INTRODUCTION TO MANAGERIAL ACCOUNTING CHAPTER 1 1 Professor Debbie Garvin, JD; CPA – ACG2071

Managers’ Responsibilities Setting goals and objectives Overseeing day-to-day operations Evaluating results of operations Directing Decision Making Planning Controlling 2

Planning  Setting goals and objectives and how to achieve them  Examples of planning:  Generate more sales via opening new stores  Reduce labor costs by reducing store hours  Budgets 3

 Overseeing company’s day-to-day operations  Examples  Using daily/weekly sales reports to adjust marketing strategies  Using product cost reports to adjust raw material usage Directing 4

 Evaluating results of operations against plans and making adjustments as needed  Examples  Comparing budgeted sales with actual sales to take corrective actions  Comparing budgeted product costs against actual product costs to take corrective actions Controlling 5

Decision Making  Management is continually making decisions while it plans, directs, and controls operations  Examples  Price setting or product offerings  Renovation of facilities  Operation openings or closings 6

Managerial vs. Financial Accounting IssueManagerialFinancial Primary usersInternalExternal Purpose of informationPlan, direct, control, decide Users make investing and lending decisions Primary accounting product Internal reports useful to management General purpose financial statements What is included?Defined by managementDetermined by GAAP Underlying basis of information Internal & external transactions, focus on future Based on historical transactions with external parties 7

IssueManagerialFinancial EmphasisData must be relevant Data must be reliable and objective Business UnitSegments of the businessCompany as a whole Preparation Depends on management needs Annually & quarterly VerificationInternal auditExternal audit Information requirementsNo requirements SEC requires publicly traded cos. to issue audited fin. sts. Impact on employee behavior Careful considerationAdequacy of disclosure Managerial vs. Financial Accounting 8

Organizational Structure Board of Directors Board of Directors Chief Executive Officer Chief Executive Officer Chief Operating Officer Chief Operating Officer Chief Financial Officer Chief Financial Officer Vice Presidents of various operations Vice Presidents of various operations Treasurer Controller Internal Audit Audit Committee Audit Committee 9

Changing Roles of Management Accountants  Impact of technology  Ensuring accurate financial records  Planning, analyzing, and interpreting accounting data  Providing decision support 10

Required Skills of Managerial Accountants  Knowledge of financial and managerial accounting  Analytical skills (critical thinking)  Knowledge of how a business functions  Ability to work on a team  Oral and written communications skills 11

Institute of Management Accountants (IMA)  Professional association for management accountants  IMA’s functions  Certification (CMA)  Practice Development  Education  Networking  Ethical Standards  Public Education 12

Summary of IMA Ethical Standards CompetenceConfidentiality IntegrityCredibility 13

Ethical Behavior  Means doing the right thing, regardless of consequences  Examples of unethical behavior  Allowing reimbursement of false expense reports  Manipulating income  Performing tasks not qualified to perform 14

 Steps to resolve ethical dilemmas  Follow company’s policies for reporting unethical behavior  If not resolved Discuss with immediate supervisor Discuss with objective advisor Consult an attorney Ethical Behavior 15

Regulatory and Business Issues  Sarbanes-Oxley Act of 2002 (SOX)  International Financial Reporting Standards (IFRS)  Extensible Business Reporting Language (XBRL)  Shifting economy 16

Sarbanes-Oxley Act of 2002 (SOX)  Restore trust in publicly traded corporations, management, financial statements, and auditors  CEO /CFO requirements  Financial statements  Internal control structure  Annual assessment 17

Sarbanes-Oxley Act of 2002 (SOX)  Independent audit committee  Increases white-collar crime penalties 18

International Financial Reporting Standards (IFRS)  Results of globalization  Consistent reporting standards needed worldwide  SEC is studying IFRS Current IFRS information: or 19

Extensible Business Reporting Language (XBRL)  Standardized tagging system for financial reports  Advantages:  Decreases retrieval time  Decreases conversion time  Facilitates comparisons  Customizes information 20

Shifting Economy  Shift away from manufacturing toward service  Managerial accounting has expanded  Competing in Global Marketplace  Barriers to international trade have fallen  More accurate and timely information needed 21

Tools for Time-Based Competition  Enterprise resource planning (ERP)  Supply-chain management  Lean production & Just-in-time (JIT) Inventory system  Total quality management (TQM) 22

Enterprise Resource Planning (ERP)  System that integrates a company’s functions, departments, and data  Advantages  Streamline operations  Respond quickly to changes  Replace separate software systems  Disadvantage – expensive 23

Supply-Chain Management  Exchange of information with suppliers  Reduce costs  Improve quality  Speed the delivery 24

Lean Production/JIT Inventory  A philosophy and business strategy of manufacturing without waste  Lowers costs  Increases competitive position  Just in Time Inventory (JIT)  Manufacture “just in time” to fill orders 25

Lean Production  Reduces  Raw materials inventory  Finished goods inventory  Storage costs  Handling costs 26

TQM: Total Quality Management  Goal to provide customers with superior products and services  Continually set higher goals for quality  International Organization for Standardization (ISO) 27

END OF SEGMENT Professor Debbie Garvin, JD; CPA – ACG2071