1. Managerial Accounting: An Overview

2. Learning Objectives Define managerial accounting
Identify major similarities and differences between managerial and financial accounting
Explain what managers do (planning, controlling, decision making) and the information they use
Explain the concept of ethics and understand its importance in an advanced market economy
Explain the concept of corporate social responsibility
Describe enterprise risk management process
Explain the basic concept of lean production
Describe various cognitive biases

3. What is Managerial Accounting?
Financial accounting provides information to investors, creditors, and others
who decide whether to invest in or lend money to the organization
Managerial accounting provides information to managers of an organization
who plan, direct, and control its operations

4. Comparison of Financial Accounting & Managerial Accounting
Has to follow GAAP - e.g., HC, depreciation
Doesn’t have to follow GAAP - e.g., CV no depreciation
Is mandatory - e.g., SEC & NYSE
Is not mandatory
Data are basically monetary
Data are both monetary and non-monetary
Primarily past information, some are estimates
Future, as well as some past information, mostly estimate

5. Comparison of Financial Accounting & Managerial Accounting
Emphasizes objectivity and reliability - e.g., HC, depreciation
Emphasizes relevance and flexibility - e.g., CV, estimates
Emphasizes precision - annual, quarterly reports
Emphasizes timeliness - daily, real-time reports
Emphasizes the whole organization
Emphasizes segments of the organization
Draws on economics
Draws on economics and on social psychology

6. Managers’ Work and Information Needs
Planning – laying out (outlining) the activities for next quarter, year, etc., to attain the organization’s objective (e.g., maximize profit)
Planning requires identifying alternatives and selecting from among them.
e.g., What products should we produce next year?
past revenue, cost, and profit data
projected revenue, cost, and profit data
state of the economy and industry, etc.

7. Managers’ Work and Information Needs
Directing – overseeing day-to-day, routine, activities
Directing requires assigning tasks to employees; answering their questions and supervising their work; solving on-the-spot problems; and making day-to-day decisions.
hourly, daily, or weekly sales and expense reports
production reports, including scraps, defects, etc.

8. Managers’ Work and Information Needs
Controlling – ensuring that the plans are actually carried out and are modified as circumstances change
Controlling requires measuring actual performance and comparing those with planned performance.
actual and planned data

9. Summary of the Work of Management
Formulating long- and
short-term plans
(Planning)
Begins
Implementing the plans (Directing)
Decision making
Comparing actual to
planned performance
(Controlling)
Measuring performance
(controlling)

10. Ethics
Ethics in a philosophical sense refers to the set of moral standards for right or wrong that a person, a group, or a society develops.
Most professions have a code of ethics because:
Professions have a responsibility to provide quality service.
The body of knowledge in a profession is complex.
The public often cannot evaluate the quality of a professional’s service, and thus relies on the profession.
By establishing a code of ethics, professions assume self-discipline beyond the requirements of law.

11. Code of Ethics for Management Accountants
Management accountants are governed by a code of ethics issued by the Institute of Management Accountants (IMA), consisting of:
Principles – Honesty, Fairness, Objectivity, and Responsibility
Standards – Competence, Confidentiality, Integrity, and Credibility (communicate information fairly and objectively)
Resolution of ethical conflict

12. Enterprise Risk Management
A process used by a company to proactively identify and manage risk.
Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.

13. Corporate Social Responsibility (CSR)
Companies are responsible for creating strategies that produce financial results that satisfy stockholders and serve other stakeholders, such as customers, employees, suppliers, and communities
CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.
Examples of CSR responsibilities and reporting include:
Safe and humane working conditions
Nondiscriminatory treatment and the right to organize
Greenhouse gas emissions data
Recycling and resource conservation data
Child labor practices

14. Business functions making up the value chain
Business Process
A business process is a series of steps that are followed to carry out a specific task in a business.
Business functions making up the value chain
Product Customer
R&D Design Manufacturing Marketing Distribution Service

15. Lean Thinking The lean thinking model is a five step approach.
 Identify value in specific products/services.
 Identify the business process that delivers value.
The lean thinking model is a five step approach.
 Organize work arrangements around the flow of the business process.
 Pursue improvement in the business process.
 Create a pull system that responds to customer orders.

16. Just-In-Time (JIT) System
Receive customer orders
Complete products just in time to ship to customers
Schedule production
Receive materials just in time for production
Complete parts just in time for assembly into products

17. Cognitive Biases Cognitive biases or distorted thought processes:
Anchoring – too much emphasis on an info. piece
Optimism – being overly optimistic
Self-enhancement – overestimating strength
Confirmatory – focusing on information that confirms decision/view
Overconfidence – failing to recognize alternatives
Groupthink – placing emphasis on positions asserted by certain individual