1. © 2012 McGraw-Hill Education (Asia) Managerial Accounting and the Business Environment Chapter 1 Garrison, Noreen, Brewer, Cheng & Yuen

2. McGraw-Hill Education (Asia) Slide 2 Management Accounting and Cost Accounting  Management Accounting  relates to the provision of appropriate information, including cost information for decision-making, planning, control, and performance evaluation.  Cost accounting  defines costs and valuates inventories to help managers to run businesses Garrison, Noreen, Brewer, Cheng & Yuen Management Accounting and Cost Accounting are intertwined and the terms are sometimes interchangeable  their functions are to help companies make better decisions

3. McGraw-Hill Education (Asia) Slide 3 World Merchandise Trade Volume By Major Product Group, 1950-2009 (Volume Indices, 1950=100) Source: World Trade Organization, International Trade Statistic 2010 Garrison, Noreen, Brewer, Cheng & Yuen

4. McGraw-Hill Education (Asia) Slide 4 Regional Shares In World Merchandise Exports, 2009 Garrison, Noreen, Brewer, Cheng & Yuen

5. McGraw-Hill Education (Asia) Slide 5 Distribution of Fortune Global 500 companies between 2005 and 2010 Fortune Global 5002010200920072005 Australia8989 China46372416 India8765 Japan71686781 Malaysia1111 Singapore2211 South Korea1014 11 Taiwan8662 Thailand1111 Asia Pacific155145128127 US139140162176 Canada11141613 Europe184188183178 Others1113116 500 Garrison, Noreen, Brewer, Cheng & Yuen

6. McGraw-Hill Education (Asia) Slide 6 Top 10 Companies of Fortune Global 500 (ranked by revenue) 2010 2009 RankCompany RevenuesProfits RankCompany RevenuesProfits ($ millions) 1Wal-Mart Stores408,21414,3351Royal Dutch Shell458,36126,277 2Royal Dutch Shell285,12912,5182Exxon Mobil442,85145,220 3Exxon Mobil284,65019,2803Wal-Mart Stores405,60713,400 4BP246,13816,5784BP367,05321,157 5Toyota Motor204,1062,2565Chevron263,15923,931 6Japan Post Holdings202,1964,8496Total234,67415,500 7Sinopec187,5185,7567ConocoPhillips230,764-16,998 8State Grid184,496-3438ING Group226,577-1,067 9AXA175,2575,0129Sinopec207,8141,961 10China National Petroleum165,49610,27210Toyota Motor204,352-4,349 Garrison, Noreen, Brewer, Cheng & Yuen source: http://money.cnn.com/magazines/fortune/global500/2010/full_list/index.html

7. McGraw-Hill Education (Asia) Slide 7 Internet Penetration Rate And Borderless Trading Potential The Internet fuels globalization by providing companies with greater access to geographically dispersed customers, employees, and suppliers. As of June 2010, more than 71% of the world's population was still not connected to the Internet. Garrison, Noreen, Brewer, Cheng & Yuen

8. McGraw-Hill Education (Asia) Slide 8 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. Garrison, Noreen, Brewer, Cheng & Yuen

9. McGraw-Hill Education (Asia) Slide 9 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. Garrison, Noreen, Brewer, Cheng & Yuen

10. McGraw-Hill Education (Asia) Slide 10 Learning Objective 1 Understand the role of management accountants in an organization. Garrison, Noreen, Brewer, Cheng & Yuen

11. McGraw-Hill Education (Asia) Slide 11 Organizational Structure Decentralization is the delegation of decision- making authority throughout an organization. Garrison, Noreen, Brewer, Cheng & Yuen

12. McGraw-Hill Education (Asia) Slide 12 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. Garrison, Noreen, Brewer, Cheng & Yuen

13. McGraw-Hill Education (Asia) Slide 13 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. Garrison, Noreen, Brewer, Cheng & Yuen

14. McGraw-Hill Education (Asia) Slide 14 Learning Objective 2 Understand the basic concepts underlying Lean Production, the Theory of Constraints, and Six Sigma. Garrison, Noreen, Brewer, Cheng & Yuen

15. McGraw-Hill Education (Asia) Slide 15 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. Garrison, Noreen, Brewer, Cheng & Yuen

16. McGraw-Hill Education (Asia) Slide 16 Process Management There are three approaches to improving business processes...  Lean Production  Theory of Constraints (TOC)  Six Sigma Garrison, Noreen, Brewer, Cheng & Yuen

17. McGraw-Hill Education (Asia) Slide 17 Traditional “Push” Manufacturing Company Forecast Sales Order components Produce goods in anticipation of Sales Make Sales from Finished Goods Inventory Store Inventory Garrison, Noreen, Brewer, Cheng & Yuen

18. McGraw-Hill Education (Asia) Slide 18 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. Garrison, Noreen, Brewer, Cheng & Yuen

19. McGraw-Hill Education (Asia) Slide 19 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. Garrison, Noreen, Brewer, Cheng & Yuen

20. McGraw-Hill Education (Asia) Slide 20 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. Garrison, Noreen, Brewer, Cheng & Yuen

21. McGraw-Hill Education (Asia) Slide 21 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. Garrison, Noreen, Brewer, Cheng & Yuen

22. McGraw-Hill Education (Asia) Slide 22 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 Garrison, Noreen, Brewer, Cheng & Yuen

