Managerial Accounting:

An Overview
Chapter 1

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education.
 1-2

Financial and Managerial

Accounting: Seven Key Differences
 1-3

Work of Management

Planning
Planning
Controlling
Controlling
Decision
Decision
Making
Making
 1-4

Planning

Establish
Establish Goals.
Goals.

Specify
Specify How
How Goals
Goals
Will
Will Be
Be Achieved.
Achieved.

Develop
Develop Budgets.
Budgets.
 1-5

Controlling
The
The control
control function
function gathers
gathers feedback
feedback to
to
ensure
ensure that
that plans
plans are
are being
being followed.
followed.

Feedback
Feedback inin the
the form
form ofof performance
performance reports
reports
that
that compare
compare actual
actual results
results with
with the
the budget
budget
are
are an
an essential
essential part
part of
of the
the control
control function.
function.
 1-6

Decision Making
Decision making
making involves
involves
making
making aa selection
selection among
competing
competing alternatives.
alternatives.

What
What should
should
we
we be
be selling?
selling?
Who
Who should
should
we
we be
be serving?
serving?
How
How should
should
we
we execute?
execute?
 1-7

Managerial Accounting Activities:

Marketing Majors

Planning
Planning

How much should we budget for

TV, print, and internet advertising?

How many salespeople should we

plan to hire to serve a new
territory?
 1-8

Managerial Accounting Activities:

Marketing Majors

Controlling
Controlling

Is the budgeted price cut

increasing unit sales as expected?

Are we accumulating too much

inventory during the holiday
shopping season?
 1-9

Managerial Accounting Activities:

Marketing Majors

Decision
Decision
Making
Making

Should we sell our services as

one bundle or sell them
separately?

Should we sell directly to

customers or use a distributor?
 1-10

Managerial Accounting Activities:

Supply Chain Management Majors

Planning
Planning

How many units should we plan to

produce next period?

How much should we budget for

next period’s utility expense?
 1-11

Managerial Accounting Activities:

Supply Chain Management Majors

Controlling
Controlling

Did we spend more or less than

expected for the units we actually
produced?

Are we achieving our goal of

reducing the number of defective
units produced?
 1-12

Managerial Accounting Activities:

Supply Chain Management Majors

Decision
Decision
Making
Making

Should we transfer production of a

component part to an overseas
supplier?

Should we redesign our

manufacturing process to lower
inventory levels?
 1-13

Managerial Accounting Activities:

Human Resource Management Majors

Planning
Planning

How much should we plan to

spend for occupational safety
training?

How much should we plan to

spend on employee recruitment
advertising?
 1-14

Managerial Accounting Activities:

Human Resource Management Majors

Controlling
Controlling

Is our employee retention rate

exceeding our goals?

Are we meeting our goal of

completing timely performance
appraisals?
 1-15

Managerial Accounting Activities:

Human Resource Management Majors

Decision
Decision
Making
Making

Should we hire an on-site medical

staff to lower our healthcare
costs?

Should we hire temporary workers

or full-time employees?
 1-16

Accounting Majors
The IMA estimates that more than
80% of professional accountants
in the U.S. work in non-public
accounting environments.

Employers expect accounting majors

to have strong financial accounting
skills, but they also expect
application of the planning,
80% controlling, and decision making
skills that are the foundation of
managerial accounting.
 1-17

Certified Management Accountant

A
A management
management accountant
accountant
who has the necessary qualifications
qualifications
and
and who
who passes
passes aa rigorous
rigorous professional
professional
exam
exam earns
earns the
the right
right to
to be
be known
known asas aa
Certified
Certified Management
Management Accountant
Accountant
(CMA).
(CMA).
 1-18

CMA Exam
Part 1 Financial Planning, Performance, and Control
Planning, budgeting, and forecasting
Performance management
Cost management
Internal controls
Professional ethics

Part 2 Financial Decision Making

Financial statement analysis
Corporate finance
Decision analysis and risk management
Investment decisions
Professional ethics

