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Financial and Managerial


AccounIng: Seven Key Dierences
Chapter 1

1. Users

Managerial Accounting:
An Overview

2. Time focus

Managerial Accounting

External persons who


make financial decisions

Managers who plan for


and control an organization

Historical perspective

Future emphasis

3. Verifiability
versus relevance

Emphasis on
objectivity and verifiability

Emphasis on
relevance

4. Precision versus
timeliness

Emphasis on
precision

Emphasis on
timeliness

Primary focus is on
companywide reports

Focus on
segment reports

Must follow GAAP / IFRS


and prescribed formats

Not bound by GAAP / IFRS


or any prescribed format

Mandatory for
external reports

Not
Mandatory

5. Subject
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

Financial Accounting

6. Rules
7. Requirement

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Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.


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Work of Management

Planning

Planning


Controlling

Establish Goals.

Specify How Goals


Will Be Achieved.

Decision
Making
Develop Budgets.

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Controlling
The control funcIon gathers feedback to
ensure that plans are being followed.
Feedback in the form of performance reports
that compare actual results with the budget
are an essenIal part of the control funcIon.

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Decision Making
Decision making involves
making a selecIon among
compeIng alternaIves.

What should
we be selling?


Who should
we be serving?


How should
we execute?

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Managerial AccounIng AcIviIes:


MarkeIng Majors

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Managerial AccounIng AcIviIes:


MarkeIng Majors

Controlling

Planning

How much should we budget for TV,


print, and internet adverIsing?

Is the budgeted price cut


increasing unit sales as expected?

How many salespeople should we


plan to hire to serve a new territory?

Are we accumulating too much


inventory during the holiday
shopping season?

Managerial AccounIng AcIviIes:


MarkeIng Majors

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Decision
Making

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How many units should we plan to


produce next period?
How much should we budget for next
periods uIlity expense?

Should we sell directly to


customers or use a distributor?

Controlling

Managerial AccounIng AcIviIes:


OperaIons Management Majors
Planning

Should we sell our services as


one bundle or sell them
separately?

Managerial AccounIng AcIviIes:


OperaIons Management Majors

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Managerial AccounIng AcIviIes:


OperaIons Management Majors
Decision
Making

Did we spend more or less than


expected for the units we actually
produced?

Should we buy a new piece of


equipment or upgrade our existing
machine?

Are we achieving our goal of


reducing the number of defective
units produced?

Should we redesign our


manufacturing process to lower
inventory levels?

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Managerial AccounIng AcIviIes:


Human Resource Management Majors

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Managerial AccounIng AcIviIes:


Human Resource Management Majors

Planning

Controlling

How much should we plan to


spend for occupational safety
training?

Is our employee retention rate


exceeding our goals?
Are we meeting our goal of
completing timely performance
appraisals?

How much should we plan to


spend on employee recruitment
advertising?

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Managerial AccounIng AcIviIes:


Human Resource Management Majors

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AccounIng Majors
Many accounIng graduates
begin working for public
accounIng rms. However,
most leave at some point to
work in other organizaIons.

Decision
Making
Should we hire an on-site medical
staff to lower our healthcare
costs?

80%

Should we hire temporary workers


or full-time employees?

The IMA esImates that 80%


of professional accountants in
the U.S. work in non-public
accounIng environments.

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CerIed Management Accountant

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CMA Exam

Part 1 Financial Planning, Performance and Control

A management accountant
who has the necessary qualicaIons
and who passes a rigorous professional
exam earns the right to be known as a
CerIed Management Accountant
(CMA).

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
InformaIon about becoming a CMA and the CMA program
can be accessed on the IMAs website at www.imanet.org
or by calling 1-800-638-4427.

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Strategic Management Skills

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Customer Value ProposiIons

A strategy
is a game plan that enables a company
to aeract customers by disInguishing itself
from compeItors.

The focal point of a


companys strategy should
be its target customers.

Customer
InImacy
Strategy

Understand and respond to


individual customer needs.

OperaIonal
Excellence
Strategy

Deliver products and services


faster, more conveniently,
and at lower prices.

Product
Leadership
Strategy

Oer higher quality products.

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Enterprise Risk Management


A process used
by a company to
proacIvely idenIfy
and manage risk.

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Enterprise Risk Management


Examples of Business Risks
Products harming customers

Should I try to avoid the


risk, accept the risk, or
reduce the risk?

Losing market share due to the


unforeseen actions of competitors
Poor weather conditions shutting
down operations
Website malfunction
A supplier strike halting the flow
of raw materials
Financial statements unfairly
reporting the value of inventory

Once a company idenIes its risks, perhaps the


most common risk management tacIc is to reduce
risks by implemenIng specic controls.

An employee accessing
unauthorized information

Examples of Controls to
Reduce Business Risks
Develop a formal and rigorous
new product testing program
Develop an approach for legally
gathering information about
competitors' plans and practices
Develop contingency plans for
overcoming weather-related
disruptions
Thoroughly test the website
before going "live" on the Internet
Establish a relationship with two
companies capable of providing
raw materials
Count the physical inventory on
hand to make sure that it agrees
with the accounting records
Create password-protected barriers
that prohibit employees from
obtaining information not needed
to do their jobs

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Process Management Skills


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 MarkeIng DistribuIon Service

Business funcIons making up the value chain

Lean ProducIon

Customer places
an order

Create Production
Order

Generate component
requirements

Goods delivered
when needed

Production begins
as parts arrive

Components
are ordered

Lean ProducIon is ohen called Just-In-Time (JIT) producIon.