23. McGraw-Hill Education (Asia) Slide 23 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 Garrison, Noreen, Brewer, Cheng & Yuen

24. McGraw-Hill Education (Asia) Slide 24 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. Garrison, Noreen, Brewer, Cheng & Yuen

25. McGraw-Hill Education (Asia) Slide 25 Six Sigma Garrison, Noreen, Brewer, Cheng & Yuen

26. McGraw-Hill Education (Asia) Slide 26 Learning Objective 3 Understand the importance of upholding ethical standards. Garrison, Noreen, Brewer, Cheng & Yuen

27. McGraw-Hill Education (Asia) Slide 27 Code of Conduct for Management Accountants The Institute of Management Accountants’ (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 Accountants’ (IMA) Statement of Ethical Professional Practice consists of two parts that offer guidelines for:  Ethical behavior.  Resolution for an ethical conflict. Garrison, Noreen, Brewer, Cheng & Yuen All Professional Management Accountants Bodies issue their own Code of Conduct but they all share similar fundamental principles and conceptual approaches as the one issued by the Institute of Management Accountants.

28. McGraw-Hill Education (Asia) Slide 28 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. Garrison, Noreen, Brewer, Cheng & Yuen

29. McGraw-Hill Education (Asia) Slide 29 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 Garrison, Noreen, Brewer, Cheng & Yuen

30. McGraw-Hill Education (Asia) Slide 30 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 Garrison, Noreen, Brewer, Cheng & Yuen

31. McGraw-Hill Education (Asia) Slide 31 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. Garrison, Noreen, Brewer, Cheng & Yuen

32. McGraw-Hill Education (Asia) Slide 32 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 Garrison, Noreen, Brewer, Cheng & Yuen

33. McGraw-Hill Education (Asia) Slide 33 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 Garrison, Noreen, Brewer, Cheng & Yuen

34. McGraw-Hill Education (Asia) Slide 34 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. Garrison, Noreen, Brewer, Cheng & Yuen

35. McGraw-Hill Education (Asia) Slide 35 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: Garrison, Noreen, Brewer, Cheng & Yuen

36. McGraw-Hill Education (Asia) Slide 36 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. Garrison, Noreen, Brewer, Cheng & Yuen

37. McGraw-Hill Education (Asia) Slide 37 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 Garrison, Noreen, Brewer, Cheng & Yuen

38. McGraw-Hill Education (Asia) Slide 38 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. Garrison, Noreen, Brewer, Cheng & Yuen

39. McGraw-Hill Education (Asia) Slide 39 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.” Garrison, Noreen, Brewer, Cheng & Yuen

40. McGraw-Hill Education (Asia) Slide 40 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? Garrison, Noreen, Brewer, Cheng & Yuen

41. McGraw-Hill Education (Asia) Slide 41 Enterprise Risk Management Garrison, Noreen, Brewer, Cheng & Yuen

42. McGraw-Hill Education (Asia) Slide 42 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 Garrison, Noreen, Brewer, Cheng & Yuen

43. McGraw-Hill Education (Asia) Slide 43 Corporate Social Responsibility Garrison, Noreen, Brewer, Cheng & Yuen

44. McGraw-Hill Education (Asia) Slide 44 Sustainability Reporting Garrison, Noreen, Brewer, Cheng & Yuen Global Reporting Initiative (GRI) promotes a systematic and standardized approach o to corporate social responsibility and embed it in corporate culture; o to stimulate demand for sustainability information; thus benefitting both reporting organizations and report users. International Federation of Accountants (IFAC) Sustainability Framework Organizations should o achieve a “Triple Bottom-Line”  financial, social, and environmental goals (or 3Ps: Profit, People, and Planet) promote a sound corporate governance and ethical responsibility to ensure financial success through ethical operations and transactions; promote cultural diversity and equality; provide opportunities for social and economic development of the communities; and minimize environmental damages, and provide a safe working and living environment for the communities.

45. McGraw-Hill Education (Asia) Slide 45 Sustainability Reporting: GRI Registered Companies Garrison, Noreen, Brewer, Cheng & Yuen Examples of GRI Registered Companies Asia: Air China, AsusTek, Canon, Reliance Industries, Samsung Securities, SingTel Europe: Air France-KLM, BP, Daimler, Nestle, Nokia United States: AT&T, Dell, ExxonMobil, Intel, Johnson & Johnson

46. McGraw-Hill Education (Asia) Slide 46 Professional Qualification of Management Accountants Garrison, Noreen, Brewer, Cheng & Yuen Traditional accounting qualifications e.g. Chartered Accountants (ACA), Certified Public Accountants (CPA) and Chartered Certified Accountants (ACCA) Management accountants qualifications, e.g.: InstitutionAbbrevCountryQualification The Institute of Management AccountantsIMAUSCMA Certified Management Accountants of Canada (previously known as The Society of Management Accountants of Canada) CMA Canada CanadaCMA The Chartered Institute of Management AccountantsCIMAUKFCMA, ACMA The Institute of Certified Management Accountants of Australia ICMAAustraliaCMA - CMA PhilippinesPhilippinesCMA - CMA IndonesiaIndonesiaCMA - CMA Sri LankaSri LankaCMA - CMA IndiaIndiaCMA The Institute of Cost and Works Accountants of IndiaICWAIIndiaFICWA, AICWA

47. McGraw-Hill Education (Asia) Slide 47 End of Chapter 1 Garrison, Noreen, Brewer, Cheng & Yuen