Managerial Accounting and the Business Environment

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Managerial Accounting and the Business Environment
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Learning Objectives
After studying this chapter, you should be able
to

• 1. Identify the major differences and
  similarities between financial and managerial
  accounting.
• 2. Understand the role of management accountants
  in an organization.
• 3. Understand the basic concepts underlying
  just-in-time (JIT), total quality management
  (TQM), process reengineering, and the theory of
  constraints (TOC).

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Learning Objectives
After studying this chapter, you should be able
to

• 4. Discuss the impact of international
  competition on businesses and on managerial
  accounting.
• 5. Explain the importance of upholding ethical
  standards.

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Managerial Accounting and Financial Accounting
Managerial accountingprovides informationto
managers of anorganization whodirect and
controlits operations.
Financial accountingprovides informationto
stockholders,creditors, and otherswho are
outsidethe organization.
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Work of Management

Planning
Directing and Motivating
Controlling
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Planning and Control Cycle
Formulating long- andshort-term plans (Planning)
Begin
Implementing plans (Directing and Motivating)
Comparing actual toplanned performance
(Controlling)
DecisionMaking
Measuringperformance (Controlling)
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Comparison of Financial and Managerial Accounting
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Expanding Role of Managerial Accounting
Increasing complexity andsize of organizations
Regulatoryenvironment
Factors thatincrease the need formanagerial
accountinginformation
Increasedemphasison quality
World-widecompetition
Rapid development andimplementation of technology
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Organizational Structure
An organization is a group of peopleunited for a
common purpose.
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Decentralization
Decentralization is the delegation of
decision-making authority throughout an
organization.
Decentralizationdecisionmaking
Decentralizationdecisionmaking
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Line and Staff Relationships

• Line positions are directly involved in
  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.

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The Controller

• The chief accountant in an organization with
  responsibility for
• Financial planning and analysis.
• Cost control.
• Financial reporting.
• Accounting information systems.

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The Professional Management Accountant

• Three types of professional accountants work as
  management accountants in Canada
• CGA.
• CA.
• CMA.

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The Changing Business Environment
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The Changing Business Environment
New tools for managers!
Just-In-Time Total Quality Management Process
Reengineering Theory of Constraints
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Just-in-Time (JIT) Systems
Receivecustomerorders.
Complete productsjust in time toship to
customers.
Scheduleproduction.
Complete partsjust in time forassembly into
products.
Receive materialsjust in time forproduction.
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Key Elements for a SuccessfulJIT System
Zero productiondefects
Improvedplant layout
Flexibleworkforce
Reducedsetup time
JIT purchasing Fewer, but more ultra-reliable
suppliers. Frequent JIT deliveries in small
lots. Defect-free supplier deliveries.
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Benefits of a JIT System
Reducedinventorycosts
Greatercustomersatisfaction
More rapidresponse tocustomer orders
Less warehousespace needed
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Total Quality Management
Where are we? Where do we want to go?
Do we need to change the plan?
How do we start?
How are we doing?
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Process Reengineering

• A business processis diagrammedin detail.

• The process isredesigned to includeonly those
  steps that addvalue to the product.

• Every step inthe businessprocess mustbe
  justified.

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Process Reengineering

• A business processis diagrammedin detail.

• Anticipated results
• Process is simplified.
• Process is completed in less time.
• Costs are reduced.
• Opportunities for errors are reduced.

• The process isredesigned to includeonly those
  steps that makethe product more valuable.

• Every step inthe businessprocess mustbe
  justified.

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Theory of Constraints

• A sequential process of identifying and
  removing constraints in a system.

Restrictions or barriers that impedeprogress
toward an objective
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International Competition

• Meeting world-class competition demands a
  world-class management accounting system.
• Managers must make decisions to plan, direct, and
  control a world-class organization.

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Professional Ethics in Accounting

• Ethical accounting practices build trust and
  promote loyal, productive relationships with
  users of accounting information.
• Many companies and professional organizations,
  such as the International Federation of
  Accountants (IFAC),have written codes of ethics
  thatserve as guides.

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IFAC Code of Ethics for Professional Accountants

• Competence
• Confidentiality
• Integrity
• Objectivity

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End of Chapter 1