s needs for information as complexity and uncertainty increased with geographical expansion and product diversification

16. Most Innovative in Management? Peter Drucker, in “The Emerging Theory of Manufacturing,” HBR, May-June, 1990, pp.94-102), made the following comment: “The most exciting and innovative work in management today is found in accounting theory, with new concepts, new methodology --even what might be called new economic philosophy --rapidly taking shape. And while there is enormous controversy over specifics, the linaments of the new manufacturing accounting are becoming clearer every day.”

17. Emerging Themes of Management Accounting • Customer Orientation • Cross-functional Perspective • Global Competition • Total Quality Management • Time as a Competitive Element • Advances in Information Technology • Advances in the Manufacturing Environment • Deregulation and Growth in the Service Industry • Activity-based Management

18. The Accounting Function in a Manufacturing Organization President Production Vice-president Financial Vice-president Controller Machining Supervisor Assembly Supervisor Treasurer Controller’s Functions Treasurer's Functions

19. Role of Controller and Treasurer Controller Treasurer 1. Financial reports 2. Securities commission reporting 3. Tax planning and reporting 4. Performance reporting 5. Internal auditing 6. Budgeting 7. Accounting systems and internal controls 1. Collection of cash 2. Monitoring of cash payments 3. Monitors cash availability 4. Short-term investments 5. Short and long-term borrowing 6. Issuing of capital stock

20. Management Accounting and Ethical Conduct • Abuse of accounting information • Acceptance of bribes or gifts • Conflict of interest • Disclosure of confidential information Some Types of Unethical Conduct

21. Standards of Ethical Conduct for Management Accountants • Competence • Confidentiality • Integrity • Objectivity Ethical Behavior

22. Standard No. 1--Competence Management Accountants have a responsibility to • Maintain professional competence. • Perform professional duties in accordance with relevant laws, regulations, and technical standards. • Prepare complete and clear reports and recommendations.

23. Standard No. 2--Confidentiality Management Accountants have a responsibility to • Refrain from disclosing confidential information. • Inform subordinates as to how to handle confidential information. • Refrain from using confidential information for unethical or illegal advantage.

24. Standard No. 3--Integrity Management Accountants have a responsibility to • Avoid conflicts of interest. • Refrain from activity that would prejudice their ability to carry out their duties. • Refuse gifts, favors, or hospitality that would influence their actions. • Recognize and communicate professional limitations that would preclude responsible judgment. • Communicate unfavorable as well as favorable information. • Refrain from engaging in or supporting any activity that would discredit the profession.

25. Standard No. 4--Objectivity Management Accountants have a responsibility to • Communicate information fairly and objectively. • Disclose fully all relevant information that could reasonably be expected to influence user's understanding of the reports, comments, and recommendations presented.

26. Resolving Ethical Conflict Courses of action • Discuss problems with immediate supervisor except when it appears the superior is involved. • If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners. • Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action. • If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse but to resign. • Except where legally prescribed, communication of such problems with external parties is not appropriate.

27. Professional Designations • CA- The distinguishing characteristic of the profession is its unchallenged right to provide assurance concerning the reliability of financial statements to external parties. • CMA-The distinguishing characteristic of the profession is its upholding of management accounting as a recognized, professional discipline, separate from public accounting. • CGA- CGA’s can specialize in financial, managerial, or tax accounting but the right to audit financial statements is somewhat restricted.

28. Questions from the Back of Chapter 1 • Questions for writing and discussion • Warmup exercises • Exercises • Problems • Managerial decision cases

29. The End