© 2012 mcgraw-hill education (asia) managerial accounting and the business environment chapter 1...
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© 2012 McGraw-Hill Education (Asia)
Managerial Accounting and the Business Environment
Chapter 1
Garrison, Noreen, Brewer, Cheng & Yuen
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
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World Merchandise Trade Volume By Major Product Group, 1950-2009 (Volume Indices, 1950=100)
Source: World Trade Organization, International Trade Statistic 2010
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Regional Shares In World Merchandise Exports, 2009
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Distribution of Fortune Global 500 companies between 2005 and 2010
Fortune Global 500 2010 2009 2007 2005Australia 8 9 8 9China 46 37 24 16India 8 7 6 5Japan 71 68 67 81Malaysia 1 1 1 1Singapore 2 2 1 1South Korea 10 14 14 11Taiwan 8 6 6 2Thailand 1 1 1 1Asia Pacific 155 145 128 127US 139 140 162 176Canada 11 14 16 13Europe 184 188 183 178Others 11 13 11 6
500 500 500 500
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Top 10 Companies of Fortune Global 500 (ranked by revenue)
2010 2009
RankCompany
Revenues Profits
RankCompany
Revenues Profits
($ millions) ($ millions) ($ millions) ($ millions)
1 Wal-Mart Stores 408,214 14,335 1 Royal Dutch Shell 458,361 26,277
2 Royal Dutch Shell 285,129 12,518 2 Exxon Mobil 442,851 45,220
3 Exxon Mobil 284,650 19,280 3 Wal-Mart Stores 405,607 13,400
4 BP 246,138 16,578 4 BP 367,053 21,157
5 Toyota Motor 204,106 2,256 5 Chevron 263,159 23,931
6 Japan Post Holdings 202,196 4,849 6 Total 234,674 15,500
7 Sinopec 187,518 5,756 7 ConocoPhillips 230,764 -16,998
8 State Grid 184,496 -343 8 ING Group 226,577 -1,067
9 AXA 175,257 5,012 9 Sinopec 207,814 1,961
10 China National Petroleum 165,496 10,272 10 Toyota Motor 204,352 -4,349
Garrison, Noreen, Brewer, Cheng & Yuen
source: http://money.cnn.com/magazines/fortune/global500/2010/full_list/index.html
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Internet Penetration Rate And Borderless Trading Potential
The Internet fuels globalizationby providing companies with greateraccess to geographically dispersed
customers, employees, and suppliers.
The Internet fuels globalizationby providing companies with greateraccess to geographically dispersed
customers, employees, and suppliers.
As of June 2010, more than 71% ofthe world's population was stillnot connected to the Internet.
As of June 2010, more than 71% ofthe world's population was stillnot connected to the Internet.
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Strategy
A strategyis a “game plan”
that enables a companyto attract customers
by distinguishing itselffrom competitors.
The focal point of acompany’s strategy should
be its target customers.
The focal point of acompany’s strategy should
be its target customers.
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Customer Value Propositions
Understand and respond toindividual customer needs.Understand and respond toindividual customer needs.
CustomerIntimacyStrategy
OperationalExcellenceStrategy
Deliver products and servicesfaster, more conveniently,
and at lower prices.
Deliver products and servicesfaster, more conveniently,
and at lower prices.
ProductLeadership
StrategyOffer higher quality products.Offer higher quality products.
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Learning Objective 1
Understand the role of Understand the role of management accountants management accountants
in an organization.in an organization.
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Corporate Organization Chart
Purcha sing Personnel V ice PresidentO pera tions
T rea surer C ontro ller
C hief F ina ncia lO fficer
President
B oa rd of D irectors
Organizational Structure
Decentralization is the delegation of decision-Decentralization is the delegation of decision-making authority throughout an organization.making authority throughout an organization.
Decentralization is the delegation of decision-Decentralization is the delegation of decision-making authority throughout an organization.making authority throughout an organization.
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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.
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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.
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Learning Objective 2
Understand the basic Understand the basic concepts underlying concepts underlying Lean Production, the Lean Production, the
Theory of Constraints, Theory of Constraints, and Six Sigma.and Six Sigma.
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Process Management
Business functions making up the value chainBusiness functions making up the value chain
Product Customer R&D Design Manufacturing Marketing Distribution Service
A businessprocess is a series of
steps that are followed in order tocarry out some task in
a business.
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Process Management
There are three approaches toimproving business processes . . .
LeanProduction
Theory ofConstraints (TOC)
SixSigma
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Traditional “Push” Manufacturing Company
Forecast Sales Order components
Produce goods in anticipation of Sales
Make Sales from Finished Goods
Inventory
Store Inventory
StoreInventory
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Traditional “push”manufacturing
Traditional “Push” Manufacturing Company
Largeinventories
Finishedgoods
Rawmaterials
Work inprocess
Materials waitingto be processed.Materials waitingto be processed.
Completed products awaiting sale.
Completed products awaiting sale.
Partially completed products requiring more work before
they are ready for sale.
Partially completed products requiring more work before
they are ready for sale.Garrison, Noreen, Brewer, Cheng & Yuen
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Lean Production
The lean thinkingmodel is a fivestep approach.
