McGraw-Hill /Irwin. n Education

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1 P-1 Management Accounting Lecture 1 (Prologue) An Introduction to Managerial Accounting Bangor University Transfer Abroad Programme Today s Agenda What is Managerial Accounting? About me and why I m here About you and why you are here Course outline and process Get started What is Managerial Accounting? About Your Lecturer n The capture and analysis of information (financial and operational) that can be used to support the planning, executing and controlling of an organization n Its audience is internal to the organization, as opposed to financial accounting, which addresses external audiences n Managerial accountants provide the reports and analysis to help business leaders make decisions to maximize value over time n Education n BA in Economics, Chr. Hogeschool Windesheim, The Netherlands, n LL.M., Katholieke Univesiteit Nijmegen, The Netherlands n MM, Universiteit van Utrecht, Utrecht, The Netherlands n MBA in Leadership & Sustainability, University of Cumbria, UK n Profession n Owner of small Consulting Firm n Mergers & Acquisitions, Financings, Restructurings.. n Experience n Ernst & Young, ESJ, Thomas Cook, independent clients. About Your Lecturer Why I am Here n Importance of Managerial Accounting to my role n Critical to understanding the financial state of a business n Provides a framework for forecasting n A tool for optimizing a business (together with market analysis) n Assess value of the business n If you need me: n olivier.edu@gmail.com n Mobile n This is a tremendous time for China n. and as its future business leaders, a tremendous opportunity for you n As participants in the global economy, my clients are very interested in doing business with China n It s a great opportunity for me to be here with you and share my experiences. n I look forward to also learning from you

2 P-2 Why Are You Here? Course Outline It is helpful for me to understand your motivations in order to best tailor the course to your needs. n Educational objectives? n Career objectives? n Objective: To provide a core understanding of managerial accounting, its techniques, calculations and analysis n Text: Brewer (6 th edition, Introduction to Managerial Accounting) n Major subjects: n Costs types and behaviour n Accounting Systems types and circumstances n Financial Forecasts/Budgeting n Analysis for Superior Decision Making n Lectures, Tutorials, Self Study n Assessment n Participation n Mid-Term Exam 30% n Final Exam 70% Participation Mid-Term Exam 30% n Attendance n Answering questions in class and tutorials n Asking questions in class and tutorials n Homework completion n Subject matter: n Brewer Chapters 13, 14, 1 to 3 n Materials covered in class and tutorials n Short answers and problem solving n Emphasis on ability to apply judgment n Friday - May 24, 2013 n 2 hour Final Exam 70% Let s Get Started n Subject matter: n Brewer Chapters 1, 2, 3, 4, 7, 8, 9 and 11 n Materials covered in class and tutorials n Problem solving n Applying knowledge to specific challenges n Multiple choice n Demonstrating an ability to apply judgment n Friday June 7, 2013 n 2 hours n Objectives and Relevance of Managerial Accounting n Globalization n Organizational Structure n Process Management n Importance of ethics in business n Corporate governance n Enterprise risk management

3 P-3 Financial and Managerial Accounting: Seven Key Differences Globalization Financial Accounting Managerial Accounting 1. Users External persons who Managers who plan for make financial decisions and control an organization 2. Time focus Historical perspective Future emphasis 3. Verifiability Emphasis on Emphasis on versus relevance objectivity and verifiability relevance 4. Precision versus Emphasis on Emphasis on timeliness precision timeliness 5. Subject Primary focus is on Focus on companywide reports segment reports 6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS and prescribed formats or any prescribed format 7. Requirement Mandatory for Not external reports Mandatory Reduction in tariffs and quotas Expansion of Internet usage Improvements in global transportation systems Increasing sophistication in international markets The Global Marketplace The Global Marketplace Companies that have been successful in their local markets may suddenly find themselves facing competition from halfway around the globe. New Markets New Customers New Workers Strategic Management Skills Customer Value Propositions A strategy is a game plan that enables a company to attract customers by distinguishing itself from competitors. Customer Intimacy Strategy Operational Excellence Strategy Understand and respond to individual customer needs. Deliver products and services faster, more conveniently, and at lower prices. The focal point of a company s strategy should be its target customers. Product Leadership Strategy Offer higher quality products.

