Business Environment
Chapter One
1-2
Internet Usage
The
The Internet
Internet fuels
fuels globalization
globalization
by
by providing
providing companies
companies with
with greater
greater
access
access to
to geographically
geographically dispersed
dispersed
customers,
customers, employees,
employees, and
and suppliers.
suppliers.
The
The number
number of
of internet
internet users
users more
more
than
than doubled
doubled during
during the
the first
first four
four
years
years of
of the
the new
new millennium.
millennium.
1-3
Strategy
A strategy
is a game plan
that enables a company
to attract customers
by distinguishing itself
from competitors.
The
The focal
focal point
point of
of aa
companys
companys strategy
strategy should
should
be
be its
its target
target customers.
customers.
1-4
Customer
Intimacy
Strategy
Understand
Understand and
and respond
respond to
to
individual
individual customer
customer needs.
needs.
Operational
Excellence
Strategy
Deliver
Deliver products
products and
and services
services
faster,
faster, more
more conveniently,
conveniently,
and
and at
at lower
lower prices.
prices.
Product
Leadership
Strategy
Offer
Offer higher
higher quality
quality products.
products.
1-5
Work of Management
Planning
Planning
Directing
Directing and
and
Motivating
Motivating
Controlling
Controlling
1-6
Planning
Identify
Identify
alternatives.
alternatives.
Select
Select alternative
alternative that
that does
does
the
the best
best job
job of
of furthering
furthering
organizations
organizations objectives.
objectives.
Develop
Develop budgets
budgets to
to guide
guide
progress
progress toward
toward the
the
selected
selected alternative.
alternative.
1-7
1-8
Controlling
The
The control
control function
function ensures
ensures
that
that plans
plans are
are being
being followed.
followed.
Feedback
Feedback in
in the
the form
form of
of 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.
1-9
Formulating
Formulating
long-and
long-and shortshortterm
term plans
plans
(Planning)
(Planning)
Comparing
Comparing
actual
actual
to
to planned
planned
performance
performance
(Controlling)
(Controlling)
Decision
Making
Measuring
Measuring
performance
performance
(Controlling)
(Controlling)
Exhibit
1-2
Begin
Implementing
Implementing
plans
plans
(Directing
(Directing and
and
Motivating)
Motivating)
1-10
Learning Objective 1
1-11
1-12
Learning Objective 2
1-13
Organizational Structure
Decentralization
Decentralization is
is the
the delegation
delegation of
of decisiondecisionmaking
making authority
authority throughout
throughout an
an organization.
organization.
C o r p o r a te O r g a n iz a tio n C h a r t
B o a r d o f D ir e c to r s
P r e s id e n t
P u r c h a s in g
P e rs o n n e l
V ic e P r e s id e n t
O p e r a tio n s
C h ie f F in a n c ia l
O ffic e r
T re a s u re r
C o n tr o lle r
1-14
1-15
1-16
Learning Objective 3
1-17
Process Management
A business
process is a series of
steps that are followed in order to
carry out some task in
a business.
R&D
Product
Design
Manufacturing
Marketing
Customer
Distribution Service
1-18
Process Management
There are three approaches to
improving business processes . . .
Theory of
Constraints (TOC)
Lean
Production
Six
Sigma
1-19
Traditional Push
Manufacturing Company
Forecast Sales
Order components
Store
Inventory
Store Inventory
Produce goods in
Anticipation of Sales
1-20
Traditional Push
Manufacturing Company
Traditional push
manufacturing
Raw
materials
Large
inventories
Work in
process
Materials
Materials waiting
waiting
to
to be
be processed.
processed.
Finished
goods
Completed
Completed products
products
awaiting
awaiting sale.
sale.
Partially
Partially completed
completed products
products
requiring
requiring more
more work
work before
before
they
they are
are ready
ready for
for sale.
sale.
1-21
Lean Production
Exhibit
1-6
Identify
Identify value
value
in
in specific
specific
products/services.
products/services.
Identify
Identify the
the
business
business process
process
that
that delivers
delivers value.
value.
The
The lean
lean thinking
thinking
model
model is
is aa five
five
step
step approach.
approach.
Organize
Organize work
work
arrangements
arrangements around
around
the
the flow
flow of
of the
the
business
business process.
process.
Continuously
Continuously pursue
pursue
perfection
perfection in
in the
the
business
business process.
process.