The lean thinkingmodel is a fivestep approach.
Identify valuein specific
products/services.
Identify valuein specific
products/services.
Identify thebusiness process
that delivers value.
Identify thebusiness process
that delivers value.
Organize workarrangements around
the flow of thebusiness process.
Organize workarrangements around
the flow of thebusiness process.
Create a pullsystem that respondsto customer orders.
Create a pullsystem that respondsto customer orders.
Continuously pursueperfection in the
business process.
Continuously pursueperfection in the
business process.Garrison, Noreen, Brewer, Cheng & Yuen
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Customer places an order
Create Production Order
Generate component requirements
Production begins as parts arrive
Goods delivered when needed
Components are ordered
Lean ProductionThe five step process results in a “pull” manufacturing system
that reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.
The five step process results in a “pull” manufacturing systemthat reduces inventories, decreases defects, reduceswasted effort, and shortens customer response times.
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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.
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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 determinedThe constraint in a system is determinedby the step that has theby the step that has the smallest smallest capacity.
Theory of Constraints
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4. Recognize that the weakest linkis no longer so.
4. Recognize that the weakest linkis no longer so.
1. Identify the weakest link.1. Identify the weakest link.
2. Allow the weakest link to set the tempo.
2. Allow the weakest link to set the tempo.
3. Focus on improving
the weakest link.
3. Focus on improving
the weakest link.
Only actions that strengthen the weakest link in the “chain” improve the process.
Theory of Constraints
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Six Sigma
A process improvement method relying on customer feedback and fact-based data gathering and analysis
techniques to drive process improvement.
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.
Refers to a process that generates no more
than 3.4 defects per million opportunities.
Sometimes associated
with the term zero defects.
Sometimes associated
with the term zero defects.
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Six Sigma
Stage GoalsDefine ● Establish the scope and purpose of the project.
● Diagram the flow of the current process.● Establish the customer's requirements for the process.
Measure ● Gather baseline performance data related to the existing process.● Narrow the scope of the project to the most important problems.
Analyze ● Identify the root cause(s) of the problems identified in the Measure stage.
Improve ● Develop, evaluate, and implement solutions to the problems.
Control ● Ensure that problems remain fixed.● Seek to improve the new methods over time.
The Six Sigma DMAIC Framework
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Learning Objective 3
Understand the Understand the importance of upholding importance of upholding
ethical standards.ethical standards.
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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.
McGraw-Hill Education (Asia) Slide 28
CompetenceCompetenceFollow applicablelaws, regulationsand standards.
Follow applicablelaws, regulationsand standards.
Maintain professional competence.
Maintain professional competence.
Provide accurate, clear, concise, and timely decision
support information.
Provide accurate, clear, concise, and timely decision
support information.
IMA Guidelines for Ethical Behavior
Recognize and communicate professional limitations that preclude responsible judgment.
Recognize and communicate professional limitations that preclude responsible judgment.
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ConfidentialityConfidentiality
Do not disclose confidential Do not disclose confidential information unless legally information unless legally
obligated to do so. obligated to do so.
Do not disclose confidential Do not disclose confidential information unless legally information unless legally
obligated to do so. obligated to do so.
Ensure that subordinates do Ensure that subordinates do not disclose confidential not disclose confidential
information. information.
Ensure that subordinates do Ensure that subordinates do not disclose confidential not disclose confidential
information. information.
Do not use Do not use confidential confidential
information for information for unethical or illegalunethical or illegal
advantage. advantage.
Do not use Do not use confidential confidential
information for information for unethical or illegalunethical or illegal
advantage. advantage.
IMA Guidelines for Ethical Behavior
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Mitigate conflicts of interest and advise others
of potential conflicts.
Mitigate conflicts of interest and advise others
of potential conflicts.
Abstain from activities that might discredit the
profession.
Abstain from activities that might discredit the
profession.
Refrain from conduct that
would prejudice carrying out
duties ethically.
Refrain from conduct that
would prejudice carrying out
duties ethically.
IntegrityIntegrity
IMA Guidelines for Ethical Behavior
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Communicate information fairly and objectively.
Communicate information fairly and objectively.
Disclose all relevant information that could
influence a user’s understanding of reports and recommendations.
Disclose all relevant information that could
influence a user’s understanding of reports and recommendations.
CredibilityCredibility
IMA Guidelines for Ethical Behavior
Disclose delays or deficiencies in information timeliness, processing, or
internal controls.
Disclose delays or deficiencies in information timeliness, processing, or
internal controls.
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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
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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
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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, theeconomy, and all of us who depend on it for
jobs, goods, and services, would suffer.
Ethical standards in business are essential for asmooth functioning economy.
Ethical standards in business are essential for asmooth functioning economy.
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Company Codes of Conduct
EmployeesEmployees CustomersCustomers SuppliersSuppliers
And to the communities inwhich the company operates.
And to the communities inwhich the company operates.
