C1 - accounting

Copyright © 2015 Pearson Canada Inc. 1


CHAPTER 1

Introduction to Managerial Accounting


OBJECTIVE 1Identify managers’ four primary responsibilities


Managers’ Responsibilities

Setting goals and objectives

Overseeing day-to-day operations

Evaluating resultsof operations

Directing:

Controlling:

DecisionMaking

Planning:

Feedback


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


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


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


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


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




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




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



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



The Changing Roles of ManagementAccountants

• Impact of technology• Ensuring accurate financial records• Planning, analyzing, and interpreting

accounting data• Providing decision support


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


OBJECTIVE 4

Describe the role of the three professional accounting designations in Canada and use their ethical standards to make reasonable ethical judgments


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


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


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


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


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


OBJECTIVE 5

Discuss and analyze the implications of regulatory and business trends


Regulatory and Business Issues

• Sarbanes-Oxley Act of 2002 (SOX) in the USA• International Financial Reporting Standards

(IFRS)• Shifting economy


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


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


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


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


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


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


OBJECTIVE 6Describe a lean production system


Lean Production

• A philosophy and business strategy of manufacturing without waste

• Lowers costs• Increases competitive position• Incorporates a JIT inventory focus


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


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)


OBJECTIVE 7Describe and use the costs of quality framework


Cost of Quality Framework

• Identify costs as one of four categories– Prevention costs– Appraisal costs– Internal failure costs– External failure costs


Cost of Quality Examples

• Prevention Costs– Training employees– Other examples?

• Appraisal Costs– Inspection of materials– Other 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



• Internal Failure Costs– Cost of downtime– Other examples?

• External Failure Costs– Warranty costs– Other 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

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C1 - accounting