1. An Introduction to Managerial Accounting
November 9, 2015
An Introduction to Managerial Accounting
Chapter 1: An Introduction to Managerial Accounting and Cost Concepts.
This chapter serves three main purposes. First, it describes the work of management and the need for managerial accounting information. Second, it compares financial accounting and managerial accounting. Third, it discusses the four main uses of cost information―to prepare external financial reports, to predict cost behavior, to assign costs to cost objects, and to make business decisions.

2. Today’s Agenda What is Managerial Accounting? Your lecturer
About you and why you are here
Course outline and process
Get started

3. What is Managerial Accounting?
The capture and analysis of information (financial and operational) that can be used to support the planning, executing and controlling of an organization
Its audience is internal to the organization, as opposed to financial accounting, which addresses external audiences
Managerial accountants provide the reports and analysis to help business leaders make decisions to maximize value over time

4. About Your Lecturer Experience Education
BA in Economics, Dalhousie University, Halifax, Canada
MBA in Finance and Accounting, University of Toronto, Canada
Profession
Principal in a Corporate Development partnership
Mergers & Acquisitions, Financings, Restructurings …..
Experience
CIBC, Ernst & Young, Celestica, Spar, independent clients
Importance of Managerial Accounting to my role
Critical to understanding the financial state of a business
Provides a framework for forecasting
A tool for optimizing a business (together with market analysis)
Assess value of the business

5. Why I am Here This is a tremendous time for China …
…. and as its future business leaders, a tremendous opportunity for you
As participants in the global economy, my clients are very interested in doing business with China
It’s a great opportunity for me to be here with you and share my experiences.
I look forward to learning from you

6. Why Are You Here?
It is helpful for me to understand your motivations in order to best tailor the course to your needs.
Educational objectives?
Career objectives?

7. Course Outline
Objective: To provide a core understanding of managerial accounting, its techniques, calculations and analysis
Text: Ray H.Garrison, Peter C. Brewer,& Eric W .Noreen, Introduction to Managerial Accounting, 6th Ed, McGrawHill 2012
Major subjects:
Costs – types and behaviour
Accounting Systems – types and circumstances
Financial Forecasts/Budgeting
Analysis for Superior Decision Making
Lectures, Tutorials, Self & Group Study

8. Course Outline Assessment Schedule of Assessment % Date
Mid-term examination
20%
Nov 20
Case Study – (Group project)
30%
Dec 1
Final examination
50%
Dec 4

9. Attendance, Participation, Quizzes
Lectures
Tutorials
Participation & Quizzes
Answering questions in class and tutorials
Asking questions in class and tutorials
Homework completion

10. Mid-Term Exam – 20% Subject matter: Short answers and problem solving
Chapters 1 to 7
Materials covered in class and tutorials
Short answers and problem solving
Emphasis on ability to apply judgment
November 20, 2015
90 minutes

11. Case Study - 30% You will be divided into groups
Select a public company of your choice and submit financial statements
Describe the company and explain why the company was selected; what kind of accounting systems might the company use?
Write and present
Together, we will simplify the accounts for modeling purposes
Make your own assumptions and forecast/budget (I/S, B/S, C/F) for three years
Conduct ratio analysis and draw conclusions about the company
Each group is to present final results – Starting December 2nd
Each individual is to select a role (CEO, CFO, Sales, Production Manager, etc) and present minutes of observations
Audience to prepare questions for presenters
Submit and present final results – BEFORE presentation

12. Final Exam – 50% Subject matter: Friday – December 4, 2015 120 minutes
Garrison/Brewer Chapters 1 to 13
Materials covered in class and tutorials
Short answers
Eg, definitions and/or fill in the blank
Problem solving
Applying knowledge to specific challenges
Demonstrating an ability to apply judgment
Friday – December 4, 2015
120 minutes

13. Let’s Get Started Objectives and Relevance of Managerial Accounting
Differences from Financial Accounting
Enterprise Risk Management
Corporate Social Responsibility

14. Managerial Accounting Supports the Management Functions
Planning
Directing and Motivating
Controlling
Forecasting
Budgeting
Ordering
Hiring
Allocating resources
Compensation structures
Tracking to budget/
Cost control
Exception reporting
Revisiting budgets

15. Comparison of Financial and Managerial Accounting
There are seven key differences between managerial accounting and financial accounting:
Financial accounting reports are prepared for external parties, whereas, managerial accounting reports are prepared for internal users.
Financial accounting summarizes past transactions. Managerial accounting has a future orientation.
Financial accounting data are expected to be objective and verifiable. Managerial accountants focus on providing relevant data even if it is not completely objective or verifiable.
Financial accounting focuses on precision when reporting to external parties. Managerial accounting aids decision makers by providing good estimates as soon as possible rather than waiting for precise data later.
Financial accounting is concerned with reporting for the company as a whole. Managerial accounting focuses more on the segments of the company. Examples of segments include: Product lines, sales territories, divisions, departments, etc.
Financial accounting conforms to GAAP. Managerial accounting is not bound by GAAP.
Financial accounting is mandatory because various outside parties require periodic financial statements. Managerial accounting is not mandatory.

