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 Chapter
Chapter 11

Managerial Accounting, the

Business Organization, and
Professional Ethics

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 Chapter 1 Learning Objectives

When you have finished studying this chapter,

you should be able to:

1. Explain why accounting is essential for

decision makers and managers.
2. Describe the major users and uses of
accounting information.
3. Explain the role of budgets and performance
reports in planning and control.

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 Chapter 1 Learning Objectives

4. Describe cost-benefit and behavioral

issues involved in designing an accounting
system.
5. Discuss the role accountants play in the
company’s value-chain functions.
6. Identify current trends in management
accounting.
7. Explain why ethics and standards of ethical
conduct are important to accountants.

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 Learning Why Accounting is Essential for
Objective 1
Decision Makers and Managers

Accounting information is used in

decision making for planning and
control.

Control is the process

Planning
of implementing plans
describes how the
and evaluating if
organization will
objectives are
achieve its
achieved.
objectives.

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 Users of Accounting Information

Management Financial
Accounting Accounting

Develops
Process of identifying, information for
measuring, accumulating, external decision
analyzing, preparing, makers:
interpreting, and
communicating
Stockholders,
information used by:
Suppliers,
Banks, Government
Managers Authorities

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Management Accounting and Your Career

The Certified Management Accountant (CMA)

CMAs must pass an examination covering

(1)Financial planning, performance
and control, and
(2) Financial decision making.

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 Learning
Objective 2 Roles of Accounting Information

Accounting Information System

Process of gathering, organizing, and

communicating financial information

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 Roles of Accounting Information

Scorekeeping:
Evaluate
organizational
performance Attention Directing:
Compare actual
results to expected

Problem Solving:
Assess possible
courses of action

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 Planning and Control

Accounting information helps managers

plan and control the organization’s operations.

Planning: Control:
Setting objectives Implementing plans
and outlining how and using feedback to
the objectives evaluate the attainment
will be obtained. of objectives.

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The Nature of Planning and Controlling

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 Learning
Objective 3 Budget and Performance Reports

Budget: quantitative expression of a plan of action

Performance reports:
 compare actual results with budgeted amounts
 provide feedback by comparing results with plans
 highlight variances

Variances: deviations from plans

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 Performance Reports

Mayfair Starbucks Store, March 31, 20X1

Budget Actual Variance

Sales $50,000 $50,000 0
Less:
Ingredients 22,000 24,500 $2,500 U
Store labor 12,000 11,600 400 F
Other labor 6,000 6,050 50 U
Utilities, etc. 4,500 4,500 0
Total expenses $44,500 $46,650 $2,150 U
Operating income $ 5,500 $ 3,350 $2,150 U

U= Unfavorable – actual exceeds budget

F – Favorable – actual is less than budget

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 Influences on Accounting Systems

Generally accepted accounting principles (GAAP)

Foreign Corrupt Practices Act

Internal controls

Internal auditors Sarbanes-Oxley Act

Management audits

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 Sarbanes-Oxley Act

In 2002, the Sarbanes-Oxley Act required

chief executive officers to sign a
statement verifying the accuracy of
the company’s financial statements.

External auditors must examine and report

on the company’s internal control system.

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 Learning Cost-Benefit and Behavioral
Objective 4
Considerations
Cost-benefit Behavioral
balance implications

The system must provide accurate, timely budgets

and performance reports in a form useful to managers.

Managers must use accounting

Weigh estimated
reports, or the reports
costs against
create no benefits.
probable benefits.

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 Product Life Cycle

Product life cycle refers to the various

stages through which a product passes.

No Sales Sales Growth Stable Sales Level Low sales  No sales

Product Introduction Phase out

Development to Market Mature Market Product

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 Learning
Objective 5 The Value Chain

Product
Research
And
and
Service
Customer Development
or
Service Process
Design

Customer
Focus

Distribution Production
Marketing

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Accounting’s Position in the Organization

Management accountant’s role as consultant

Collects Prepares
and compiles standardized
information reports

Interprets and Is involved

analyzes information in decision making

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 Line and Staff Authority

Line managers:
directly involved with Staff managers: Advisory –
making and selling support line managers.
products or services.

Cross-functional teams: Found in

modern, “flatter” organizations;
Functional areas work together
in decision-making process.

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 Controller and Treasurer Function

Chief Financial Officer (CFO)

Controller Functions Treasurer Functions

 Provision of capital
 Planning for control
 Investor relations
 Reporting and interpreting
 Short-term financing
 Evaluating and consulting
 Banking and custody
 Tax administration
 Credits and collections
 Government reporting
 Investments
 Protection of assets
 Risk management
 Economic appraisal
(insurance)
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 Learning Current Trends in
Objective 6
Management Accounting
Adaption to changes:

Shifting from a manufacturing-based

to a service-based economy

Increased global competition

Advances in technology

Changes in business processes

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 Current Trends in Management
Accounting

The service sector now accounts for more

than 80% of the employment in the United
States.

Common characteristics of service

organizations
1. Labor is a major component of costs.
2. Output is usually difficult to measure.
3. Service organizations cannot store their
major inputs and outputs.

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Major Influences on Management
Accounting

Advances in technology:
E-commerce
Enterprise resource planning (ERP)
B2C and B2B

Business process reengineering:

Just-in-time (JIT) philosophy
Lean manufacturing
Computer-integrated manufacturing
Six sigma

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 Learning
Objective 7 Standards of Ethical Conduct

The Institute of Management Accountants (IMA)

Statement of Ethical Professional Practice for
Management Accounting Members
Requires members to adhere
to a code of conduct regarding:
Competence,
Confidentiality,
Integrity, and
Credibility.

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IMA Statement of Ethical Professional Practice

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IMA Statement of Ethical Professional Practice (cont’d)

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 Ethics

Reliability

Trust Integrity

No regulation can be as effective

in ensuring reliability as high
ethical standards of accountants.

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 Ethical Dilemmas

Managers must choose an alternative

and there are:
 Significant value conflicts among
differing interests.
 Real alternatives that are all
justifiable, and
 Significant consequences on
stakeholders in the situation.

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 Unethical Behavior Temptations

1. Emphasis on short-term results:

Pressure to meet expected profit numbers.
2. Ignoring the small stuff:
Large misdeeds often result from many small ones.
3. Economic cycles: Downturn markets reveal what an
upturn market conceals. Vigilance in all stages of
economic markets maintains high ethical standards.
4. Accounting rules:
Avoid creative interpretations of the rules. Practice
full and fair disclosure to convey company’s
performance.

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