Chapter 1
Lecture Notes
Chapter theme: This chapter explains why managerial
accounting is important to the future careers of all
business students. It answers three questions: (1) What is
managerial accounting? (2) Why does managerial
accounting matter to your career? and (3) What skills do
managers need to succeed? It also discusses the
importance of ethics in business and corporate social
responsibility.
I. What is managerial accounting?
A. Financial and managerial accounting: seven key
differences
i. Users
1. Financial accounting summarizes past
activities. Managerial accounting has a
strong future orientation.
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1. Financial accounting focuses on precision
when reporting to external parties.
1. Financial accounting is concerned with
companywide reports. Managerial
1. Financial accounting conforms to GAAP
and IFRS. Managerial accounting is not
bound by GAAP and IFRS.
vii. Managerial accounting – not mandatory
B. Managerial accounting helps managers carry out three
main activities—planning, controlling, and decision
making.
i. Planning
ii. Controlling
1. Controlling involves gathering feedback to
ensure that the plan is being properly
iii. Decision making
1. Decision making involves selecting a
course of action from competing
alternatives.
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II. Why does managerial accounting matter to your career?
A. Business majors
i. Marketing majors
1. Planning
a. How much should we budget for TV,
to hire to serve a new territory?
2. Controlling
a. Is the budgeted price cut increasing
unit sales as expected?
3. Decision making
a. Should we sell our services as one
bundle or sell them separately?
ii. Operations management majors
1. Planning
a. How many units should we plan to
produce next period?
produced?
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b. Are we achieving our goal of reducing
the number of defective units
produced?
1. Planning
a. How much should we plan to spend for
occupational safety training?
2. Controlling
a. Is our employee retention rate
exceeding our goals?
3. Decision making
a. Should we hire an on-site medical staff
to lower our healthcare costs?
b. Should we hire temporary workers or
full-time employees?
B. Accounting majors
i. The IMA estimates that more than 80% of
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ii. If you are an accounting major there is a high
likelihood that your future will involve
working for a non-public accounting
employer.
iv. For accounting majors, the Certified
Management Accountant (CMA)
designation is a globally-respected credential
that will increase your credibility, upward
mobility, and compensation.
v. This slide summarizes the topics included in
the two-part CMA exam. The CMA focuses
on the planning, controlling, and decision
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III. What skills do managers need to succeed?
A. Strategic management skills
i. Definition
1. A strategy is a “game plan” that enables a
1. Companies that adopt a customer intimacy
strategy respond to individual customer
2. Companies that adopt an operational
excellence strategy strive to deliver products
and services faster, more conveniently, and
3. Companies that adopt a product leadership
strategy strive to offer higher quality
products than competitors. Examples of
companies that pursue this strategy include:
a. Apple, BMW, and Cisco Systems
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B. Enterprise risk management
ii. Once a company identifies its risks, the most
common risk management tactic is to reduce
risks by implementing specific controls.
1. This slide contains a subset of the business
C. Process management skills
i. Key definitions
1. A business process is a series of steps that
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ii. Lean production is a management approach
that organizes resources such as people and
machines around the flow of business
processes and that only produces units in
response to customer orders.
2. Traditional manufacturing methods organize
work departmentally and encourage those
departments to maximize their output even it
exceeds customer demand and bloats
inventories.
iii. The Theory of Constraints (TOC)
1. A constraint (also called a bottleneck) is
anything that prevents you from getting
more of what you want.
a. The constraint in a system is
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workforce.
3. The TOC offers a four-step approach to
process improvement:
a. First, identify the weakest link in the
chain, which is the constraint.
b. Second, do not place a greater strain
on the system than the weakest link
can handle – if you do, the chain will
break.
D. Measurement skills
i. The question you are trying to answer defines
what you’ll measure and how you analyze it.
For example:
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2. If you are trying to determine how your
company is serving its customers, then
3. If you want to predict whether your
company will need to borrow money, then
your measurement efforts will focus on
estimating future cash flows.
E. Leadership skills
i. To be an effective leader, you’ll need to
develop six skills:
1. You’ll need technical competence within
your area of expertise and with respect to
operations outside your functional area of
expertise.
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IV. The importance of ethics in business
A. The IMA’s Statement of Ethical Professional
Practice has two main parts – guidelines for ethical
behavior and guidelines for resolution of an ethical
conflict.
i. Guidelines for ethical behavior
1. Competence
a. Maintain professional competence.
b. Follow applicable laws, regulations,
and standards.
2. Confidentiality
a. Do not disclose confidential
information unless legally obligated to
3. Integrity
a. Mitigate conflicts of interest and
advise others of potential conflicts.
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4. Credibility
a. Communicate information fairly and
objectively.
ii. Guidelines for resolution of an ethical
conflict
1. Follow the organization’s established
policies for resolving ethical conflict. If this
does not work, consider the following:
a. Discuss the conflict with immediate
supervisor or next highest uninvolved
managerial level.
d. Except where legally prescribed,
communication with individuals not
employed by the organization is not
appropriate.
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B. Why have ethical standards?
i. Ethical standards are motivated by a very
practical consideration—if the standards are
not followed in business, then the economy
and all of us would suffer.
V. Corporate social responsibility
A. Key definitions/concepts
i. Corporate social responsibility (CSR) is a
concept whereby organizations consider the
needs of all stakeholders when making
decisions. CSR extends beyond legal
compliance to include voluntary actions that
satisfy stakeholder expectations.
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VI. Appendix 1A: Corporate governance (slide 43 is a title
slide)
A. Key definitions/concepts
i. Corporate governance is the system by
which a company is directed and controlled.
B. The Sarbanes-Oxley Act of 2002
i. The Sarbanes-Oxley Act of 2002 was
intended to protect the interests of those who
invest in publicly-traded companies by
improving the reliability and accuracy of
corporate financial reports and disclosures.
Six key aspects of the legislation include:
services to an audit client.
5. The Act requires a company’s auditor to
issue an opinion on the effectiveness of the
company’s internal control over financial
reporting to accompany management’s
assessment, and both are included in the
company’s annual report.
6. The Act establishes severe penalties for
certain behaviors, such as:
C. Internal control—A closer look
i. Internal control is a process designed to
provide reasonable assurance that objectives
are being achieved.
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iv. Internal controls cannot guarantee that
objectives are achieved because:
1. Even well-designed internal control systems