16. Classifying Costs
A good Managerial Accountant thinks and uses judgment to arrive at or develop the best approach to support decision making
This requires a deep understanding of costs and when to use the many classifications there are:
Period versus Product
Prime versus Conversion
Fixed versus Variable
Direct versus Indirect
Sunk Costs
Opportunity Costs
Differential Costs and Differential Revenue
Of course any cost item can fit into a number of these categories

17. Enterprise Risk Management
This slide contains a subset of the business risks and controls as shown the textbook. Collectively, these examples illustrate the diversity of risks that companies can face.
In each example, the left-hand column provides a potential risk, and the right-hand column provides a related control that could help reduce the risk. Although these types of controls cannot completely eliminate risks, they do represent proactive attempts to manage risks.

18. Enterprise Risk Management
This slide contains a subset of the business risks and controls as shown the textbook. Collectively, these examples illustrate the diversity of risks that companies can face.
In each example, the left-hand column provides a potential risk, and the right-hand column provides a related control that could help reduce the risk. Although these types of controls cannot completely eliminate risks, they do represent proactive attempts to manage risks.

19. Measurement Skills
A good manager complements an understanding of strategy, risks, and business processes with data-driven analysis.
The question you are trying to answer defines what you’ll measure and how you analyze it.
Consider the following examples.
The key to effective analysis is to understand that the question you are addressing defines what you measure and how you analyze the data.

20. Measurement Skills
What net income should my company report to its stockholders?
Measure and report historical data that complies with applicable rules.
How will my company serve its customers?
Measure and analyze mostly nonfinancial, process-oriented data.
If the question you wish to answer is what net income should my company report to its stockholders, then you’ll be measuring and reporting historical financial data that complies with applicable rules.
If you are trying to determine how your company is serving its customers, then you’ll be measuring and analyzing mostly nonfinancial, process-oriented data.
If you want to predict whether your company will need to borrow money, then your measurement efforts will focus on estimating future cash flows.
Will my company need to borrow money?
Measure and analyze estimated future cash flows.

21. Measurement Skills Planning
The primary purpose of this course is to teach measurement skills that managers use to support planning, controlling, and decision-making activities.
Controlling
The primary purpose of this course is to teach you measurement skills that managers use every day to support their planning, controlling, and decision-making activities.
Decision
Making

22. Leadership Skills Six Skills of an Effective Leader
Technical competence
High integrity
Understand how to implement organizational change
Strong communication skills
Capable of motivating and mentoring other people
Effectively manage team-based decision processes
To be an effective leader, you’ll need to develop six skills:
You’ll need technical competence within your area of expertise and with respect to operations outside your functional area of expertise.
You must be a person of high integrity.
You’ll need to understand how to implement organizational change.
You’ll need strong communication skills.
You’ll need to be capable of motivating and mentoring other people.
You’ll need to effectively manage team-based decision processes.

23. Code of Conduct for Management Accountants
The Institute of Management Accountant’s (IMA) Statement of Ethical Professional Practice consists of two parts that offer guidelines for:
 Ethical behavior.
 Resolution for an ethical conflict.
The IMA’s Statement of Ethical Professional Practice has two main parts – guidelines for ethical behavior and guidelines for resolution of an ethical conflict.

24. IMA Guidelines for Ethical Behavior
Recognize and communicate professional limitations that preclude responsible judgment.
Maintain professional competence.
Competence
Follow applicable laws, regulations, and standards.
Management accountants have responsibility for ethical behavior in four broad areas. The first area is professional competence.
Management accountants must:
Maintain professional competence.
Follow applicable laws, regulations, and standards.
Provide accurate, clear, concise, and timely decision-support information.
Recognize and communicate professional limitations that preclude responsible judgment.
Provide accurate, clear, concise, and timely decision-support information.

