Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

PrologueManagerial Accounting and the Business Environment

PowerPoint Authors:Jon A. Booker, Ph.D., CPA, CIACharles W. Caldwell, D.B.A., CMASusan Coomer Galbreath, Ph.D., CPA

Globalization

Reduction in tariffs and quotas

Improvements in global

transportation systems

Expansion of Internet usage

Increasing sophistication in

international markets

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The Global Marketplace

Companies that have been

successful in their local markets may

suddenly find themselves facing competition from

halfway around the globe.

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The Global Marketplace

New Markets

New Customers

New Workers

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StrategyA strategy is a “game plan” that enables

a company to attract customers by distinguishing itself from competitors.

Customer Intimacy

Operational Excellence

Product Leadership

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Corporate Organization Chart

Purcha sing Personnel V ice PresidentO pera tions

T rea surer C ontro ller

C hief F ina ncia lO fficer

President

B oa rd of D irectors

Organizational Structure

An organization is a group of people united for a common purpose.

An organization is a group of people united for a common purpose.

Decentralizatio

n

decision–making

Decentralization

decision–making

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The Functional View of Organizations Line positions are

directly related to the achievement of the basic objectives of an organization.

▫Example: Production supervisors in a manufacturing plant.

Staff positions support and assist line positions.

▫Example: Cost accountants in the manufacturing plant.

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The Chief Financial Officer (CFO)

A member of the top management team which is responsible for:▫ Providing timely and relevant data to support

planning and control activities.▫ Preparing financial statements for external

users.

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A business process is a

series of steps that are followed in order to carry out some task in

a business.

Process Management

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Value Chain

ResearchResearchandand

ProductionProduction

ResearchResearchandand

ProductionProduction

ProductProductDesignDesign

ProductProductDesignDesign ManufacturingManufacturingManufacturingManufacturing MarketingMarketingMarketingMarketing DistributionDistributionDistributionDistribution

CustomerCustomerServiceService

CustomerCustomerServiceService

Business Functions Making Up the Value Chain

A value chain consists of the major business functions that add value to a

company’s products and services.

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Lean Production

Traditional Thinking

• Minimize unit costs by maximizing output.

• Keep everyone busy. Idleness wastes money.

• Push products through the system even if unsold inventory piles up in warehouses.

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Lean Production

Step 1 Identify value in

specific products and services

Step 2 Identify the

business process that delivers value

Step 3 Organize work arrangements

around the flow of the business

process

Step 4 Create a pull system that responds to

customer orders

Step 5 Continuously

pursue perfection in the business

process

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Supply Chain ManagementThe term supply chain management is commonly

used to refer to the coordination of business processes across companies to better serve end

consumers.

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Theory of Constraints (TOC)

A sequential process of identifying and removing constraints in a system.

Restrictions or barriers that impedeprogress toward an objective

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Theory of Constraints (TOC)

Step 1 Identify the

weakest link in the chain, which is the

constraint

Step 2 Do not place a

greater strain on the system than the weakest link

can handle

Step 3 Concentrate improvement

efforts on strengthening the

weakest link

Step 4 If improvement

efforts are successful, the

weakest link will improve

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Six Sigma

Six Sigma is sometimes

associated with the slogan zero defects.

A process improvement method that relies on customer feedback and fact-based data gathering and analysis

techniques to drive process improvements.

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Six SigmaThe DMAIC framework is the most

common framework used to guide Six Sigma process improvement efforts.

DefineMeasureAnalyzeImproveControl

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Six Sigma

Six Sigma improvements can

only increase profits in two

ways:

1. Decrease costs

2. Increase sales

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The Importance of Ethics in BusinessEthical practices in business build trust and promote productive relationships. They are necessary for the functioning

of a market economy.

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Code of Conduct for Management Accountants – IMA’s Statement of Ethical Professional Practice

Part One

Competence

Confidentiality

Integrity

Credibility

Part One

Competence

Confidentiality

Integrity

Credibility

Part Two

Resolution of Ethical Conflict

Part Two

Resolution of Ethical Conflict

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Standards of Ethical Conduct

Competence

Maintain professional competence.

Follow applicable laws, regulations, and

standards.

Prepare accurate, clear, concise, and timely

decision support information.

Recognize and communicate professional

limitations that preclude responsible judgment.

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Standards of Ethical ConductDo not disclose confidential information unless legally

obligated to do so.

Ensure that subordinates do not disclose confidential

information.

Do not use confidential

information for unethical or

illegal advantage.

Confidentiality

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Standards of Ethical Conduct

Integrity

Mitigate conflicts of interest and advise others of potential conflicts.

Abstain from activities that might discredit the

profession.

Refrain from conduct that

would prejudice carrying out duties

ethically.

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Standards of Ethical Conduct

Credibility

Communicate information fairly and objectively.

Disclose all relevant information that could

influence a user’s understanding of reports

or recommendations.

Disclose delays or deficiencies in

information timeliness,

processing, or internal controls.

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Guidelines for Resolution of an Ethical Conflict

Resolution of Ethical Conflict

Follow the established policies of the organization.

For unresolved ethical conflicts:

Discuss the conflict with immediate superior.

Initiate discussion with levels above immediate supervisor only with the supervisor’s knowledge (assuming the supervisor is not involved).