Information
Information about
about becoming
becoming aa CMA
CMA and
and the
the CMA
CMA program
program can
can be
be accessed
accessed
on
on the
the IMA’s
IMA’s website
website at
at www.imanet.org
www.imanet.org or
or by
by calling
calling 1-800-638-4427.
1-800-638-4427.
 1-19

Managerial Accounting: Beyond the

Numbers

The primary purpose Planning

Planning
of this course is to
teach measurement
skills that managers
Controlling
Controlling
use to support
planning, controlling,
and decision making
Decision
Decision
activities.
Making
Making
 1-20

Managerial Accounting: Beyond the

Numbers
Measuremen What
What net
net income
income should
should my
my company
company
t skills help report
report to
to its
its stockholders?
stockholders?
managers Measure
Measure and
and report
report historical
historical data
data
answer that
that complies
complies with
with applicable
applicable rules.
rules.
important How
How will
will my
my company
company serve
serve its
its customers?
customers?
questions. Measure
Measure andand analyze
analyze mostly
mostly non-
non-
financial,
financial, process-oriented
process-oriented data.
data.

Will
Will my
my company
company need
need to
to borrow
borrow money?
money?
Measure
Measure and
and analyze
analyze estimated
estimated
future
future cash
cash flows.
flows.
 1-21

Managerial Accounting: Beyond the

Numbers

Six Business Management Perspectives that

go beyond the numbers to enable intelligent
planning, control, and decision making:
•An Ethics Perspective
•A Strategic Management Perspective
•An Enterprise Risk Management Perspective
•A Corporate Social Responsibility Respective
•A Process Management Prospective
•A Leadership Perspective
 1-22

An Ethics Perspective
The Institute of Management Accountant’s (IMA)
Statement of Ethical Professional Practice provides
guidelines for ethical behavior.
Recognize
Recognize and
and communicate
communicate professional
professional
limitations
limitations that
that preclude
preclude responsible
responsible judgment.
judgment.

Maintain
Maintain Follow
Follow applicable
applicable
professional
professional Competence laws,
laws, regulations,
regulations,
competence.
competence. and
and standards.
standards.

Provide
Provide accurate,
accurate, clear,
clear, concise,
concise, and
and
timely
timely decision
decision support
support information.
information.
 1-23

IMA Guidelines for Ethical Behavior

Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.

Do
Do not
not use
use
confidential
confidential
information
information forfor Confidentiality
Confidentiality
unethical
unethical or
or illegal
illegal
advantage.
advantage.

Ensure
Ensure that
that subordinates
subordinates do
do
not
not disclose
disclose confidential
confidential
information.
information.
 1-24

IMA Guidelines for Ethical Behavior

Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise others
others
of
of potential
potential conflicts.
conflicts.
Refrain
Refrain from
from
conduct
conduct that
that
would
would prejudice
prejudice Integrity
carrying
carrying out
out
duties
duties ethically.
ethically.
Abstain
Abstain from
from activities
activities that
that
might
might discredit
discredit the
the
profession.
profession.
 1-25

IMA Guidelines for Ethical Behavior

Communicate
Communicate information
information
fairly
fairly and
and objectively.
objectively.

Disclose
Disclose delays
delays or
or
deficiencies
deficiencies inin information
information
Credibility
Credibility timeliness,
timeliness, processing,
processing, or or
internal
internal controls.
controls.

Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa user’s
user’s
understanding
understanding of of reports
reports
and
and recommendations.
recommendations.
 1-26

IMA Guidelines for Resolution of an

Ethical Conflict

Follow
Follow employer’s
employer’s established
established policies.
policies.
IfIf this
this does
does not
not work,
work, consider
consider the
the following:
following:
▫▫ Discuss
Discuss thethe conflict
conflict with
with immediate
immediate supervisor
supervisor or or next
next
highest
highest uninvolved
uninvolved managerial
managerial level.
level.
▫▫ IfIf immediate
immediate supervisor
supervisor is is the
the CEO,
CEO, consider
consider the
the
board
board ofof directors
directors or
or the
the audit
audit committee.
committee.
▫▫ Contact
Contact with
with levels
levels above
above thethe immediate
immediate supervisor
supervisor
should
should only
only be
be initiated
initiated with
with the
the supervisor’s
supervisor’s
knowledge,
knowledge, assuming
assuming the the supervisor
supervisor isis not
not involved.
involved.
 1-27

