Horngren Ima16 Inppt01

Chapter
Chapter 11
Managerial Accounting, the

Business Organization, and
Professional Ethics
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.
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.
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.
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
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.
Learning
Objective 2 Roles of Accounting Information
Accounting Information System
Process of gathering, organizing, and

communicating financial information
Roles of Accounting Information
Scorekeeping:
Evaluate
organizational
performance Attention Directing:
Compare actual
results to expected
Problem Solving:
Assess possible
courses of action
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.
The Nature of Planning and Controlling
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

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
Influences on Accounting Systems
Generally accepted accounting principles (GAAP)
Internal controls
Internal auditors Sarbanes-Oxley Act***
Management audits
The Problem
Generally, a liability should be recorded in the financial statements only if all three
of the following conditions are present:
1.The underlying causal event occurred prior to the balance sheet date.
2.It's probable that a loss has been incurred (i.e. more likely than not, an outflow
of resources will be required).
3.A reasonable basis for estimating the loss reliably exists.
Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 14

1-11 - 14111111h11111ythtr
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.
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.
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
Learning
Objective 5 The Value Chain
Product
Research
And
and
Service
Customer Development
or
Service Process
Design
Customer
Focus
Distribution Production
Marketing
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
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.
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)
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

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.
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
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.
IMA Statement of Ethical Professional Practice
IMA Statement of Ethical Professional Practice (cont’d)
Ethics
Reliability
Trust Integrity
No regulation can be as effective

in ensuring reliability as high
ethical standards of accountants.
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.
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.
All rights reserved. No part of this
publication may be reproduced, stored in
a retrieval system, or transmitted, in any
form or by any means, electronic,
mechanical, photocopying, recording, or
otherwise, without the prior written
permission of the publisher. Printed in
the United States of America.

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Chapter

Managerial Accounting, the

When you have finished studying this chapter,

1. Explain why accounting is essential for

4. Describe cost-benefit and behavioral

Accounting information is used in

Control is the process

The Certified Management Accountant (CMA)

CMAs must pass an examination covering

Accounting Information System

Process of gathering, organizing, and

Accounting information helps managers

Budget: quantitative expression of a plan of action

Variances: deviations from plans

Mayfair Starbucks Store, March 31, 20X1

Budget Actual Variance

U= Unfavorable – actual exceeds budget

Generally accepted accounting principles (GAAP)

Internal auditors Sarbanes-Oxley Act***

Copyright © 2014 Pearson Education, Inc. publishing as Prentice Hall 1 - 14

In 2002, the Sarbanes-Oxley Act required

External auditors must examine and report

The system must provide accurate, timely budgets

Managers must use accounting

Product life cycle refers to the various

No Sales Sales Growth Stable Sales Level Low sales → No sales

Product Introduction Phase out

Management accountant’s role as consultant

Interprets and Is involved

Cross-functional teams: Found in

Chief Financial Officer (CFO)

Controller Functions Treasurer Functions

Shifting from a manufacturing-based

Increased global competition

Changes in business processes

The service sector now accounts for more

Common characteristics of service

Business process reengineering:

The Institute of Management Accountants (IMA)

No regulation can be as effective

Managers must choose an alternative

1. Emphasis on short-term results:

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