Resolution of Ethical Conflict

Follow the established policies of the organization.

For unresolved ethical conflicts:

Discuss the conflict with immediate superior.

Initiate discussion with levels above immediate supervisor only with the supervisor’s knowledge (assuming the supervisor is not involved).

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Standards of Ethical Conduct

Resolution of Ethical Conflict (Continued)

▫ Maintain confidentiality.

▫ Clarify relevant ethical issues by confidential discussion with an objective advisor.

▫ Consult your own attorney.

Resolution of Ethical Conflict (Continued)

▫ Maintain confidentiality.

▫ Clarify relevant ethical issues by confidential discussion with an objective advisor.

▫ Consult your own attorney.

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Company Codes of Conduct

Many companies have adopted formal ethics codes of conducts that provide broad guidelines for proper behavior.

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Codes of Conduct on the International Level

The International Federation of Accountants’ (IFAC) Guidelines on Ethics for Professional

Accountants governs the activities of all accountants throughout the world.

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Corporate Governance

Corporate governance is the system by which a company is directed and controlled.

If properly implemented, it should provide incentives for the board of directors and top management to pursue objectives that are in the interests of the company’s owners and it should provide for effective monitoring of performance.

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The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 is intended to protect the interests of those who invest in publicly traded companies by improving the reliability and

accuracy of corporate financial reports and disclosures.

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The Sarbanes-Oxley Act of 2002

1.Requires CEO/CFO certification.

2.Establishes the PCAOB.

3.Places power to hire, compensate, and terminate auditors with the audit committee.

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The Sarbanes-Oxley Act of 2002

4.Prohibits a variety of non-audit services for audit clients.

5.Requires annual report on internal control.

6.Establishes severe penalties for criminal acts.

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Enterprise Risk Management

A process used by a company to proactively

identify the business risks that it faces and to develop responses

to those risks that enable the company to be reasonably assured

of satisfying stakeholder

expectations.

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Enterprise Risk Management

Companies should identify foreseeable

risks before they occur. Once a risk has been identified, a company

can respond in various ways such as

accepting, avoiding, sharing, or reducing the

risk.

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Examples of Business RisksExamples of Controls to Reduce

Business RisksIntellectual assets being stolen from computer files

Create firewalls that prohibit computer hackers from computing or stealing intellectual property

Products harming customers Develop a formal and rigorous new product-testing program

Losing market share due to the unforeseen actions of competitors

Formalize an approach for legally gathering information about competitors' plans and practices

Poor weather conditions shutting down operations

Develop contingency plans for overcoming any disruptions due to weather

A website malfunctioning Develop a pilot testing program before going "live" on the Internet

A supplier strike halting the flow of raw materials

Establish a relationship with two companies capable of providing needed raw materials

An incentive compensation system causing employees to make poor decisions

Create a balanced set of performance measures that motivates the desired behavior

Financial statements unfairly reporting the value of inventory

Count the physical inventory on hand to make sure that it agrees with the accounting inventory

An employee stealing assets Segregate duties so that the same employee does not have physical custody of an asset and the ability to account for it

An employee accessing unauthorized information

Create password-protected barriers that prohibit employees from obtaining information not needed to do their jobs

Inaccurate budget estimates causing excessive or insufficient production

Implement a rigorous budget review process

Failing to comply with equal employment opportunity laws

Create a report that tracks key metrics related to compliance with the laws

Identifying and

Controlling Business

Risks

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Corporate Social Responsibility

CSR extends beyond legal complianceto include voluntary actions that satisfy

stakeholder expectations.

CSR extends beyond legal complianceto include voluntary actions that satisfy

stakeholder expectations.

Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions.

Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions.

Customers Employees CommunitiesSuppliers StockholdersEnvironmental

& Human RightsAdvocates

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Companies should provide customers with: Companies and their suppliers should provide● Safe, high quality products that are fairly employees with: priced ● Safe and humane working conditions● Competent, courteous, and rapid delivery ● Non-discriminatory treatments and the of products and services right to organize and file grievances● Full disclosure of product-related risks ● Fair compensation● Easy to use information systems for ● Opportunities for training, promotion, shopping and tracking orders and personal developmentCompanies should provide suppliers with: Companies should provide communities with:● Fair contract terms and prompt payments ● Payment of fair taxes ● Reasonable time to prepare orders ● Honest information about plans such as ● Hassle-free acceptance of timely and plant closings complete deliveries ● Resources that support charities, schools,● Cooperative rather than unilateral and civic activities actions ● Reasonable access to media sourcesCompanies should provide stockholders with: Companies should provide environmental ● Competent management and human rights advocates with:● Easy access to complete and accurate ● Greenhouse gas emissions data financial information ● Recycling and resource conservation data● Full disclosure of enterprise risks ● Child labor transparency● Honest answers to knowledgeable ● Full disclosure of suppliers located in questions developing countries

Examples of Corporate Social Responsibility

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The Certified Management Accountant (CMA)

Rigorous Professional

Exam

Greater Responsibilities

Higher Compensation

Information about becoming a CMA and the CMA program can be accessed on the IMA’s

website at www.imanet.org or by calling 1-800-638-4427.

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End of Prologue

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