Chapter 1: Managerial Accounting and the Business Environment

The Role of the Professional Accountant in Value Creation

  • Plays a key role in decision making and managing employees across various functional areas of an organization.

Management Accounting – Provides info to managers for use in planning and controlling operations and for decision making.

  • Determining and developing internal accounting info as a tool for managers’ business decisions.
  • Reports compare results to plans, provide timely updates, or help in investigations of problems.

1) Describe the Functions performed by managers.


  • Developing goals and specifying how to achieve them.
  • Involves analyzing a budget – a quantitative plan for acquiring/using financial and other resources for a period.
  • Formulate long and short-term plans.

Directing and Motivating

  • Mobilizing people to carry out plans and run routine operations smoothly.
  • Utilize employee work assignments, routine problem solving, conflict resolution, effective communications.
  • Managers must motivate, direct, make decisions, and establish procedures and routines for decision making.
  • Implementing plans


  • Gathering feedback to ensure that the plan is being properly executed or modified as necessary.
  • Summarize feedback in a performance report – detailed reports provided periodically that compare budgeted data to actual data.
  • Measuring performance, compare actual to planned performance.

Decision Making

  • Selecting a course of action from among alternatives.
  • Decide products to sell, whom to serve to, and how to execute.

The Planning and Control Cycle

  • The flow of management activities through planning, directing and motivating, and controlling, and then back to planning again.
  • Revolves around Decision Making.

Strategic Management

  • Strategy – A game plan that enables a company to attract and retain customers by distinguishing itself from competitors.
  • Customer Value Propositions - Focal point should be target customers.
  • Customer Intimacy – understand and respond to customer needs.
  • Operational Excellence – deliver products and services faster, more convenient, and at a lower price.
  • Product Leadership – offer higher quality products.
  • Managerial Accounting reveals important customer information through special measurement systems of customer satisfaction, complaints, etc.

2) Identify the major differences and similarities between financial and managerial accounting.

Emphasis on the Future

  • MA has a strong future orientation, whereas FA summarizes mainly past financial transactions.

Relevance of Data

  • MA requires information that is relevant, even if it is not completely objective or verifiable.
  • Should be flexible to provide any data relevant to decision making.

Less Emphasis on Precision

  • MA prefers an immediate estimate, so rounding may occur.
  • There is more focus on non-financial data (i.e. customer satisfaction)

Segments of an Organization

  • MA focuses on segments – parts of an organization that can be evaluated independently from other parts and about which the manager seeks data.


  • MA is not bound by GAAP, so managers have flexibility to determine the content and form of internal reports to suit the organization’s needs.
  • However, GAAP has influenced the practice of MA.

Not Mandatory

  • FA is mandatory, but MA is optional – this means that there is greater emphasis on the potential importance of information rather than requirement.

3) Explain the basic concepts of lean production and enterprise risk management.

  • Business Process - A series of steps that are followed to carry out some task or activity in a business.
  • Value Chain - Consists of the major business functions that add value to a company’s products and services.
  • R&D, Product Design, Manufacturing, Marketing, Distribution, Customer Service

Lean Production

  • Management approach that organizes resources such as people and machines around flow of business processes and that produces units only in response to customer orders.
  • Just-in-Time (JIT) Production – system where production is not initiated until a customer has ordered a product.
  • Less defects, less wasted effort, and quicker customer response times.

Enterprise Risk Management

  • A process used by a company to proactively identify and manage foreseeable risks.
  • Risks include weather, hackers, complying with the law, theft, financial reporting, strategic decision making, etc.
  • Failure to address risks lead to impairment of a company to meet its goals.
  • Once identified, the company can accept, avoid, share, or reduce it the risk.

4) Explain the nature and importance of ethics for accountants and the role of corporate social responsibility.


  • Code of ethics outline professional behaviour in terms of how members should conduct themselves in the public, their association, and other members.
  • Must maintain a level of competence appropriate to designation.
  • Confidentiality – Important to keep information classified.
  • Integrity – Maintained by avoiding conflicts of interest with employers or clients, not taking “favours.”
  • Objectivity – Present so recipients receive both favourable and unfavourable info.
  • Without ethical standards, a lower quality of life with less desirable goods and services at higher prices will arise.
  • Resolution: follow employer’s established policies.
  • Unresolved - Maintain legal confidentiality and discuss with immediate supervisor.

Corporate Social Responsibility

  • A concept whereby organizations consider the needs of all stakeholders when making decisions.
  • CSR may also include voluntary actions that meet stakeholder expectations, like environmental or social responsibility.
  • Following CSR attracts investors, employees, customers, and keeps away non-government organizations and activists who may tarnish the company’s rep.

5) Explain how intrinsic motivation, extrinsic incentives, and cognitive biases affect employee behaviour.

Intrinsic Motivation

  • Motivation that comes from within the employee.
  • A leader who possesses technical competence, personal integrity, and strong communication skills as well as strong mentoring skills, strong listening skills, and personal humility may inspire workers to channel efforts to organizational goals.

Extrinsic Incentives

  • Rewards and motivation to highlight important goals and motivate employees to achieve them.
  • Although they have a powerful influence, they may prove dysfunctional by harming another aspect of the employee’s work.
  • i.e. a reward for reduced time spent to finish a product leads to lower quality product.

Cognitive Biases

  • Distorted thought processes that adversely affect planning, controlling, and decision making.
  • Anchoring – Consumer takes the first piece of information provided to them.
  • i.e. salesmen who claim an item is worth more than it is.
  • Prevention - Leaders must acknowledge their own susceptibility to cognitive bias and the presence of cognitive bias in others and introduce techniques to minimize the consequences.
  • i.e. appoint independent teams of employees to assess credibility of others.

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