c1 - accounting
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Copyright © 2015 Pearson Canada Inc. 1
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CHAPTER 1
Introduction to Managerial Accounting
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OBJECTIVE 1Identify managers’ four primary responsibilities
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Managers’ Responsibilities
Setting goals and objectives
Overseeing day-to-day operations
Evaluating resultsof operations
Directing:
Controlling:
DecisionMaking
Planning:
Feedback
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Planning• Setting goals and objectives for the
organization and determining how to achieve them
• Examples of strategic goals:• Generate more sales by opening new
stores• Reduce labour costs by improving
operating efficiencies
• Plans may be translated into budgets
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Directing• Overseeing organization’s day-to-day operations
• Examples:• Using daily/weekly sales reports to adjust
marketing decisions• Using product cost reports to adjust raw
material usage• Setting the work schedule for employees
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Controlling
• Evaluating results of operations against plans and making adjustments as needed
• Examples:• Comparing budgeted sales with actual sales
and take corrective action • Comparing budgeted product costs against
actual product costs and take corrective action
• Ensure actual results meet planned results
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Decision Making
• Management is continually making decisions while it plans, directs, and controls operations
• Examples:• Location of new stores• Prices of product offerings• Choice of suppliers• Hiring and firing employees
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OBJECTIVE 2
Distinguish financial accounting from managerial accounting
Managerial vs. Financial Accounting
Issue Managerial Financial
Primary users Internal External
Purpose of information
Plan, direct, control, decide
Users make investing and lending decisions
Primary accounting product
Internal reports useful to management
General purpose financial Statements
What is included? Defined by management
Determined by ASPE or IFRS
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Managerial vs. Financial Accounting
Issue Managerial Financial
Underlying basis of information
Internal and external transactions, focus on future
Based on historical transactions with external parties
Emphasis Data must be relevant Data must be reliable and objective
Business “unit” Segments of the business Company as a whole
Prepared how often? Depends on management needs Annually and quarterly
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Managerial vs. Financial Accounting
Issue Managerial Financial
Verification Internal audit External audit
Information requirements
No formal requirement only best practices
Public companies must issue audited financial statements
Impact on employee behaviour Careful consideration Adequacy of disclosure
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OBJECTIVE 3
Describe organizational structure and the roles and skills required of management accountants within the organization
Organizational Structure
Board of Directors
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Vice Presidents of Various Operations
Treasurer Controller Internal Audit
Audit Committe
e
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The Changing Roles of ManagementAccountants
• Impact of technology• Ensuring accurate financial records• Planning, analyzing, and interpreting
accounting data• Providing decision support
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Skills Required of Managerial Accountants
• Solid knowledge of financial and managerial accounting
• Problem-solving and decision-making skills• Knowledge of how a business functions• Ability to lead and to work in a team• Professionalism and ethical standards• Oral and written communications skills
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OBJECTIVE 4
Describe the role of the three professional accounting designations in Canada and use their ethical standards to make reasonable ethical judgments
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Professional Accounting Designations in Canada
• Certified Management Accountant (CMA)• Chartered Accountant (CA)• Certified General Accountant (CGA)
• Chartered Public Accountant (CPA)– Merger of the three legacy designations
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Credibility in Performance of DutiesCredibility in Performance of Duties
Professional Competence
• First level bullet- second level dash
8 third level arrow- fourth level dash
8 fifth level arrow
Confidentiality and Transparency
Integrity of Decisions
Independence in Actions
Management Accountant must comply with five ethical standards
Management Accountant must comply with five ethical standards
Management Accounting Ethics
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Ethical Behaviour
• Means doing the right thing, regardless of consequences
• Examples of unethical behaviour– Allowing reimbursement of false expense reports– Manipulating income – Performing tasks not qualified to perform
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Steps to Resolve Ethical Dilemmas
• Follow company’s policies for reporting unethical behaviour
• If not resolved– Discuss with immediate supervisor– Discuss with objective advisor– Consult an attorney
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Unethical vs. Illegal Behaviour
• Not all unethical behaviour is illegal, but all illegal behaviour is unethical.
• The CMA’s ethical concepts include– Honesty– Fairness– Objectivity– Responsibility
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OBJECTIVE 5
Discuss and analyze the implications of regulatory and business trends
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Regulatory and Business Issues
• Sarbanes-Oxley Act of 2002 (SOX) in the USA• International Financial Reporting Standards
(IFRS)• Shifting economy
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Sarbanes-Oxley Act of 2002 (SOX)• To restore trust in publicly traded corporations,
management, financial statements, and auditors• CEO /CFO responsibilities:
– Financial statements– Internal control structure– Procedures for financial reporting
• Independent audit committee• New requirements for public accounting firms• Increased white-collar crime penalties
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International Financial Reporting Standards (IFRS)
• As a result of globalization,– consistent reporting standards are needed
worldwide– Canada has adopted IFRS from January
2011
Current IFRS information:www.IFRS.com
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Shifting Economy
• North American economies have shifted away from manufacturing toward service
• Service companies now make up the largest sector of the Canadian economy
• Since the economy has shifted away from manufacturing, so has managerial accounting
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How Companies Compete in Today’s Global Marketplace
• Getting more accurate and timely information • Deciding whether to expand sales/production
into foreign countries• Observing international competitors
– Lean production– Cost-benefit analysis
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Sustainability, Social Responsibility, and the Triple Bottom Line
• Sustainability: the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs
• Triple bottom line: Recognizes that a company’s performance should also be viewed in terms of its impact on people and the planet
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Tools for Time-Based Competition
• Advanced Information Systems– Enterprise resource planning (ERP) systems– Help companies save money and respond quickly
to changes, and can replace hundreds of separate software systems
• E-commerce– An important means of supply-chain
management
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OBJECTIVE 6Describe a lean production system
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Lean Production
• A philosophy and business strategy of manufacturing without waste
• Lowers costs• Increases competitive position• Incorporates a JIT inventory focus
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Characteristics of a Lean Production System
• Production occurs in self-contained cells• Broad employee roles• Small batches produced just in time• Shortened set-up times• Shortened manufacturing cycle times• Emphasis on quality
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TQM : Total Quality Management
• Goal is to provide customers with superior products and services
• Continually set higher goals for quality• International Organization for
Standardization (ISO)
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OBJECTIVE 7Describe and use the costs of quality framework
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Cost of Quality Framework
• Identify costs as one of four categories– Prevention costs– Appraisal costs– Internal failure costs– External failure costs
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Cost of Quality Examples
• Prevention Costs– Training employees– Other examples?
• Appraisal Costs– Inspection of materials– Other examples?
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Cost of Quality Examples
• Prevention Costs– Training employees– Evaluating suppliers– Using better materials– Preventive maintenance– Improved equipment– Redesign the product– Redesign the process
• Appraisal Costs– Inspection of materials– Inspection of WIP– Inspection of final
product– Employee evaluations– Product testing– Cost of inspection
equipment
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Cost of Quality Examples
• Internal Failure Costs– Cost of downtime– Other examples?
• External Failure Costs– Warranty costs– Other examples?
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Cost of Quality Examples
• Internal Failure Costs– Cost of downtime– Rework– Excessive scrap– Cost of rejected units– Disposal of rejects– Machine breakdowns
• External Failure Costs– Warranty costs– Service cost at customer
site– Sales returns – Product liability claims– Cost of recalls– Lost profit from lost
customers– Reputation