POWERPOINT PRESENTATION TO

ACCOMPANY

CORNERSTONES
OF MANAGERIAL
ACCOUNTING
FOURTH CANADIAN EDITION

BY

MOWEN/HANSEN/HEITGER/McCONOMY/WITT

Presentation Revised by
Robert G. Ducharme

University of Waterloo

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 Chapter 1
Introduction to
Managerial Accounting

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 Learning Objectives
After studying this chapter, you should be able to:
1. Explain the meaning of managerial accounting.
2. Explain the differences between financial accounting and
managerial accounting.
3. Identify and explain the current focus of managerial
accounting.
4. Describe the role of managerial accountants in an organization.
5. Explain the importance of ethical behaviour for managers and
managerial accountants.
6. Identify three accounting designations formerly available in
Canada.

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 CPA Competencies
CPA Competencies included in this chapter:

3.1.1 Evaluates management information requirements

3.7.1 Analyzes the implications of management
incentive schemes and employee compensation
methods

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 What Is Managerial Accounting?
• Managerial accounting is providing accounting
information for a company’s internal users.
• Is not bound by GAAP or IFRS
• Managerial accounting has three broad objectives:
• To provide information for planning the organization’s
1 actions

• To provide information for controlling the organization’s

2 actions

• To provide information for making effective decisions

3
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 Information Needs for Planning,
Controlling, and Decision Making

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 Planning

• The detailed formulation of action to achieve

a particular end is the management activity
called planning.
Example
Setting objectives Improve quality

Identifying methods to Supplier evaluation

achieve those objectives program

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 Controlling

• The managerial activity of monitoring a

plan’s implementation and taking corrective
action as needed is controlling.

Compare

Actual Expected
Performance Performance

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 Decision Making

• The process of choosing among competing

alternatives is called decision making.

Competing ????? Competing

Alternative ????? Alternative
#1 #2

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 Comparison of Managerial
and Financial Accounting
Financial Management
Accounting Accounting

Target Users External users Internal users

Restrictions Must follow externally Not required to

imposed guidelines follow any guidelines

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 Differences between Managerial
and Financial Accounting
Financial Management Accounting
Accounting

Type of Produces objective Includes historical events,

Information and verifiable financial but focuses on future
information events

Degree of Overall firm Performance of entities,

Aggregation performance product lines, departments,
and managers

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 Differences between Managerial
and Financial Accounting
Financial Management
Accounting Accounting

Breadth Self-contained Multiple disciplines:

managerial economics, industrial
engineering, management
science, etc.

Time Reports on Includes historical events but

Orientation historical events focuses on future events

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 Accounting System
• Needs to be flexible enough to provide both
financial and managerial accounting information
• The key point here is flexibility—the system should
be able to supply different information for different
purposes.

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 Triple Bottom Line

• The triple bottom line (or TBL, 3BL) refers to

establishing objectives within the
organization that reflect the company’s
concern for its social and environmental
impact.
• Pillars of the TBL accounting framework
• Profits (financial impact)
• People (social impact)
• Planet (environmental or ecological impact)

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 Current Focus
of Managerial Accounting
• Changes in technology, transportation, and
communication have resulted in a new focus:
• New methods of costing products and services such as
activity-based costing
• Understanding customer orientation
• Evaluation from a cross-functional perspective
• Improving total quality management
• Emphasis of time as a competitive element
• Improving efficiency
• Service and not-for-profit organizations

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 New Methods of Costing
Products and Services
Activity-Based Costing (ABC)

Indirect cost • More detailed approach

allocation to determining cost of
First-stage goods and services
allocation • Emphasizes cost of many
activities or tasks that
Second-stage must be done to produce
allocation a product

Cost object

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 Customer Orientation
• Customer value is a key focus.
• Firms can establish a competitive advantage by
creating better customer value for the same or a
lower cost than competitors.
• Create equivalent value for lower cost than that of
competitors
• Advantage comes when company can create better
customer value
Customer = What – What customer
value customer gives up
receives
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 Customer Orientation
Strategic Positioning: Increasing Customer Value

Effective cost information can help increase customer

value through two strategies:
1. Cost leadership: Provide the same or better value
to customers at a lower cost than competitors.
2. Superior products through differentiation:
Increase customer value by providing something to
customers not provided by competitors.

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 Customer Orientation
The Value Chain
• Successful pursuit of cost leadership and strategies
• The value chain is the set of activities required to
design, develop, produce, market, and deliver
products and services, and provide support services
to customers.

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 Cross-Functional Perspective
• Allows management to see the big picture and
increase quality, reduce time, and improve efficiency
• A decision affecting one function affects the others.
• A management accountant must understand many
functions of the business to manage the value chain.
• Contemporary approaches to costing may include
• initial design and engineering costs
• manufacturing costs
• costs of distribution
• sales and service

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 Total Quality Management
• Continuous improvement is the continual search for
ways to increase the overall efficiency and
productivity of activities by reducing waste,
increasing quality, and managing costs.
• Continuous improvement is fundamental to establishing
excellence.
• “Acceptable quality” attitude is unacceptable
• Philosophy of total quality management and perfect
products (zero defects) is the current attitude
• Management accounting must provide both financial
and nonfinancial information about quality.