Create
Create aa pull
pull
system
system that
that responds
responds
to
to customer
customer orders.
orders.
1-22
Lean Production
The
The five
five step
step process
process results
results in
in aa pull
pull manufacturing
manufacturing system
system
that
that reduces
reduces inventories,
inventories, decreases
decreases defects,
defects, reduces
reduces
wasted
wasted effort,
effort, and
and shortens
shortens customer
customer response
response times.
times.
Customer Places
an Order
Create Production
Order
Generate Component
Requirements
Goods Delivered
when needed
Production Begins as
Parts Arrive
Components
are Ordered
1-23
Lean Production
Lean thinking may be used to improve business
processes that link companies together.
1-24
Theory of Constraints
A constraint (also called a bottleneck) is anything that prevents
you from getting more of what you want.
The Theory of Constraints is based on the observation that
effectively managing the constraint is the key to success.
The
The constraint
constraint in
in aa system
system is
is determined
determined
by
by the
the step
step that
that has
has the
the smallest
smallest capacity.
capacity.
1-25
Theory of Constraints
Only actions
that strengthen
the weakest
link in the
chain
improve the
process.
2.
2. Allow
Allow the
the
weakest
weakest link
link to
to
set
set the
the tempo.
tempo.
3.
3. Focus
Focus on
on
improving
improving
the
the weakest
weakest
link.
link.
1.
1. Identify
Identify the
the
weakest
weakest link.
link.
4.
4. Recognize
Recognize that
that
the
the weakest
weakest link
link
is
is no
no longer
longer so.
so.
1-26
Six Sigma
AA process
process improvement
improvement method
method relying
relying on
on customer
customer feedback
feedback
and
and fact-based
fact-based data
data gathering
gathering and
and analysis
analysis techniques
techniques to
to
drive
drive process
process improvement.
improvement.
Refers
Refers to
to aa process
process that
that generates
generates no
no more
more
than
than 3.4
3.4 defects
defects per
per million
million opportunities.
opportunities.
Sometimes
Sometimes associated
associated
with
with the
the term
term zero
zero defects.
defects.
1-27
Six Sigma
Exhibit
1-8
1-28
E-Commerce
E-commerce
E-commerce refers
refers to
to business
business
conducted
conducted using
using the
the Internet.
Internet.
In
In addition
addition to
to dot.com
dot.com companies,
companies, traditional
traditional
businesses,
businesses, such
such as
as banks
banks and
and retailers,
retailers,
continue
continue to
to expand
expand their
their Internet
Internet presence.
presence.
The
The growth
growth in
in e-commerce
e-commerce is
is occurring
occurring
because
because the
the Internet
Internet has
has important
important advantages
advantages
over
over more
more conventional
conventional marketplaces
marketplaces for
for many
many
kinds
kinds of
of transactions.
transactions.
1-29
Enterprise Systems
All
All data
data are
are recorded
recorded only
only
once
once in
in the
the companys
companys
centralized
centralized database.
database.
The
The unique
unique data
data elements
elements
contained
contained within
within aa database
database
can
can be
be linked
linked together.
together.
1-30
Learning Objective 4
Understand the
importance of upholding
ethical standards.
1-31
1-32
Maintain
Maintain
professional
professional
competence.
competence.
Competence
Competence
Provide
Provide accurate,
accurate, clear,
clear,
concise,
concise, and
and timely
timely
decision
decision support
support
information.
information.
Follow
Follow applicable
applicable
laws,
laws, regulations
regulations
and
and standards.
standards.
1-33
Do
Do not
not use
use
confidential
confidential
information
information for
for
unethical
unethical or
or
illegal
illegal
advantage.
advantage.
Confidentiality
Confidentiality
Ensure
Ensure that
that subordinates
subordinates
do
do not
not disclose
disclose
confidential
confidential information.
information.
1-34
Refrain
Refrain from
from
conduct
conduct that
that
would
would prejudice
prejudice
carrying
carrying out
out
duties
duties ethically.
ethically.
Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise
others
others of
of potential
potential
conflicts.
conflicts.
Integrity
Integrity
Abstain
Abstain from
from activities
activities
that
that might
might discredit
discredit the
the
profession.
profession.
1-35
Credibility
Credibility
Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa users
users
understanding
understanding of
of reports
reports
and
and recommendations.
recommendations.