IMA Guidelines for Resolution of an

Ethical Conflict

IfIf following
following employer’s
employer’s established
established policies
policies for
for conflict
conflict
resolution
resolution do do not
not work,
work, consider
consider thesethese additional
additional
practices:
practices:
▫▫ Except
Except where
where legally
legally prescribed,
prescribed, maintain
maintain
confidentiality.
confidentiality.
▫▫ Clarify
Clarify issues
issues in
in aa confidential
confidential discussion
discussion with
with an
an
objective
objective advisor.
advisor.
▫▫ Consult
Consult an an attorney
attorney asas to
to legal
legal obligations.
obligations.
 1-28

Why Have Ethical Standards?

Ethical
Ethical standards
standards in
in business
business are
are essential
essential for
for aa
smooth
smooth functioning
functioning economy.
economy.

Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer.

Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods and services at higher prices.
 1-29

A Strategic Management Perspective

A strategy
is a “game plan”
that enables a company
to attract customers
by distinguishing itself
from competitors.

The
The focal point
point of a
company’s
company’s strategy should
be
be its
its target
target customers.
customers.
 1-30

Customer Value Propositions

Customer
Understand and respond to
Intimacy
individual customer needs.
Strategy

Operational Deliver products and services

Excellence faster, more conveniently,
Strategy and at lower prices.

Product
Leadership Offer higher quality products.
Strategy
 1-31

An Enterprise Risk Management

Perspective
Should I try to avoid the
risk, accept the risk, or
A process used reduce the risk?

by a company to
proactively identify
and manage risk.

Once
Once aa company
company identifies
identifies its
its risks,
risks, perhaps
perhaps the
the
most
most common
common riskrisk management
management tactictactic is
is to
to reduce
reduce
risks
risks by
by implementing specific
specific controls.
controls.
 1-32

An Enterprise Risk Management

Perspective
 1-33

A Corporate Social Responsibility

Perspective
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.

Environmental
Customers Employees Suppliers Communities Stockholders & Human Rights
Advocates

CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.
 1-34

Corporate Social Responsibility

 1-35

A Process Management Perspective

A business
process is a series of
steps that are followed in order to
carry out some task in
a business.

Product Customer
R&D Design Manufacturing Marketing Distribution Service

Business functions making up the value chain

 1-36

Lean Production

Customer places Create Production Generate component

an order Order requirements

Goods delivered Production begins Components

when needed as parts arrive are ordered

Lean Production is often called Just-In-Time (JIT) production.

 1-37

Lean Production
Traditional Manufacturing

Produce goods in Store Make Sales from

anticipation of Sales Inventory Finished Goods
Inventory
 1-38

Lean Production
Because lean thinking only allows production in
response to customer orders, the number of units
produced tends to equal the number of units sold.

The lean approach also results in fewer defects,

less wasted effort, and quicker customer response
times than traditional production methods.
 1-39

A Leadership Perspective

Organizational leaders unite the

behavior of employees around
two common themes—pursuing
strategic goals and making
optimal decisions.

Factors that influence behavior:

•Intrinsic Motivation
•Extrinsic Incentives
•Cognitive Bias
Corporate Governance

Appendix 1A

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2015 McGraw­Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw­Hill Education.
 1-41

Corporate Governance

The system by
which a company is directed
and controlled.
Board of Incentives and
Directors monitoring for