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 Total Quality Management
• Companies attempt to increase organizational value
by eliminating wasteful activities that exist
throughout the value chain.
• This has led to a change in accounting, referred to as
lean accounting, which organizes costs according to
the value chain and collects both financial and
nonfinancial information.
• A more recent charge of managerial accountants is to
help carry out the company’s enterprise risk
management (ERM) approach.
• ERM is a formal way for managerial accountants to identify
and respond to the most important threats and business
opportunities facing the organization.

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 Time as a Competitive Element
• Time is crucial in all phases of the value chain.
• Firms reduce time to market by compressing design,
implementation, and production cycles.
• Deliver products or services quickly by eliminating non-
value-added time, which is time of no value to the
customer (e.g., the time a product spends on the
loading dock).
• Decreasing non-value-added time appears to go hand
in hand with increasing quality.
• Managers must respond quickly and decisively to
changing market conditions.

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 Efficiency
• Improving efficiency is also a vital concern.

Financial and Non-

measures financial
measures

Efficiency
To be
Cost is a effective, cost
critical must be
measure of - defined
efficiency. - measured
- assigned
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 Management Accounting for Service
and Not-for-Profit Organizations
• Management accounting was primarily developed
for manufacturing firms.
• However, management accounting concepts have
evolved over the years and today apply to all types
of organizations, including service and not-for-
profit organizations.

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 Role of the Management Accountant

• The role of managerial accountants is one of

support.
• They assist those who are responsible for
carrying out an organization’s basic objectives.
• Positions that have direct responsibility for the
basic objectives of an organization are line
positions.
• Positions that are supportive in nature and have
only indirect responsibility for an organization’s
basic objectives are staff positions.
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 Role of the Management Accountant

Controller Treasurer
Staff • Raises capital and
position • Internal auditing, manages cash and
cost accounting, investments
financial accounting, • Responsible for
and systems credit, collection,
accounting and insurance

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 Sarbanes-Oxley Act of 2002
• Passed by the U.S. Congress in response to corporate
securities fraud and corporate misconduct
• Established stronger government control and
regulation of public companies through
1. Enhanced auditor independence
2. Tightened regulation of corporate governance
3. Control over management
4. Manager/auditor assessment of the firm’s
internal control
5. Increased attention to corporate ethics

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 Ethical Behaviour

• The objective of profit maximization should be

constrained by the requirement that profits be
achieved through legal and ethical means.
• Ethical behaviour involves choosing actions that
are right, proper, and just.
• Behaviour can be right or wrong, it can be proper
or improper, and the decisions we make can be
fair or unfair.
• Companies in business for the long term find that
it pays to treat all of their constituents with
honesty and loyalty.

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 Ethical Behaviour
10 Core Values
1. Honesty
2. Integrity Choosing actions
3. Promise keeping that are right,
4. Fidelity proper, and just.
5. Fairness
6. Caring for others
7. Respect for others
8. Responsible citizenship
9. Pursuit of excellence
10. Accountability
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 Company Codes of Ethical Conduct
• To promote ethical behaviour by managers and
employees, organizations commonly establish
standards of conduct referred to as company
codes of conduct.
• A quick review of various corporate codes of
conduct shows some common ground.
• Important parts of corporate codes of conduct are
integrity, performance of duties, and compliance
with the rule of law.
• They also uniformly prohibit the acceptance of
kickbacks and improper gifts, insider trading, and
misappropriation of corporate information and
assets.
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 Standards of Ethical Conduct for
Managerial Accountants
• Organizations establish standards of conduct for
their managers and employees; professional
associations also establish ethical standards.
• Both the Chartered Professional Accountants
(CPA) of Canada and the Institute of
Management Accountants (IMA) have
established ethical standards for accountants.
• Stresses importance of competence,
confidentiality, integrity, and credibility or
objectivity.

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 Standards of Ethical Conduct for
Managerial Accountants
• Professional accountants are bound by these
codes of conduct.
• The biggest challenge with ethical dilemmas
is that, when they arise, employees
frequently do not realize
• that such a dilemma has arisen
• the ‘‘correct’’ action that should be taken to
rectify the dilemma

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 Accounting Designations in Canada
• The accounting profession relies on certification
• to provide evidence that the holder has achieved a
minimum level of professional competence
• to promote and enforce ethical behaviour

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 Accounting Designations in Canada
• Canada has undergone a major restructuring of the
professional bodies for certification and regulation
of professional accountants.
• On January 4, 2013, CPA Canada was formed to be
the body that will bring together all three former
professional accounting groups across Canada.
• New members will all receive the Chartered
Professional Accountant (CPA) designation but will
have specific skills and capabilities as formerly
developed by the individual groups.

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 Accounting Designations in Canada
• Three accounting designations were previously
available in Canada:
• Certified Management Accountant (CMA)
• Chartered Accountant (CA)
• Certified General Accountant (CGA)
• These three designations have merged into the
Certified Professional Accountant (CPA).
• For a period of ten years, members of each group at
the time of amalgamation will use both the CPA
designation and the one they previously held.

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 Accounting Designations in Canada
• The primary reason for amalgamation is to ensure
that Canadian professional accountants have a
strong voice in the international community.
• This has become increasingly important as
globalization has become the norm for many
companies in both their production operations and
their marketing.

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