4 P-4 Organizational Structure The Functional View of Organizations Decentralization An organization is a group of people united for a common purpose. Corporate Organization Chart decision making Board of Directors President Purchasing Personnel Vice President Operations Decentralization decision making Chief Financial Officer Line positions are directly related to the achievement of the basic objectives of an organization. n Example: Production supervisors in a manufacturing plant. Staff positions support and assist line positions. n Example: Cost accountants in the manufacturing plant. Treasurer Controller Process Management Value Chain A business process is a series of steps that are followed in order to carry out some task in a business. Business Functions Making Up the Value Chain Research and Production Product Design Manufacturing Marketing Distribution Customer Service A value chain consists of the major business functions that add value to a company s products and services. Lean Production 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. Step 1 Identify value in specific products/ services Step 5 Continuously pursue perfection in the business process The lean approach also results in fewer defects, less wasted effort, and quicker customer response times than traditional production methods. Step 2 Identify the business process that delivers value Step 3 Organize work arrangements around the flow of the business process Step 4 Create a pull system that responds to customer orders

5 P-5 Supply Chain Management Theory of Constraints The term supply chain management is commonly used to refer to the coordination of business processes across companies to better serve end consumers. A constraint (also called a bottleneck) is anything that prevents you from getting more of what you want. The Theory of Constraints (TOC) is based on the observation that effectively managing the constraint is the key to success. The constraint in a system is determined by the step that has the smallest capacity. The goal is to manage the constraint with the intent of generating more business rather than cutting the workforce. Theory of Constraints (TOC) Six Sigma Step 1 Identify the weakest link in the chain, which is the constraint Step 4 If improvement efforts are successful, the weakest link will improve A process improvement method that relies on customer feedback and fact-based data gathering and analysis techniques to drive process improvements. Step 2 Do not place a greater strain on the system than the weakest link can handle Step 3 Concentrate improvement efforts on strengthening the weakest link Six Sigma is sometimes associated with the slogan zero defects. Six Sigma Six Sigma The DMAIC framework is the most common framework used to guide Six Sigma process improvement efforts. Define Measure Analyze Improve Control Six Sigma improvements can only increase profits in two ways: 1. Decrease costs 2. Increase sales

6 P-6 Technology in Business Technology in Business Most companies used to implement specific software programs to support specific business functions. An Enterprise System integrates data across an organization. The Importance of Ethics in Business Ethical practices in business build trust and promote productive relationships. They are necessary for the functioning of a market economy. Standards of Ethical Conduct Maintain professional competence. Competence Follow applicable laws, regulations and standards. Prepare accurate, clear, concise, and timely decision support information. Recognize and communicate professional limitations that preclude responsible judgment. Standards of Ethical Conduct Standards of Ethical Conduct Do not use confidential information for unethical or illegal advantage. Do not disclose confidential information unless legally obligated to do so. Confidentiality Ensure that subordinates do not disclose confidential information. Abstain from activities that might discredit the profession. Integrity Mitigate conflicts of interest and advise others of potential conflicts. Refrain from conduct that would prejudice carrying out duties ethically.

7 P-7 Standards of Ethical Conduct Company Codes of Conduct Disclose delays or deficiencies in information timeliness, processing, or internal controls. Communicate information fairly and objectively. Credibility Disclose all relevant information that could influence a user s understanding of reports or recommendations. Many companies have adopted formal ethics codes of conducts that provide broad guidelines for proper behavior. Codes of Conduct on the International Level The International Federation of Accountants (IFAC) Guidelines on Ethics for Professional Accountants governs the activities of all accountants throughout the world. Corporate Governance Corporate governance is the system by which a company is directed and controlled. If properly implemented, it should provide incentives for the board of directors and top management to pursue objectives that are in the interests of the company s owners and it should provide for effective monitoring of performance. Going the extra Mile (The Smartes guys in the room (Enron Movie)) Enterprise Risk Management A process used by a company to proactively identify and manage risk. Should I try to avoid the risk, accept the risk, or reduce the risk? Once a company identifies its risks, perhaps the most common risk management tactic is to reduce risks by implementing specific controls.

8 P-8 Enterprise Risk Management Enterprise Risk Management Companies should identify foreseeable risks before they occur. Once a risk has been identified, a company can respond in various ways such as accepting, avoiding, sharing, or reducing the risk. Examples 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 Copyright their jobs 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Tutorial n Review of todays lecture