ACC 406 Chapter Notes -Chief Financial Officer, Management Accounting, Total Quality Management

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25 Apr 2012
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Chapter 1 - Introduction to Managerial Accounting
Managerial Accounting: the provision of accounting information for a company’s internal users
- Not bound by any formal criteria such as GAAP or IFRS
- Three objectives of managerial accounting:
- To provide information for planning the organization’s actions
- To provide information for controlling the organization’s actions
- To provide information for making effective decisions
- Companies release their information through CSR Reports
- Examples: corporate sustainability report, social responsibility report, citizenship report
- Uses of managerial accounting information:
- Planning
- Controlling
- Decision making
Planning: the detailed formulation of action to achieve a particular end
- Requires setting objectives and identifying methods to achieve those objectives
Controlling: monitoring a plan’s implementation and taking corrective action as needed
- Usually achieved by comparing actual performance with expected performance
Decision Making: the process of choosing among competing alternatives
- An important role of managerial accounting is to supply information that facilitates decision
making
Financial Accounting: primarily concerned with producing information for external users
(investors, creditors, suppliers, government agencies, labour unions)
- This information is used for investment decisions, stewardship evaluation, monitoring
activity, regulatory measures
- Managerial accounting produces information for internal users (managers, executives, workers)
- Differences between managerial and financial accounting:
- Targeted users: internal vs external users
- Restrictions on inputs and processes: unlike financial accounting, managerial
accounting has no official body that prescribes the format, content, and rules for
selecting inputs and processes and preparing financial reports
- Type of information: in managerial accounting, information can be financial or non-
financial and may be more subjective in nature
- Time orientation: managerial accounting strongly emphasizes providing information
about future events
- Degree of aggregation: managerial accounting provides and needs detailed information
- Breadth: managerial accounting is more broad
Activity Based Costing (ABC): a system that accumulates overhead costs for each of the
activities of an organization and then assigns the costs of activities to the products, services and
other costs that caused those activities
- Improves costing accuracy by emphasizing the cost of the many activities or tasks that
must be done to produce a product or offer a service
Customer Value: difference between what a customer receives and what the customer gives up
when buying a product or service
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- Firms choose one of the two general strategies to increase customer value and create a
sustainable competitive advantage:
- Cost leadership: to provide the same or better value to customers at a lower cost
- Superior products through differentiation: to provide something to customers not
provided by competitors
Product Life Cycle: a product progresses through a series of stages: conception, introduction into
the market, growth, maturity, decline, withdrawal from the market
Value Chain: the set of business functions that add value to an organization’s products or services
- A systematic approach to examining the development of a firm’s competitive advantage
- Value chain primary activities:
- Inbound logistics: raw materials and goods are received from the company’s suppliers
- Operations: goods are manufactured or assembled
- Outbound logistics: sending finished goods to wholesalers, retailers, or the final
consumer
- Marketing and sales: developing a marketing communications and promotions mix to
meet the needs of targeted customers
- Service: providing customers with installation, after-sales service, complaint handling,
etc.
- Value chain support activities:
- Procurement: securing the lowest prices for inputs of the highest quality, and deciding
which components or operations will be provided in-house and which will be
outsourced
- Technology development: innovating to reduce costs (sustaining competitive advantage
through lean manufacturing, customer relationship management, etc.)
- Human resource management: effectively managing recruitment, selection, training,
development, etc.
- Developing infrastructure: includes strategic planning in terms of structuring the firm’s
reporting, planning, control, management information systems, etc.
Continuous Improvement: the continual search for ways to increase the overall efficiency and
productivity of activities by reducing waste, increasing quality, and managing costs
Total Quality Management: a management philosophy in which manufacturers strive to create an
environment that will enable workers to manufacture perfect (zero-defect) products
Lean Accounting: organizes costs according to the value chain and collects both financial and
non-financial information
- One of the recent tasks 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 organizations
Structure of the company:
Line Positions: positions that have direct responsibility for the basic objectives of an
organization
Staff Positions: positions that are supportive in nature and have only indirect responsibility for an
organization’s basic objectives
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Controller: the chief accounting officer in an organization
- Supervise all accounting functions and reports directly to the general manager and chief
operating officer (COO)
- Often viewed as members of the top management team and are encouraged to
participate in planning, controlling, and decision-making activities
- Has the responsibility for internal and external accounting requirements
Treasurer: responsible for the finance function
- Raises capital and manages cash and investments
Sarbanes-Oxley Act (SOX): established stronger government control and regulation of public
companies in the United States
- Applies to publicly traded companies
- Led to increased attention to corporate ethics
Publicly Traded Companies: companies that issue stock traded on U.S. Stock exchanges to which
the SOX applies
- Internal control is a process put into place by management and the board of directors to ensure
that objectives are achieved in the areas of effectiveness and efficiency of operations reliability
of financial reporting
Ethical Behavior: involves choosing actions that are right, proper and just
- Ten core values of ethical behavior:
- Honesty
- Integrity
- Promise keeping
- Fidelity
- Fairness
- Caring for others
- Respect for others
- Responsible citizenship
- Pursuit of excellence
- Accountability
- Companies with a strong code of ethics can create strong customer and employee loyalty
- When ethical dilemmas arise, employees frequently don’t realize
- That such a dilemma has arisen
- The “correct” action that should be taken to rectify the dilemma
- Canadian accounting bodies:
- Canadian Institute of Charted Accountants (CICA)
- Certified Management Accountants (CMA)
- Certified General Accountants (CGA)
Chartered Accountant (CA): accountant who works as a business professional in public practice,
industry, government, or education
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