Managerial Accounting and the Business Environment

1. Managerial Accounting and the Business Environment Chapter 1

4. Internet Usage The Internet fuels globalizationby providing companies with greateraccess to geographically dispersedcustomers, employees, and suppliers. As of 2008, more than 78% ofthe world's population was stillnot connected to the Internet.

5. Strategy A strategyis a “game plan”that enables a companyto attract customersby distinguishing itselffrom competitors. The focal point of acompany’s strategy shouldbe its target customers.

6. CustomerIntimacyStrategy Understand and respond toindividual customer needs. OperationalExcellenceStrategy Deliver products and servicesfaster, more conveniently,and at lower prices. ProductLeadershipStrategy Offer higher quality products. Customer Value Propositions

7. Organizational Structure Decentralization is the delegation of decision-making authority throughout an organization.

8. Line positions 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. Line and Staff Relationships

9. 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.

10. Business functions making up the value chain Product Customer R&D Design Manufacturing Marketing Distribution Service Process Management A businessprocess is a series ofsteps that are followed in order tocarry out some task ina business.

11. Process Management There are three approaches toimproving business processes . . . • Theory ofConstraints (TOC) • LeanProduction • SixSigma

12. Forecast Sales Order components Store Inventory Make Sales from Finished Goods Inventory Produce goods in anticipation of Sales StoreInventory Traditional “Push” Manufacturing Company

13. Materials waitingto be processed. Completed products awaiting sale. Partially completed products requiring more work before they are ready for sale. Traditional “Push” Manufacturing Company Traditional “push”manufacturing Largeinventories Rawmaterials Work inprocess Finishedgoods

14. Lean Production  Identify valuein specificproducts/services.  Identify thebusiness processthat delivers value. The lean thinkingmodel is a fivestep approach.  Organize workarrangements around the flow of thebusiness process.  Continuously pursueperfection in thebusiness process.  Create a pullsystem that respondsto customer orders.

15. Customer places an order Create Production Order Generate component requirements Goods delivered when needed Production begins as parts arrive Components are ordered Lean Production The five step process results in a “pull” manufacturing systemthat reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.

16. Lean Production Lean thinking can be used to improve business processes that link companies together.  The term supply chain management refers to the coordination of business processes across companies to better serve end consumers.

17. A constraint(also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success. Theory of Constraints The constraint in a system is determinedby the step that has thesmallest capacity.

18. Theory of Constraints 2. Allow the weakest link to set the tempo. Only actions that strengthen the weakest link in the “chain” improve the process. 3. Focus on improving the weakest link. 1. Identify the weakest link. 4. Recognize that the weakest linkis no longer so.

19. Six Sigma A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no morethan 3.4 defects per million opportunities. Sometimes associatedwith the term zero defects.

20. Six Sigma

21. Code of Conduct for Management Accountants The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practiceconsists of two parts that offer guidelines for:  Ethical behavior.  Resolution for an ethical conflict.

22. 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.

23. 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.

24. 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.

25. 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.

26. 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.

27. 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.

28. 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.

29. Employees Customers Suppliers And to the communities inwhich the company operates. Company Codes of Conduct Broad-based statements of acompany’s responsibilities to:

30. 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.

31. Board ofDirectors Incentives andmonitoring for TopManagement To pursueobjectives of Stockholders Corporate Governance The system bywhich a company is directedand controlled.

32. 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.

33. 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.” 

34. 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.

35. Enterprise Risk Management

36. 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.

37. Corporate Social Responsibility

38. Certified Management Accountant A management accountantwho has the necessary qualifications and who passes a rigorous professional exam earnsthe right to be known as a Certified Management Accountant (CMA). Information about becoming a CMA and the CMAprogram can be accessed on the IMA’s website at www.imanet.orgor by calling 1-800-638-4427.

39. Assign #1 • Read Chapters 1 and 2 • Pg. 25-27 – E1-1, E1-2, E1-4 • Pg. 59-60 – E2-2, E2-4, E2-10 (due 10/1)