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Management Accounting Lecture 1 (Prologue)

An Introduction to Managerial Accounting

Bangor University Transfer Abroad Programme

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Today’s Agenda

What is Managerial Accounting? About me and why I’m here About you and why you are here Course outline and process Get started

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What is Managerial Accounting?

n  The capture and analysis of information (financial and operational) that can be used to support the planning, executing and controlling of an organization

n  Its audience is internal to the organization, as opposed to financial accounting, which addresses external audiences

n  Managerial accountants provide the reports and analysis to help business leaders make decisions to maximize value over time

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About Your Lecturer

n  Education n  BA in Economics, Chr. Hogeschool Windesheim, The

Netherlands, n  LL.M., Katholieke Univesiteit Nijmegen, The Netherlands n  MM, Universiteit van Utrecht, Utrecht, The Netherlands n  MBA in Leadership & Sustainability, University of Cumbria, UK

n  Profession n  Owner of small Consulting Firm n  Mergers & Acquisitions, Financings, Restructurings …..

n  Experience n  Ernst & Young, ESJ, Thomas Cook, independent clients….

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About Your Lecturer

n  Importance of Managerial Accounting to my role n  Critical to understanding the financial state of a business n  Provides a framework for forecasting n  A tool for optimizing a business (together with market analysis) n  Assess value of the business

n  If you need me: n  olivier.edu@gmail.com n  Mobile 1 874 941 9126

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Why I am Here

n  This is a tremendous time for China …

n  …. and as its future business leaders, a tremendous opportunity for you

n  As participants in the global economy, my clients are very interested in doing business with China

n  It’s a great opportunity for me to be here with you and share my experiences.

n  I look forward to also learning from you

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Why Are You Here?

It is helpful for me to understand your motivations in order to best tailor the course to your needs.

n  Educational objectives?

n  Career objectives?

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Course Outline

n  Objective: To provide a core understanding of managerial accounting, its techniques, calculations and analysis

n  Text: Brewer (6th edition, Introduction to Managerial Accounting) n  Major subjects:

n  Costs – types and behaviour n  Accounting Systems – types and circumstances n  Financial Forecasts/Budgeting n  Analysis for Superior Decision Making

n  Lectures, Tutorials, Self Study n  Assessment

n  Participation n  Mid-Term Exam – 30% n  Final Exam – 70%

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Participation

n  Attendance

n  Answering questions in class and tutorials

n  Asking questions in class and tutorials

n  Homework completion

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Mid-Term Exam – 30%

n  Subject matter: n  Brewer Chapters 13, 14, 1 to 3 n  Materials covered in class and tutorials

n  Short answers and problem solving n  Emphasis on ability to apply judgment

n  Friday - May 24, 2013 n  2 hour

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Final Exam – 70%

n  Subject matter: n  Brewer Chapters 1, 2, 3, 4, 7, 8, 9 and 11 n  Materials covered in class and tutorials n  Problem solving

n  Applying knowledge to specific challenges

n  Multiple choice n  Demonstrating an ability to apply judgment

n  Friday – June 7, 2013 n  2 hours

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Let’s Get Started

n  Objectives and Relevance of Managerial Accounting

n  Globalization

n  Organizational Structure

n  Process Management

n  Importance of ethics in business

n  Corporate governance

n  Enterprise risk management

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Financial and Managerial Accounting: Seven Key Differences

Financial Accounting Managerial Accounting1. Users External persons who Managers who plan for

make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on versus relevance objectivity and verifiability relevance

4. Precision versus Emphasis on Emphasis on timeliness precision timeliness

5. Subject Primary focus is on Focus on companywide reports segment reports

6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRSand prescribed formats or any prescribed format

7. Requirement Mandatory for Notexternal reports Mandatory

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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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Strategic Management Skills

A strategy is a “game plan”

that enables a company to attract customers

by distinguishing itself from competitors.

The focal point of a company’s strategy should

be its target customers.

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Customer Value Propositions

Understand and respond to individual customer needs.

Customer Intimacy Strategy

Operational Excellence Strategy

Deliver products and services faster, more conveniently,

and at lower prices.

Product Leadership

Strategy Offer higher quality products.

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Corporate Organization Chart

Purchasing Personnel Vice PresidentOperations

Treasurer Controller

Chief FinancialOfficer

President

Board of Directors

Organizational Structure

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

Decentralization

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. n  Example:

Production supervisors in a manufacturing plant.

Staff positions support and assist line positions. n  Example: Cost

accountants in the manufacturing plant.

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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

Research and

Production

Product Design

Manufacturing

Marketing

Distribution

Customer Service

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

Because lean thinking only allows production in response to customer orders, the number of units produced tends to equal the number of units sold.

The lean approach also results in fewer defects, less wasted effort, and quicker customer response

times than traditional production methods. McGraw-Hill /Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Lean Production

Step 1 Identify value in

specific products/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 Management

The 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

A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want.

The Theory of Constraints (TOC) is based on the observation that effectively managing the constraint is

the key to success.

The constraint in a system is determined by the step that has the smallest capacity.

The goal is to manage the constraint with the intent of

generating more business rather than cutting the workforce.

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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

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

gathering and analysis techniques to drive process improvements.

Six Sigma is sometimes

associated with the slogan zero defects.

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Six Sigma

The DMAIC framework is the most common framework used to guide Six Sigma process improvement efforts.

Define Measure Analyze Improve Control

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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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Technology in Business

Most companies used to

implement specific software

programs to support specific

business functions.

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Technology in Business

An Enterprise System

integrates data across an

organization.

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The Importance of Ethics in Business

Ethical practices in business build trust and promote productive relationships. They are necessary for the functioning

of a market economy.

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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 Conduct

Do 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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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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Going the extra Mile (The Smartes guys in the room (Enron Movie))

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Enterprise Risk Management

A process used by a company to

proactively identify and manage risk.

Once a company identifies its risks, perhaps the most common risk management tactic is to reduce

risks by implementing specific controls.

Should I try to avoid the risk, accept the risk, or

reduce the risk?

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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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Enterprise Risk Management Examples of Controls to

Examples of Business Risks Reduce Business Risks● Products harming customers ● Develop a formal and rigorous

new product testing program● Losing market share due to the ● Develop an approach for legally unforeseen actions of competitors gathering information about

competitors' plans and practices● Poor weather conditions shutting ● Develop contingency plans for down operations overcoming weather-related

disruptions● Website malfunction ● Thoroughly test the website

before going "live" on the Internet● A supplier strike halting the flow ● Establish a relationship with two of raw materials companies capable of providing

raw materials● Financial statements unfairly ● Count the physical inventory on reporting the value of inventory hand to make sure that it agrees

with the accounting records● An employee accessing ● Create password-protected barriers unauthorized information that prohibit employees from

obtaining information not needed to do their jobs

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Tutorial

n  Review of todays lecture