Managerial Accounting and the Business Environment

1. Managerial Accounting and the Business Environment Chapter 1 Garrison, Noreen, Brewer, Cheng & Yuen

2. Learning Objectives: • Understanding the management process in business organization. • Understanding management accounting and the role of management accountants in an organization. • Identify the major differences and similarities between financial and management accounting. • Understanding the importance of upholding ethical standards. Garrison, Noreen, Brewer, Cheng & Yuen

3. Learning Objective 1 Understanding the management process in business organization.

4. Work of Management Planning Directing and Motivating Controlling

5. Select alternative that does the best job of furtheringorganization’s objectives. Develop budgets to guideprogress toward theselected alternative. Planning Identifyalternatives.

6. Directing and Motivating Directing and motivating involves managing day-to-day activities to keep the organization running smoothly. • Employee work assignments. • Routine problem solving. • Conflict resolution. • Effective communications.

7. Controlling The control function ensuresthat plans are being followed. Feedback in the form of performance reportsthat compare actual results with the budgetare an essential part of the control function.

8. Planning and Control Cycle Formulating long-and short-term plans (Planning) Begin Comparing actualto planned performance (Controlling) Implementing plans (Directing and Motivating) DecisionMaking Measuringperformance (Controlling)

9. Learning Objective 2 Understand management accounting and the role of management accountants in an organization. Garrison, Noreen, Brewer, Cheng & Yuen

10. Management Accounting and Cost Accounting • Management Accounting • relates to the provision of appropriate information, including cost information for decision-making, planning, control, and performance evaluation. • Cost accounting • defines costs and valuates inventories to help managers to run businesses • Management Accounting and Cost Accounting • are intertwined and • the terms are sometimes interchangeable • their functions are to help companies make better decisions Garrison, Noreen, Brewer, Cheng & Yuen

11. Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization. Garrison, Noreen, Brewer, Cheng & Yuen

12. Line and Staff Relationships Linepositions are directly related to 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. Garrison, Noreen, Brewer, Cheng & Yuen

13. The Chief Financial Officer (CFO) A member of the top management team responsible for: • Providing timely and relevant data to support planning and control activities. • Preparing financial statements for external users. Garrison, Noreen, Brewer, Cheng & Yuen

14. Learning Objective 1 Identify the major differences and similarities between financial and managerial accounting.

15. Comparison of Financial and Managerial Accounting

16. Learning Objective 4 Understand the importance of upholding ethical standards. Garrison, Noreen, Brewer, Cheng & Yuen

17. Code of Conduct for Management Accountants All Professional Management Accountants Bodies issue their own Code of Conduct but they all share similar fundamental principles and conceptual approaches as the one issued by the Institute of Management Accountants. The Institute of Management Accountants’ (IMA) Statement of Ethical Professional Practiceconsists of two parts that offer guidelines for:  Ethical behavior.  Resolution for an ethical conflict. Garrison, Noreen, Brewer, Cheng & Yuen

18. IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment. Follow applicablelaws, regulationsand standards. Maintain professional competence. Competence Provide accurate, clear, concise, and timely decision support information. Garrison, Noreen, Brewer, Cheng & Yuen

19. IMA Guidelines for Ethical Behavior Do not disclose confidential information unless legally obligated to do so. Do not use confidential information for unethical or illegaladvantage. Confidentiality Ensure that subordinates do not disclose confidential information. Garrison, Noreen, Brewer, Cheng & Yuen

20. IMA Guidelines for Ethical Behavior Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically. Integrity Abstain from activities that might discredit the profession. Garrison, Noreen, Brewer, Cheng & Yuen

21. IMA Guidelines for Ethical Behavior Communicate information fairly and objectively. Disclose delays or deficiencies in information timeliness, processing, or internal controls. Credibility Disclose all relevant information that could influence a user’s understanding of reports and recommendations. Garrison, Noreen, Brewer, Cheng & Yuen

22. IMA Guidelines for Resolution of an Ethical Conflict Follow employer’s established policies. For an unresolved ethical conflict: • Discuss the conflict with immediate supervisor or next highest uninvolved manager. • If immediate supervisor is the CEO, consider the board of directors or the audit committee. • Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved. Garrison, Noreen, Brewer, Cheng & Yuen

23. IMA Guidelines for Resolution of an Ethical Conflict Follow employer’s established policies. For an unresolved ethical conflict: • Except where legally prescribed, maintain confidentiality. • Clarify issues in a confidential discussion with an objective advisor. • Consult an attorney as to legal obligations. Garrison, Noreen, Brewer, Cheng & Yuen