Disclose
Disclose delays
delays or
or
deficiencies
deficiencies in
in
information
information timeliness,
timeliness,
processing,
processing, or
or internal
internal
controls.
controls.
1-36
1-37
1-38
Ethical
Ethical standards
standards in
in business
business are
are essential
essential for
for aa
smooth
smooth functioning
functioning advanced
advanced market
market economy.
economy.
1-39
Broad-based
Broad-based statements
statements of
of aa
companys
companys responsibilities
responsibilities to:
to:
Employees
Employees
Customers
Customers
And
And to
to the
the communities
communities in
in
which
which the
the company
company operates.
operates.
Suppliers
Suppliers
1-40
Codes of Conduct on
the International Level
The
The Code
Code of
of Ethics
Ethics for
for Professional
Professional
Accountants,
Accountants, issued
issued by
by the
the International
International
Federation
Federation of
of Accountants
Accountants (IFAC),
(IFAC), govern
govern the
the
activities
activities of
of professional
professional accountants
accountants worldwide.
worldwide.
In
In addition
addition to
to competence,
competence, objectivity,
objectivity, independence,
independence,
and
and confidentiality,
confidentiality, the
the IFACs
IFACs code
code deals
deals with
with
the
the accountants
accountants ethical
ethical responsibilities
responsibilities in:
in:
Taxes
Taxes
Independence
Independence
Fees
Fees and
and commissions
commissions
Advertising
Advertising and
and solicitation
solicitation
Handling
Handling of
of monies
monies
Cross-border
Cross-border activities.
activities.
1-41
Corporate Governance
The
The system
system by
by
which
which aa company
company is
is directed
directed
and
and controlled.
controlled.
Board
Board of
of
Directors
Directors
Incentives and
monitoring for
Top
Top
Management
Management
To pursue
objectives of
Stockholders
Stockholders
1-42
Corporate Governance
An
An effective
effective corporate
corporate governance
governance system
system
should
should also
also protect
protect the
the interests
interests of
of the
the
companys
companys other
other stakeholders.
stakeholders.
Employees
Employees
Customers
Customers
Creditors
Creditors
And
And the
the communities
communities in
in
which
which the
the company
company operates.
operates.
Suppliers
Suppliers
1-43
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
improvingthe
the reliability
reliability and
andaccuracy
accuracy of
of corporate
corporate financial
financial
reports
reports and
and disclosures.
disclosures. Six
Six key
key aspects
aspects of
of the
the legislation
legislation include:
include:
The
The Act
Act requires
requires both
both the
the CEO
CEO and
and CFO
CFO to
to certify
certify in
in writing
writing
that
that their
their companys
companysfinancial
financialstatements
statementsand
anddisclosures
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
Boardto
to provide
provide additional
additionaloversight
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
andterminate
terminate
public
public accounting
accounting firms
firms in
in the
the hands
hands of
of the
the audit
audit committee.
committee.
The
The Act
Act places
places restrictions
restrictions on
on 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.
1-44
The
The Act
Act requires
requires that
that aa companys
companysannual
annual report
report contain
contain an
an
internal
internal control
control report
report that
that isis accompanied
accompanied by
by an
an opinion
opinion from
from
the
the companys
companysaudit
audit firm
firm about
about the
the fairness
fairness of
of that
that report.
report.
The
The Act
Act establishes
establishes severe
severe penalties
penalties for
for certain
certain behaviors,
behaviors,
such
such as:
as:
Up
Up to
to 20
20 years
years in
in prison
prison for
for altering
altering or
or destroying
destroying any
any
documents
documents that
that may
may eventually
eventually be
be used
used in
in an
an official
official
proceeding.
proceeding.
Up
Up to
to 10
10 years
years in
in prison
prison for
for retaliating
retaliating against
against aa
whistle
whistle blower.
blower.
1-45
Once
Once aa company
company identifies
identifies its
its risks,
risks, perhaps
perhaps the
the
most
most common
common risk
risk management
management tactic
tactic is
is to
to reduce
reduce
risks
risks by
by implementing
implementing specific
specific controls.
controls.
1-46
1-47
A
A management
management accountant
accountant
who
who has
has the
the necessary
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 as
as aa Certified
Certified
Management
Management Accountant
Accountant (CMA).
(CMA).
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 IMAs
IMAs website
website at
at
www.imanet.org
www.imanet.org or
or by
by calling
calling 1-800-638-4427.
1-800-638-4427.
1-48
End of Chapter 1