Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Prologue Managerial Accounting and the Business Environment PowerPoint Authors: Jon A. Booker, Ph.D., CPA, CIA Charles W. Caldwell, D.B.A., CMA Susan 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 P-2

The Global Marketplace Companies that have been successful in their local markets may suddenly find themselves facing competition from halfway around the globe. P-3

The Global Marketplace New Markets New Customers New Workers P-4

Strategy A strategy is a “game plan” that enables a company to attract customers by distinguishing itself from competitors. Customer Intimacy Operational Excellence Product Leadership P-5

Organizational Structure An organization is a group of people united for a common purpose. Decentralization decision–making P-6

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. P-7

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. P-8

A business process is a series of steps that are followed in order to carry out some task in a business. Process Management P-9

Value Chain Research and Production Product Design ManufacturingManufacturingMarketingMarketingDistributionDistribution 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. P-10

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. P-11

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 P-12

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. P-13

Theory of Constraints (TOC) A sequential process of identifying and removing constraints in a system. Restrictions or barriers that impede progress toward an objective P-14

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 P-15

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. P-16

Six Sigma The DMAIC framework is the most common framework used to guide Six Sigma process improvement efforts. Define Measure Analyze Improve Control P-17

Six Sigma Six Sigma improvements can only increase profits in two ways: 1. Decrease costs 2. Increase sales P-18

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. P-19

Code of Conduct for Management Accountants – IMA’s Statement of Ethical Professional Practice Part One Competence Confidentiality Integrity Credibility Part Two Resolution of Ethical Conflict P-20

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. P-21

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 P-22

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. P-23

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. P-24

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). P-25

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. P-26

Company Codes of Conduct Many companies have adopted formal ethics codes of conducts that provide broad guidelines for proper behavior. P-27

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. P-28

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. P-29

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. P-30

The Sarbanes-Oxley Act of Requires CEO/CFO certification. 2.Establishes the PCAOB. 3.Places power to hire, compensate, and terminate auditors with the audit committee. P-31

The Sarbanes-Oxley Act of Prohibits a variety of non-audit services for audit clients. 5.Requires annual report on internal control. 6.Establishes severe penalties for criminal acts. P-32

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. P-33

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. P-34

Identifying and Controlling Business Risks P-35

Corporate Social Responsibility CSR extends beyond legal compliance to 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. CustomersEmployeesCommunitiesSuppliersStockholders Environmental & Human Rights Advocates P-36

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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 or by calling P-38

End of Prologue P-39