the accountant’s role in the organization readings: chapter 1: cost accounting : the managerial...
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CHAPTER 1The Accountant’s Role in the Organization
Readings:Chapter 1: Cost Accounting : The Managerial Emphasis 14th Edition By HorngrenChapter 1: Managerial Accounting 12th Edition By Garrison et.al
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Accounting Discipline OverviewManagerial Accounting – measures, analyzes
and reports financial and nonfinancial information to help managers make decisions to fulfill organizational goals. Managerial accounting need not be GAAP compliant.
Financial Accounting – focus on reporting to external users including investors, creditors, and governmental agencies. Financial statements must be based on GAAP.
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Major Differences Between Financial & Managerial Accounting
Managerial Accounting
Financial Accounting
Purpose Decision making Communicate financial position to outsiders
Primary Users
Internal managers External users
Focus/Emphasis
Future-oriented Past-oriented
RulesDo not have to follow GAAP; cost vs. benefit
GAAP compliant; CPA audited
Time SpanUltra current to very
long time horizons
Historical monthly, quarterly reports
Behavioral Issues
Designed to influence employee behavior
Indirect effects on employee behavior
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Strategy & Management AccountingStrategy – specifies how an organization
matches its own capabilities with the opportunities in the marketplace to accomplish its objectives
Strategic Cost Management – focuses specifically on the cost dimension within a firm’s overall strategy
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Strategy & Management AccountingManagement accounting helps answer
important questions such as:Who are our most important customers, and
how do we deliver value to them?What substitute products exist in the
marketplace, and how do they differ from our own?
What is our critical capability?Will we have enough cash to support our
strategy or will we need to seek additional sources?
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Management Accounting and ValueCreating value is an important part of
planning and implementing strategyValue is the usefulness a customer gains from
a company’s product or service
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Management Accounting and ValueValue Chain is the sequence of business
functions in which customer usefulness is added to products or services
The Value-Chain consists of:1. Research & Development2. Design3. Production4. Marketing5. Distribution6. Customer Service
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The Value Chain Illustrated
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A Value Chain Implementation
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Key Success FactorsThe dimensions of performance that
customers expect, and that are key to the success of a company include:Cost and efficiencyQualityTimeInnovation
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Planning & Control SystemsPlanning selects goals, predicts results,
decides how to attain goals, and communicates this to the organizationBudget – the most important planning tool
Control takes actions that implement the planning decision, decides how to evaluate performance, and provides feedback to the organization
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A Five-Step Decision Making Process in Planning & Control
1. Identify the problem and uncertainties2. Obtain information3. Make predictions about the future4. Make decisions by choosing between
alternatives5. Implement the decision, evaluate
performance, and learn
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Management Accounting GuidelinesCost – Benefit approach is commonly used:
benefits generally must exceed costs as a basic decision rule
Behavioral & Technical Considerations – people are involved in decisions, not just dollars and cents
Different definitions of cost may be used for different applications
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A Typical Organizational Structure and the Management Accountant
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Professional EthicsThe four standards of ethical conduct for
management accountants as advanced by the Institute of Management Accountants:CompetenceConfidentialityIntegrityObjectivity
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Professional Ethics
Earnings management—deliberate accounting adjustments to “hit” profit targets
Often adjustments involve cost accounting—product costs and inventory valuations
Stretching legitimate accounting techniquesOutright fraud
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Potential Ethical Issues
Earnings management Low cost production at any cost Whistleblower retaliation Fixing prices Bribery and other corruption Hiding managerial acts
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Accountants Financial accountants provide information to external
parties Investors Creditors Regulators Donors
Managerial accountants provide information to internal users Managers
Cost accountants provide information to both internal and external users Product cost information
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Accounting DifferencesFinancial External focus Whole organization Historical Quantitative Monetary Verifiable GAAP Formal
recordkeeping
Managerial Internal focus Segments or divisions Current/projected Quantitative/qualitative Monetary and nonmonetary Timely/reasonable estimate Benefits exceed costs Formal and informal
recordkeeping
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Product Costs Upstream costs
Research Development Product design Supply chain
Downstream costs Marketing Distribution Customer service
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Relationship of Financial, Management, and Cost
Accounting
FINANCIALACCOUNTING
MANAGEMENTACCOUNTING
COSTACCOUNTING
Product Costs
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Product Cost Information External parties - stockholders, creditors,
regulators, and donors For investment and credit decisions Complies with GAAP Enterprise focus
Internal parties - managers Planning, controlling, and decision making Evaluating performance Includes upstream and downstream costs Disaggregated
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Accounting BodiesFinancial Public Company
Accounting Oversight Board (PCAOB)
Securities and Exchange Commission (SEC)
Financial Accounting Standards Board (FASB)
Management Institute of Management
Accountants (IMA) Society of Management
Accountants of Canada Cost Accounting
Standards Board (CASB)
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Organizational Strategy
1. Develop mission statement2. Implement strategy3. Deploy resources to create value for
customers and shareholders4. Recognize that each organization is unique
—thus unique strategies must be developed
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Organizational Strategy
Five factors core competencies organizational structure management style and organizational
culture organizational constraints environmental constraints
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Organizational Strategies
Core competency—critical function or activity providing a competitive advantage
Cost leadership strategy—undercut competitor prices
Product differentiation strategy—superior quality products or unique services sold at a premium
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Organizational Structure
Distribution of authority and responsibility in an organizationAuthority—right to use resources
to accomplish a task or achieve an objective
Responsibility—obligation to accomplish a task or achieve an objective
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Organizational Constraints
Four common organizational constraints Monetary capital Intellectual capital Technology Environmental constraints
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Value ChainA set of value-adding functions and processes that converts inputs into
products/servicesResearch and DevelopmentProduct DesignSupplyProductionMarketingDistributionCustomer Service
Communicate strategy to all members of the value chain
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Balanced Scorecard Learning and Growth
The organization’s intellectual capital Internal Business
Things to do well to meet customer needs and expectations
Customer Value How well the organization is doing relative to
important customer criteria such as quality, service and price.
Financial Performance Address stockholders’/stakeholders’ concerns
about profitability and organizational growth
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Ethics and Legislation
Sarbanes-Oxley Act—CEOs and CFOs personally accountable for the accuracy of their organization’s financial reporting
False Claims Act—whistle-blower protection and penalties for failure to blow the whistle (disclose known financial frauds)
Dodd-Frank Act—encourages whistle-blowing with awards from 10 to 30 percent of amount recouped
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Ethics & Management Accountants
Standards of Ethical Conduct for Management AccountantsCompetenceConfidentialityIntegrityCredibility
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Ethics in Multinationals
Foreign Corrupt Practices Act—prohibits bribes to obtain/retain a business
Organization of Economic Cooperation and Development Convention—crime to offer, promise, or give bribes to obtain/retain internal business deals
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QuestionsWhat is the relationship among financial,
management, and cost accounting?How is the balanced scorecard used to
implement an organization’s strategy?Where can an accountant find ethical
standards for cost accounting?
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35
End of Lecture 1