h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 1

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Chapter 1 Managerial Accounting, the Business Organization, and Professional Ethics Chapter 1

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall When you have finished studying this chapter, you should be able to: 1.Explain why accounting is essential for decision makers and managers. 2. Describe the major users and uses of accounting information. 3. Explain the role of budgets and performance reports in planning and control. Chapter 1 Learning Objectives

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Describe cost-benefit and behavioral issues involved in designing an accounting system. 5. Discuss the role accountants play in the company’s value-chain functions. 6. Identify current trends in management accounting. 7. Explain why ethics and standards of ethical conduct are important to accountants. Chapter 1 Learning Objectives

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Why Accounting is Essential for Decision Makers and Managers Planning describes how the organization will achieve its objectives. Accounting information is used in decision making for planning and control. Control is the process of implementing plans and evaluating if objectives are achieved. Learning Objective 1

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Users of Accounting Information Managers Stockholders, Suppliers, Banks, Government Authorities Process of identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information used by: Management Accounting Financial Accounting Develops information for external decision makers:

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Management Accounting and Your Career The Certified Management Accountant (CMA) CMAs must pass an examination covering (1)Financial planning, performance and control, and (2) Financial decision making.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Process of gathering, organizing, and communicating financial information Accounting Information System Roles of Accounting Information Learning Objective 2

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Scorekeeping: Evaluate organizational performance Attention Directing: Compare actual results to expected Problem Solving: Assess possible courses of action Roles of Accounting Information

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Planning and Control Accounting information helps managers plan and control the organization’s operations. Planning: Setting objectives and outlining how the objectives will be obtained. Control: Implementing plans and using feedback to evaluate the attainment of objectives.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall The Nature of Planning and Controlling

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Budget and Performance Reports Budget: quantitative expression of a plan of action Performance reports:  compare actual results with budgeted amounts  provide feedback by comparing results with plans  highlight variances Variances: deviations from plans Learning Objective 3

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Performance Reports Budget Actual Variance Sales$50,000$50,0000 Less: Ingredients 22,000 24,500 $2,500 U Store labor 12,000 11, F Other labor 6,000 6, U Utilities, etc. 4,500 4,500 0 Total expenses $44,500$46,650 $2,150 U Operating income $ 5,500$ 3,350 $2,150 U U= Unfavorable – actual exceeds budget F – Favorable – actual is less than budget Mayfair Starbucks Store, March 31, 20X1

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Influences on Accounting Systems Generally accepted accounting principles (GAAP) Foreign Corrupt Practices Act Internal controls Management audits Sarbanes-Oxley Act Internal auditors

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Sarbanes-Oxley Act In 2002, the Sarbanes-Oxley Act required chief executive officers to sign a statement verifying the accuracy of the company’s financial statements. In 2002, the Sarbanes-Oxley Act required chief executive officers to sign a statement verifying the accuracy of the company’s financial statements. External auditors must examine and report on the company’s internal control system. External auditors must examine and report on the company’s internal control system.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Cost-Benefit and Behavioral Considerations Cost-benefit balance Behavioral implications Weigh estimated costs against probable benefits. The system must provide accurate, timely budgets and performance reports in a form useful to managers. Managers must use accounting reports, or the reports create no benefits. Learning Objective 4

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Product Life Cycle Product life cycle refers to the various stages through which a product passes. No Sales Sales GrowthStable Sales Level Low sales  No sales Product Development Introduction to MarketMature Market Phase out Product

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall The Value Chain Customer Focus Research and Development Research and Development Product And Service or Process Design Production Marketing Distribution Customer Service Learning Objective 5

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Accounting’s Position in the Organization Prepares standardized reports Collects and compiles information Interprets and analyzes information Is involved in decision making Management accountant’s role as consultant

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Line and Staff Authority Line managers: directly involved with making and selling products or services. Staff managers: Advisory – support line managers. Cross-functional teams: Found in modern, “flatter” organizations; Functional areas work together in decision-making process.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Controller and Treasurer Function  Planning for control  Reporting and interpreting  Evaluating and consulting  Tax administration  Government reporting  Protection of assets  Economic appraisal Treasurer Functions  Provision of capital  Investor relations  Short-term financing  Banking and custody  Credits and collections  Investments  Risk management  (insurance) Controller Functions Chief Financial Officer (CFO)

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Current Trends in Management Accounting Shifting from a manufacturing-based to a service-based economy Increased global competition Advances in technology Changes in business processes Learning Objective 6 Adaption to changes:

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Current Trends in Management Accounting The service sector now accounts for more than 80% of the employment in the United States. Common characteristics of service organizations 1.Labor is a major component of costs. 2.Output is usually difficult to measure. 3.Service organizations cannot store their major inputs and outputs.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Major Influences on Management Accounting Business process reengineering: Just-in-time (JIT) philosophy Lean manufacturing Computer-integrated manufacturing Six sigma Advances in technology: E-commerce Enterprise resource planning (ERP) B2C and B2B

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Standards of Ethical Conduct The Institute of Management Accountants (IMA) Statement of Ethical Professional Practice for Management Accounting Members Requires members to adhere to a code of conduct regarding: Competence, Confidentiality, Integrity, and Credibility. Learning Objective 7

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall IMA Statement of Ethical Professional Practice

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall IMA Statement of Ethical Professional Practice (cont’d)

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Ethics No regulation can be as effective in ensuring reliability as high ethical standards of accountants. IntegrityTrust Reliability

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Ethical Dilemmas Managers must choose an alternative and there are: s Significant value conflicts among differing interests. s Real alternatives that are all justifiable, and s Significant consequences on stakeholders in the situation.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall Unethical Behavior Temptations 1. Emphasis on short-term results: Pressure to meet expected profit numbers. 2. Ignoring the small stuff: Large misdeeds often result from many small ones. 3. Economic cycles: Downturn markets reveal what an upturn market conceals. Vigilance in all stages of economic markets maintains high ethical standards. 4. Accounting rules: Avoid creative interpretations of the rules. Practice full and fair disclosure to convey company’s performance.

h11111ythtr Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.