CHAPTER 1 The Changing Role of Managerial Accounting in a Dynamic Business Environment Chapter 1: The Changing Role of Managerial Accounting in a Dynamic Business Environment Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Define Managerial Accounting Managerial accounting is the process of Identifying Measuring Analyzing Interpreting Communicating information Managerial accounting is an integral part of the management process. It is the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an organization’s goals. (LO1) 1-2

Managing Resources, Activities, and People An organization . . . Directing Decision Making Acquires Resources Organized set of activities In pursuing its goals, an organization acquires resources, hires people, and then engages in an organized set of activities. It is up to the management team to make the best use of the organization’s resources, activities, and people in achieving the organization’s goals. The day-to-day work of the management team comprises four activities: • Decision making • Directing operational activities • Planning • Controlling (LO2) Planning Controlling Hires People 1-3

How Managerial Accounting Adds Value to the Organization Providing information for decision making and planning. Assisting managers in directing and controlling activities. Motivating managers and other employees towards organization’s goals. Measuring performance of subunits, activities, managers, and other employees. Assessing the organization’s competitive position. Managerial accountants add value to an organization by providing information, assisting in directing and controlling activities, motivating managers and employees towards the organization’s goals, measuring performance, and assessing the organization’s competitive position. (LO3) 1-4

The Balanced Scorecard Financial Perspective Goals Measures How do we look to owners? In which activities must we excel? Customer Perspective Goals Measures Operations Perspective Goals Measures How do customers see us? The balanced scorecard is a model of business performance evaluation that balances measures of financial performance, internal operations, innovation and learning, and customer satisfaction. If an organization is to remain viable in a changing and ever more competitive business environment, its managers need to continually ask the questions emphasized in the balanced scorecard. (LO3) How can we continue to improve? Innovation Perspective Goals Measures 1-5

Managerial versus Financial Accounting Accounting System (accumulates financial and managerial accounting data in the cost accounting system) Managerial Accounting Information for decision making, planning, and controlling an organization’s operations. Financial Accounting Published financial statements and other financial reports. Both managerial and financial accounting information draw upon data from an organization’s basic accounting system. One part of that system, the cost accounting system, accumulates cost data for both managerial and financial accounting. Managerial accounting information is used for decision making, planning, directing, and controlling an organization's operations, and assessing its competitive position. It is intended for managers of all levels within the organization. Financial accounting information is used to prepare the published financial statements and other financial reports. It is intended for external users, such as stockholders, financial analysts, lenders, unions, consumer groups, and governmental agencies. (LO4) Internal Users External Users 1-6

Managerial versus Financial Accounting This exhibit summarizes the differences between managerial and financial accounting. Managerial accounting reports are intended for managers within the organization and are not subject to any regulation. The data are drawn from the basic accounting system as well as other sources. The reports often focus on departments or subunits and are based on historical data, estimates, and future projections. Financial accounting reports are intended for external users and are subject to regulation. The data are drawn almost completely from the basic accounting system and are almost exclusively historical. (LO4) 1-7

Strategic Cost Management and the Value Chain Product Design Production Research and Development Marketing Securing raw materials and other resources Distribution Usually many activities are involved in securing basic raw materials and turning them into valuable products or services. The set of linked, value-creating activities, ranging from securing basic raw materials and energy to the ultimate delivery of products and services, is called the value chain. Although there may be only one organization involved in a particular value chain, usually there are many. (LO7) Customer Service Start 1-8

Managerial Accounting as a Career Professional Organizations Institute of Management Accountants (IMA) Publishes Management Accounting and research studies. Administers Certified Management Accountant program Develops Standards of Ethical Conduct for Management Accountants Managerial accountants are providers of information and are often in touch with the heartbeat of the organization. They frequently interact with sales personnel, finance specialists, production people, and managers at all levels. To keep up with new developments in their field, management accountants often belong to one or more professional organizations. The largest is the Institute of Management Accountants. The IMA publishes journals, administers the Certified Management Accountant program, and develops ethical standards for its members. (LO9) 1-9

Ethical Climate of Business The corporate scandals experienced over the last few years have shown us that unethical behavior in business is wrong in a moral sense and can be disastrous in the economy. In addition to Sarbanes-Oxley, there will likely be more reforms in corporate governance and accounting. The stream of corporate scandals has taught us that not only is unethical behavior in business wrong in a moral sense, but it also can be disastrous to the business and the economy. There will most likely be reforms in corporate governance and accounting. The Sarbanes-Oxley Act is one example. These scandals have served as a wake-up call to focus more on ethical issues in practice and teaching. (LO10) I am sure we can all think of a few corporate scandals. Examples: Enron, Tyco. WorldCom, and Arthur Anderson to name a few. 1-10

Competence Confidentiality Integrity Credibility Professional Ethics As professionals, managerial accountants have an obligation to themselves, their colleagues, and their organizations to adhere to high standards of ethical conduct. In recognition of this obligation, the IMA has developed the following ethical standards for its members, who are practitioners of managerial accounting and financial management. (LO10) 1-11

End of Chapter 1 1-12