Broad-based statements of aBroad-based statements of acompany’s responsibilities to:company’s responsibilities to:Broad-based statements of aBroad-based statements of acompany’s responsibilities to:company’s responsibilities to:
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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, andCross-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, andCross-border activities.
The Code of Ethics for ProfessionalAccountants, issued by the International
Federation of Accountants (IFAC), governs the activities of professional accountants worldwide.
The Code of Ethics for ProfessionalAccountants, issued by the International
Federation of Accountants (IFAC), governs the activities of professional accountants worldwide.
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Corporate Governance
The system byThe system bywhich a company is directedwhich a company is directed
and controlled.and controlled.
Board ofDirectorsBoard ofDirectors
TopManagement
TopManagement
StockholdersStockholders
To pursueobjectives of
Incentives andmonitoring for
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The Sarbanes-Oxley Act of 2002The Sarbanes-Oxley Act of 2002 was intended to protect theinterests of those who invest in publicly traded companies byimproving the reliability and accuracy of corporate financialreports 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 theinterests of those who invest in publicly traded companies byimproving the reliability and accuracy of corporate financialreports 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.
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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.
⑥ The Act establishes severe penalties for certain behaviors,such as:
• Up to 20 years in prison for altering or destroying anydocuments that may eventually be used in an officialproceeding.
• 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.
⑥ The Act establishes severe penalties for certain behaviors,such as:
• Up to 20 years in prison for altering or destroying anydocuments that may eventually be used in an officialproceeding.
• Up to 10 years in prison for retaliating against a“whistle blower.”
Garrison, Noreen, Brewer, Cheng & Yuen
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Enterprise Risk Management
A process usedA process usedby a company toby a company to
proactively identifyproactively identifyand manage risk.and manage risk.
Once a company identifies its risks, perhaps themost common risk management tactic is to reduce
risks by implementing specific controls.
Once a company identifies its risks, perhaps themost common risk management tactic is to reduce
risks by implementing specific controls.
Should I try to avoid the risk, share the risk, accept therisk, or reduce the risk?
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Enterprise Risk ManagementExamples of Controls to
Examples of Business Risks Reduce Business Risks● Products harming customers ● Develop a formal and rigorous
new product testing program● Losing market share due to the ● Develop an approach for legally unforeseen actions of competitors gathering information about
competitors' plans and practices● Poor weather conditions shutting ● Develop contingency plans for down operations overcoming weather-related
disruptions● Website malfunction ● Thoroughly test the website
before going "live" on the Internet● A supplier strike halting the flow ● Establish a relationship with two of raw materials companies capable of providing
raw materials● Financial statements unfairly ● Count the physical inventory on reporting the value of inventory hand to make sure that it agrees
with the accounting records● An employee accessing ● Create password-protected barriers unauthorized information that prohibit employees from
obtaining information not needed to do their jobs
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Corporate Social Responsibility
CSR extends beyond legal complianceto include voluntary actions that satisfy
stakeholder expectations.
CSR extends beyond legal complianceto 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.
Customers Employees CommunitiesSuppliers StockholdersEnvironmental
& Human RightsAdvocates
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Corporate Social ResponsibilityCompanies should provide customers with: Companies and their suppliers should provide● Safe, high quality products that are fairly employees with: priced ● Safe and humane working conditions● Competent, courteous, and rapid delivery ● Non-discriminatory treatments and the of products and services right to organize and file grievances● Full disclosure of product-related risks ● Fair compensation● Easy to use information systems for ● Opportunities for training, promotion, shopping and tracking orders and personal developmentCompanies should provide suppliers with: Companies should provide communities with:● Fair contract terms and prompt payments ● Payment of fair taxes ● Reasonable time to prepare orders ● Honest information about plans such as ● Hassle-free acceptance of timely and plant closings complete deliveries ● Resources that support charities, schools,● Cooperative rather than unilateral and civic activities actions ● Reasonable access to media sourcesCompanies should provide stockholders with: Companies should provide environmental ● Competent management and human rights advocates with:● Easy access to complete and accurate ● Greenhouse gas emissions data financial information ● Recycling and resource conservation data● Full disclosure of enterprise risks ● Child labor transparency● Honest answers to knowledgeable ● Full disclosure of suppliers located in questions developing countries
Examples of Corporate Social Responsibility
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Sustainability Reporting
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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; andminimize environmental damages, and provide a safe working and living environment for the communities.
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Sustainability Reporting: GRI Registered Companies
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Examples of GRI Registered CompaniesAsia: 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
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.:
Institution Abbrev Country Qualification
The Institute of Management Accountants IMA US CMA
Certified Management Accountants of Canada (previously known as The Society of Management Accountants of Canada)
CMA Canada
Canada CMA
The Chartered Institute of Management Accountants CIMA UK FCMA , ACMA
The Institute of Certified Management Accountants of Australia
ICMA Australia CMA
- CMA Philippines Philippines CMA
- CMA Indonesia Indonesia CMA
- CMA Sri Lanka Sri Lanka CMA
- CMA India India CMA
The Institute of Cost and Works Accountants of India ICWAI India FICWA, AICWA
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End of Chapter 1
Garrison, Noreen, Brewer, Cheng & Yuen