25. IMA Guidelines for Ethical Behavior
Do not disclose confidential information unless legally obligated to do so.
Do not use confidential information for unethical or illegal advantage.
Confidentiality
The second area is confidentiality. The guidelines specify that management accountants:
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.
Ensure that subordinates do not disclose confidential information.

26. IMA Guidelines for Ethical Behavior
Mitigate conflicts of interest and advise others of potential conflicts.
Refrain from conduct that would prejudice carrying out duties ethically.
Integrity
The third area is integrity. Management accountants must:
Mitigate conflicts of interest and advise others of potential conflicts.
Refrain from conduct that would prejudice carrying out duties ethically.
Abstain from activities that might discredit the profession.
Abstain from activities that might discredit the profession.

27. IMA Guidelines for Ethical Behavior
Communicate information fairly and objectively.
Disclose delays or deficiencies in information timeliness, processing, or internal controls.
Credibility
The fourth area is credibility. Management accountants must:
Communicate information fairly and objectively.
Disclose all relevant information that could influence a user’s understanding of reports and recommendations.
Disclose delays or deficiencies in information timeliness, processing, or internal controls.
Disclose all relevant information that could influence a user’s understanding of reports and recommendations.

28. IMA Guidelines for Resolution of an Ethical Conflict
Follow employer’s established policies.
For an unresolved ethical conflict:
Discuss the conflict with immediate supervisor or next highest uninvolved managerial level.
If immediate supervisor is the CEO, consider the board of directors or the audit committee.
Contact with levels above the immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved.
When faced with an ethical conflict, a management accountant should follow the organization’s established policies for resolving ethical conflict. If this does not work, consider the following:
Discuss the conflict with immediate superior or next highest uninvolved managerial level.
If immediate supervisor is the CEO, consider discussing the conflict with the board of directors or the audit committee.
Remember that contact with levels above immediate supervisor should only be initiated with the supervisor’s knowledge, assuming the supervisor is not involved.

29. IMA Guidelines for Resolution of an Ethical Conflict
For an unresolved ethical conflict (continued):
Except where legally prescribed, maintain confidentiality.
Clarify issues in a confidential discussion with an objective advisor.
Consult an attorney as to legal obligations.
Additional guidelines for an unresolved ethical conflict are:
 Except where legally prescribed, communication with individuals not employed by the organization is not appropriate.
Clarify relevant ethical issues with an objective advisor, such as a member of the IMA’s Ethics Counseling Service.
Consult an attorney regarding your legal obligations.

30. Why Have Ethical Standards?
Ethical standards in business are essential for a smooth functioning economy.
Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer.
Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices.
Ethical standards are motivated by a very practical consideration — if the standards are not followed in business, then the economy, and all of us, would suffer.
Abandoning ethical standards would lead to a lower standard of living with lower-quality goods and services, less to choose from, and higher prices.

31. Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept whereby organizations consider the needs
of all stakeholders when making decisions.
Customers
Corporate social responsibility (CSR) is a concept whereby organizations consider the needs of all stakeholders when making decisions. CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.
Stakeholders include groups, such as customers, employees, suppliers, communities, stockholders, and environmental and human rights advocates, whose interests are tied to the company’s performance.
Employees
Suppliers
Communities
Stockholders
Environmental & Human Rights Advocates
CSR extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations.

32. Corporate Social Responsibility
This slide presents examples of corporate social responsibilities that are of interest to the six stakeholder groups just mentioned. Many companies are paying increasing attention to these types of broadly defined responsibilities.

33. Review Objectives and Relevance of Managerial Accounting
Differences from Financial Accounting
Enterprise Risk Management
Judgment
Understanding
Planning
Control
Leadership

34. Review (continued) Ethics & standards of behaviour Confidentiality
Credibility
Integrity
Corporate Social Responsibility

35. Tutorial - Question Practice Factory Supervision $28,000?
Property Tax, Factory Building $2,000?
Sales Commission $97,000?

36. Case Study Divide into groups
Select a public company of your choice and submit financial statements
Describe the company and explain why the company was selected; what kind of accounting systems might the company use? Write and present
Together, we will simplify the accounts for modeling purposes
Make your own assumptions and forecast/budget (I/S, B/S, C/F) for three years
Conduct ratio analysis and draw conclusions about the company
Each group is to present final results – Starting December 2nd
Each individual is to select a role (CEO, CFO, Sales, Production Manager, etc) and present minutes of observations
Audience to prepare questions for presenters
Submit and present final results – BEFORE presentation

37. Case Study - Information
Select a company
Find and print most recent financial statements from annual report
Find and print stock price history of last three years