Top To pursue
Management objectives of

Stockholders
 1-42

The Sarbanes-Oxley Act of 2002

The
The Sarbanes-Oxley
Sarbanes-Oxley Act Act of
of 2002
2002 was
was intended
intended to to protect
protect the
the
interests
interests of
of those
those who
who invest
invest in
in publicly
publicly traded
traded companies
companies by by
improving
improving the
the reliability
reliability and
and accuracy
accuracy ofof corporate
corporate financial
financial
reports
reports and
and disclosures.
disclosures. SixSix key
key aspects
aspects ofof the
the legislation
legislation include:
include:
 The
 The Act
Act requires
requires both
both the
the CEO
CEO andand CFO
CFO to
to certify
certify in
in writing
writing
that
that their
their company’s
company’s financial
financial statements
statements and
and disclosures
disclosures
fairly
fairly represent
represent the
the results
results of
of operations.
operations.
 The
 The Act
Act establishes
establishes the
the Public
Public Company
Company Accounting
Accounting Oversight
Oversight
Board
Board to
to provide
provide additional
additional oversight
oversight of
of the
the audit
audit profession.
profession.
 The
 The Act
Act places
places the
the power
power to to hire,
hire, compensate,
compensate, and and terminate
terminate
public
public accounting
accounting firms
firms in
in the
the hands
hands ofof the
the audit
audit committee.
committee.
 The
 The Act
Act places
places restrictions
restrictions onon audit
audit firms,
firms, such
such as
as prohibiting
prohibiting
public
public accounting
accounting firms
firms from
from providing
providing aa variety
variety of
of non-audit
non-audit
services
services to
to an
an audit
audit client.
client.
 1-43

The Sarbanes-Oxley Act of 2002

(continued)
(continued)
 The
The Act
Act requires
requires aa public
public company’s
company’s independent
independent auditor
auditor
to
to issue
issue an
an opinion
opinion onon the
the effectiveness
effectiveness ofof the
the company’s
company’s
internal
internal control
control over
over financial
financial reporting
reporting to
to accompany
accompany
management’s
management’s assessment,
assessment, and
and both
both are
are included
included in
in the
the
company’s
company’s annual
annual report.
report.
⑥
⑥ The
The Act
Act establishes
establishes severe
severe penalties
penalties forfor certain
certain behaviors,
behaviors,
such
such as:
as:
•• UpUp to
to 20
20 years
years in
in prison
prison for
for altering
altering or
or destroying
destroying anyany
documents
documents that
that may
may eventually
eventually be be used
used in
in an
an official
official
proceeding.
proceeding.
•• UpUp to
to 10
10 years
years in
in prison
prison for
for retaliating
retaliating against
against aa
“whistle
“whistle blower.”
blower.”
 1-44

Internal Control

Internal control is a process designed to

provide reasonable assurance that
objectives are being achieved.

Preventive Controls Detective Controls

Prevents or deters Detects undesirable
undesirable events events
 1-45

Internal Control

Type of Internal Controls for Financial Reporting

Type of Control Classification Description

Authorizations Preventive Requiring management to formally approve

certain types of transactions.

Reconciliations Detective Relating data sets to one another to identify

and resolve discrepancies.

Segregation of Preventive Separating responsibilities related to

authorizing
Duties transactions, recording transactions, and
maintaining custody of the related assets.
 1-46

Internal Control

Type of Internal Controls for Financial Reporting

Type of Control Classification Description

Physical Preventive Using cameras, locks, and physical barriers to

Safeguards protect assets. .

Performance Detective Comparing actual performance to various

Reviews benchmarks to identify unexpected results.

Maintaining Detective Maintaining written and/or electronic

evidence to
Records support transactions.

Information Preventive/ Using controls such as passwords and

access
Systems Detective logs to ensure appropriate data restrictions.
 1-47

Internal Control
Internal
Internal controls
controls cannot
cannot guarantee
guarantee that
that
objectives
objectives are
are achieved
achieved because:
because:
▫▫ Even
Even well-designed
well-designed internal
internal control
control systems
systems
can
can break
break down.
down.
▫▫ Two
Two employees
employees may may collude
collude to
to circumvent
circumvent the
the
control
control system.
system.
▫▫ Senior
Senior leaders
leaders may
may manipulate
manipulate financial
financial
results
results by
by intentionally
intentionally overriding
overriding prescribed
prescribed
policies
policies and
and procedures.
procedures.
 1-48

End of Appendix 1A