1. © 2010 The McGraw-Hill Companies, Inc. Managerial Accounting and the Business Environment Chapter 1

2. McGraw-Hill/Irwin Slide 2

3. McGraw-Hill/Irwin Slide 3

4. McGraw-Hill/Irwin Slide 4 Internet Usage The Internet fuels globalization by providing companies with greater access to geographically dispersed customers, employees, and suppliers. As of 2008, more than 78% of the world's population was still not connected to the Internet.

5. McGraw-Hill/Irwin Slide 5 Strategy A strategy is a “game plan” that enables a company to attract customers by distinguishing itself from competitors. The focal point of a company’s strategy should be its target customers.

6. McGraw-Hill/Irwin Slide 6 Customer Value Propositions Understand and respond to individual customer needs. Customer Intimacy Strategy Operational Excellence Strategy Deliver products and services faster, more conveniently, and at lower prices. Product Leadership Strategy Offer higher quality products.

7. McGraw-Hill/Irwin Slide 7 Learning Objective 1 Understand the role of management accountants in an organization.

8. McGraw-Hill/Irwin Slide 8 Organizational Structure Decentralization is the delegation of decision- making authority throughout an organization.

9. McGraw-Hill/Irwin Slide 9 Line and Staff Relationships Line positions are directly related to 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.

10. McGraw-Hill/Irwin Slide 10 The Chief Financial Officer (CFO) A member of the top management team responsible for:  Providing timely and relevant data to support planning and control activities.  Preparing financial statements for external users. A member of the top management team responsible for:  Providing timely and relevant data to support planning and control activities.  Preparing financial statements for external users.

11. McGraw-Hill/Irwin Slide 11 Learning Objective 2 Understand the basic concepts underlying Lean Production, the Theory of Constraints, and Six Sigma.

12. McGraw-Hill/Irwin Slide 12 Process Management Business functions making up the value chain Product Customer R&D Design Manufacturing Marketing Distribution Service A business process is a series of steps that are followed in order to carry out some task in a business.

13. McGraw-Hill/Irwin Slide 13 Process Management There are three approaches to improving business processes...  Lean Production  Theory of Constraints (TOC)  Six Sigma

14. McGraw-Hill/Irwin Slide 14 Traditional “Push” Manufacturing Company Forecast Sales Order components Produce goods in anticipation of Sales Make Sales from Finished Goods Inventory Store Inventory

15. McGraw-Hill/Irwin Slide 15 Traditional “push” manufacturing Traditional “Push” Manufacturing Company Large inventories Finished goods Raw materials Work in process Materials waiting to be processed. Completed products awaiting sale. Partially completed products requiring more work before they are ready for sale.

16. McGraw-Hill/Irwin Slide 16 Lean Production The lean thinking model is a five step approach.  Identify value in specific products/services.  Identify the business process that delivers value.  Organize work arrangements around the flow of the business process.  Create a pull system that responds to customer orders.  Continuously pursue perfection in the business process.

17. McGraw-Hill/Irwin Slide 17 Customer places an order Create Production Order Generate component requirements Production begins as parts arrive Goods delivered when needed Components are ordered Lean Production The five step process results in a “pull” manufacturing system that reduces inventories, decreases defects, reduces wasted effort, and shortens customer response times.

18. McGraw-Hill/Irwin Slide 18 Lean Production Lean thinking can be used to improve business processes that link companies together. The term supply chain management refers to the coordination of business processes across companies to better serve end consumers.

19. McGraw-Hill/Irwin Slide 19 A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints is based on the observation that effectively managing the constraint is the key to success. The constraint in a system is determined by the step that has the smallest The constraint in a system is determined by the step that has the smallest capacity. Theory of Constraints

20. McGraw-Hill/Irwin Slide 20 4. Recognize that the weakest link is no longer so. 1. Identify the weakest link. 2. Allow the weakest link to set the tempo. 3. Focus on improving the weakest link. Only actions that strengthen the weakest link in the “chain” improve the process. Theory of Constraints

21. McGraw-Hill/Irwin Slide 21 Six Sigma A process improvement method relying on customer feedback and fact-based data gathering and analysis techniques to drive process improvement. Refers to a process that generates no more than 3.4 defects per million opportunities. Sometimes associated with the term zero defects.

22. McGraw-Hill/Irwin Slide 22 Six Sigma

23. McGraw-Hill/Irwin Slide 23 Learning Objective 3 Understand the importance of upholding ethical standards.

24. McGraw-Hill/Irwin Slide 24 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 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.

25. McGraw-Hill/Irwin Slide 25 Competence Follow applicable laws, regulations and standards. Maintain professional competence. Provide accurate, clear, concise, and timely decision support information. IMA Guidelines for Ethical Behavior Recognize and communicate professional limitations that preclude responsible judgment.

26. McGraw-Hill/Irwin Slide 26 Confidentiality 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. IMA Guidelines for Ethical Behavior

27. McGraw-Hill/Irwin Slide 27 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. Integrity IMA Guidelines for Ethical Behavior

28. McGraw-Hill/Irwin Slide 28 Communicate information fairly and objectively. Disclose all relevant information that could influence a user’s understanding of reports and recommendations. Credibility IMA Guidelines for Ethical Behavior Disclose delays or deficiencies in information timeliness, processing, or internal controls.