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Lean ProducIon

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

TradiIonal Manufacturing

Produce goods in
anticipation of Sales

Store
Inventory

Make Sales from


Finished Goods
Inventory

The lean approach also results in fewer defects, less


wasted eort, and quicker customer response Imes
than tradiIonal producIon methods.

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The Theory of Constraints (TOC)

The Theory of Constraints (TOC)

A constraint (also called a boeleneck) is anything


that prevents you from geing more of what you
want. The Theory of Constraints (TOC) is based on the
observaIon that eecIvely managing the constraint
is the key to success.

2. Allow the
weakest link to set
the tempo.

1. IdenIfy the
weakest link.


The constraint in a system is determined
by the step that has the smallest capacity.

Only actions that


strengthen the weakest
link in the chain
improve the process.

3. Focus on
improving the
weakest link.

4. Recognize that the


weakest link
is stronger.

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Measurement Skills
A good manager
complements an
understanding of strategy,
risks, and business
processes with data-
driven analysis.
The key to eecIve analysis is to understand that the
quesIon you are addressing denes what you
measure and how you analyze the data.

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Measurement Skills
What net income should my company report to
its stockholders?
Measure and report historical data that complies
with applicable rules.
How will my company serve its customers?
Measure and analyze mostly non-nancial,
process-oriented data.
Will my company need to borrow money?
Measure and analyze esImated future cash ows.

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Measurement Skills
The primary purpose of this
course is to teach
measurement skills that
managers use to support
planning, controlling, and
decision making acIviIes.

Leadership Skills
Six Skills of an Eec0ve Leader
1. Technical competence
2. High integrity
3. Understand how to implement organizaIonal
change
4. Strong communicaIon skills
5. Capable of moIvaIng and mentoring other people
6. EecIvely manage team-based decision processes

Planning

Controlling

Decision
Making

The Importance of Ethics


in Business

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Guidelines for Ethical Behavior


Recognize and communicate
professional limitaIons that
preclude responsible judgment.

The InsItute of Management Accountants (IMA)


Statement of Ethical Professional PracIce
consists of two parts that oer guidelines for:

Ethical behavior.

ResoluIon for an ethical conict.

Maintain
professional
competence.

Follow applicable
laws, regulaIons
and standards.

Competence

Provide accurate, clear, concise,


and Imely decision support
informaIon.

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Guidelines for Ethical Behavior

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Guidelines for Ethical Behavior


MiIgate conicts of interest
and advise others of potenIal
conicts.

Do not disclose condenIal


informaIon unless legally
obligated to do so.
Do not use
condenIal
informaIon for
unethical or illegal
advantage.

CondenIality
Ensure that subordinates do not
disclose condenIal informaIon.

Refrain from
conduct that would
prejudice carrying
out duIes ethically.

Integrity
Abstain from acIviIes that might
discredit the profession.

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IMA Guidelines for Ethical Behavior


Communicate informaIon
fairly and objecIvely.

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Follow employers established policies.


For an unresolved ethical conflict:
Disclose delays or deciencies
in informaIon Imeliness,
processing, or internal controls.

Credibility

Guidelines for ResoluIon of an


Ethical Conict
Discuss the conflict with immediate supervisor or next
highest uninvolved managerial level.
If immediate supervisor is the CEO, consider the board
of directors or the audit committee.
Contact with levels above the immediate supervisor
should only be initiated with the supervisors
knowledge, assuming the supervisor is not involved.

Disclose all relevant


informaIon that could
inuence a users
understanding of reports
and recommendaIons.

Guidelines for ResoluIon of an


Ethical Conict

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Why Have Ethical Standards?

For an unresolved ethical conflict (continued):

Ethical standards in business are essenIal for a


smooth funcIoning economy.

Except where legally prescribed, communicaIon with


individuals not employed by the organizaIon is not
appropriate.

Without ethical standards in business, the


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

Clarify relevant ethical issues with an objecIve advisor, such

as a member of the IMAs Ethics Counseling Service.

Consult an aeorney regarding your legal responsibiliIes.

Abandoning ethical standards in business would


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

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Corporate Social Responsibility


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

Customers

Employees

Suppliers

CommuniIes

Stockholders

CSR extends beyond legal compliance


to include voluntary acIons that saIsfy
stakeholder expectaIons.

Environmental
& Human Rights
Advocates

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Corporate Social Responsibility


Examples of Corporate Social Responsibility
Companies should provide customers with:
Companies and their suppliers should provide
Safe, high quality products that are fairly
employees with:
priced
Safe and humane working conditions
Competent, courteous, and rapid delivery
Non-discriminatory treatment and the
of products and services
right to organize and file grievances
Full disclosure of product-related risks
Fair compensation
Easy to use information systems for
Opportunities for training, promotion,
shopping and tracking orders
and personal development
Companies should provide suppliers with:
Companies should provide communities with:
Fair contract terms and prompt payments
Payment of fair taxes
Reasonable time to prepare orders
Honest information about plans such as
Hassle-free acceptance of timely and
plant closings
complete deliveries
Resources that support charities, schools,
Cooperative rather than unilateral
and civic activities
actions
Reasonable access to media sources
Companies should provide stockholders with: Companies should provide environmental
Competent management
and human rights advocates with:
Easy access to complete and accurate
Greenhouse gas emissions data
financial information
Recycling and resource conservation data
Full disclosure of enterprise risks
Child labor transparency
Honest answers to knowledgeable
Full disclosure of suppliers located in
questions
developing countries