24. Without ethical standards in business, theeconomy, and all of us who depend on it forjobs, goods, and services, would suffer. Abandoning ethical standards in business would lead to a lower quality of life with lessdesirable goods and services at higher prices. Why Have Ethical Standards? Ethical standards in business are essential for asmooth functioning economy. Garrison, Noreen, Brewer, Cheng & Yuen

25. Employees Customers Suppliers And to the communities inwhich the company operates. Company Codes of Conduct Broad-based statements of acompany’s responsibilities to: Garrison, Noreen, Brewer, Cheng & Yuen

26. Codes of Conduct on the International Level The Code of Ethics for ProfessionalAccountants, issued by the InternationalFederation of Accountants (IFAC), governs the activities of professional accountants worldwide. In addition to integrity and objectivity, resolution of ethical conflicts, competence, and confidentiality, the IFAC’s code deals with the accountant’s ethical responsibilities in: Taxes, Independence, Fees and commissions, Advertising and solicitation, Handling of monies, and Cross-border activities. Garrison, Noreen, Brewer, Cheng & Yuen

27. Board ofDirectors Incentives andmonitoring for TopManagement To pursueobjectives of Stockholders Corporate Governance The system bywhich a company is directedand controlled. Garrison, Noreen, Brewer, Cheng & Yuen

28. The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 was intended to protect theinterests of those who invest in publicly traded companies byimproving the reliability and accuracy of corporate financialreports and disclosures. Six key aspects of the legislation include:   The Act requires both the CEO and CFO to certify in writing that their company’s financial statements and disclosures fairly represent the results of operations.  The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession.  The Act places the power to hire, compensate, and terminate public accounting firms in the hands of the audit committee.  The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client. Garrison, Noreen, Brewer, Cheng & Yuen

29. The Sarbanes-Oxley Act of 2002 • (continued) •  The Act requires a public company’s independent auditor • to issue an opinion on the effectiveness of the company’s • internal control over financial reporting to accompany • management’s assessment, and both are included in the • company’s annual report. • The Act establishes severe penalties for certain behaviors,such as: • Up to 20 years in prison for altering or destroying anydocuments that may eventually be used in an officialproceeding. • Up to 10 years in prison for retaliating against a“whistle blower.” Garrison, Noreen, Brewer, Cheng & Yuen

30. Should I try to avoid the risk, share the risk, accept therisk, or reduce the risk? Enterprise Risk Management A process usedby a company toproactively identifyand manage risk. Once a company identifies its risks, perhaps themost common risk management tactic is to reduce risks by implementing specific controls. Garrison, Noreen, Brewer, Cheng & Yuen

31. Enterprise Risk Management Garrison, Noreen, Brewer, Cheng & Yuen

32. Corporate Social Responsibility Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions. Customers Employees Suppliers Communities Stockholders Environmental & Human RightsAdvocates CSR extends beyond legal complianceto include voluntary actions that satisfy stakeholder expectations. Garrison, Noreen, Brewer, Cheng & Yuen

33. Corporate Social Responsibility Garrison, Noreen, Brewer, Cheng & Yuen

34. Sustainability Reporting • Global Reporting Initiative (GRI) • promotes a systematic and standardized approach • to corporate social responsibility and embed it in corporate culture; • to stimulate demand for sustainability information; • thus benefitting both reporting organizations and report users. • International Federation of Accountants (IFAC) Sustainability Framework • Organizations should • achieve a “Triple Bottom-Line” • financial, social, and environmental goals • (or 3Ps: Profit, People, and Planet) • promote a sound corporate governance and ethical responsibility to ensure financial success through ethical operations and transactions; • promote cultural diversity and equality; • provide opportunities for social and economic development of the communities; and • minimize environmental damages, and provide a safe working and living environment for the communities. Garrison, Noreen, Brewer, Cheng & Yuen

35. Sustainability Reporting: GRI Registered Companies Examples of GRI Registered Companies Asia: Air China, AsusTek, Canon, Reliance Industries, Samsung Securities, SingTel Europe: Air France-KLM, BP, Daimler, Nestle, Nokia United States: AT&T, Dell, ExxonMobil, Intel, Johnson & Johnson Garrison, Noreen, Brewer, Cheng & Yuen

36. Professional Qualification of Management Accountants • Traditional accounting qualifications e.g. Chartered Accountants (ACA), Certified Public Accountants (CPA) and Chartered Certified Accountants (ACCA) • Management accountants qualifications, e.g.: Garrison, Noreen, Brewer, Cheng & Yuen

37. End of Lecture 1 & 2 Garrison, Noreen, Brewer, Cheng & Yuen