29. McGraw-Hill/Irwin Slide 29 Follow employer’s established policies. For an unresolved ethical conflict:  Discuss the conflict with immediate supervisor or next highest uninvolved manager.  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. Follow employer’s established policies. For an unresolved ethical conflict:  Discuss the conflict with immediate supervisor or next highest uninvolved manager.  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. IMA Guidelines for Resolution of an Ethical Conflict

30. McGraw-Hill/Irwin Slide 30 Follow employer’s established policies. For an unresolved ethical conflict:  Except where legally prescribed, maintain confidentiality.  Clarify issues in a confidential discussion with an objective advisor.  Consult an attorney as to legal obligations. Follow employer’s established policies. For an unresolved ethical conflict:  Except where legally prescribed, maintain confidentiality.  Clarify issues in a confidential discussion with an objective advisor.  Consult an attorney as to legal obligations. IMA Guidelines for Resolution of an Ethical Conflict

31. McGraw-Hill/Irwin Slide 31 Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices. Why Have Ethical Standards? Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer. Ethical standards in business are essential for a smooth functioning economy.

32. McGraw-Hill/Irwin Slide 32 Company Codes of Conduct Employees Customers Suppliers And to the communities in which the company operates. Broad-based statements of a company’s responsibilities to:

33. McGraw-Hill/Irwin Slide 33 Codes of Conduct on the International Level In addition to integrity and objectivity, resolution of ethical conflicts, competence, and confidentiality, the IFAC’s code deals with the accountant’s ethical responsibilities in: Taxes, Independence, Fees and commissions, Advertising and solicitation, Handling of monies, and Cross-border activities. In addition to integrity and objectivity, resolution of ethical conflicts, competence, and confidentiality, the IFAC’s code deals with the accountant’s ethical responsibilities in: Taxes, Independence, Fees and commissions, Advertising and solicitation, Handling of monies, and Cross-border activities. The Code of Ethics for Professional Accountants, issued by the International Federation of Accountants (IFAC), governs the activities of professional accountants worldwide.

34. McGraw-Hill/Irwin Slide 34 Corporate Governance The system by which a company is directed and controlled. Board of Directors Top Management Stockholders To pursue objectives of Incentives and monitoring for

35. McGraw-Hill/Irwin Slide 35 The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 was 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. Six key aspects of the legislation include:  The Act requires both the CEO and CFO to certify in writing that their company’s financial statements and disclosures fairly represent the results of operations.  The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession.  The Act places the power to hire, compensate, and terminate public accounting firms in the hands of the audit committee.  The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client. The Sarbanes-Oxley Act of 2002 was 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. Six key aspects of the legislation include:  The Act requires both the CEO and CFO to certify in writing that their company’s financial statements and disclosures fairly represent the results of operations.  The Act establishes the Public Company Accounting Oversight Board to provide additional oversight of the audit profession.  The Act places the power to hire, compensate, and terminate public accounting firms in the hands of the audit committee.  The Act places restrictions on audit firms, such as prohibiting public accounting firms from providing a variety of non-audit services to an audit client.

36. McGraw-Hill/Irwin Slide 36 The Sarbanes-Oxley Act of 2002 (continued)  The Act requires a public company’s independent auditor to issue an opinion on the effectiveness of the company’s internal control over financial reporting to accompany management’s assessment, and both are included in the company’s annual report. ‘The Act establishes severe penalties for certain behaviors, such as: Up to 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding. Up to 10 years in prison for retaliating against a “whistle blower.” (continued)  The Act requires a public company’s independent auditor to issue an opinion on the effectiveness of the company’s internal control over financial reporting to accompany management’s assessment, and both are included in the company’s annual report. ‘The Act establishes severe penalties for certain behaviors, such as: Up to 20 years in prison for altering or destroying any documents that may eventually be used in an official proceeding. Up to 10 years in prison for retaliating against a “whistle blower.”

37. McGraw-Hill/Irwin Slide 37 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. Should I try to avoid the risk, share the risk, accept the risk, or reduce the risk?

38. McGraw-Hill/Irwin Slide 38 Enterprise Risk Management

39. McGraw-Hill/Irwin Slide 39 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

40. McGraw-Hill/Irwin Slide 40 Corporate Social Responsibility

41. McGraw-Hill/Irwin Slide 41 Certified Management Accountant A management accountant who has the necessary qualifications and who passes a rigorous professional exam earns the right to be known as a Certified Management Accountant (CMA). Information about becoming a CMA and the CMA program can be accessed on the IMA’s website at www.imanet.org or by calling 1-800-638-4427. www.imanet.org Information about becoming a CMA and the CMA program can be accessed on the IMA’s website at www.imanet.org or by calling 1-800-638-4427. www.imanet.org

42. McGraw-Hill/Irwin Slide 42 End of Chapter 1