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© 2010 The McGraw-Hill Companies, Inc.

Managerial Accounting and the

Business EnvironmentChapter 1

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Learning Objective 1

Understand the role of Understand the role of 

management accountantsmanagement accountants

in an organization.in an organization.

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Corporate Organization Chart

Purchasing Personnel Vice President

Operations

Treasurer Controller 

Chief Financial

Officer 

President

Board of Directors

Organizational Structure

 Decentralization is the delegation of decisionDecentralization is the delegation of decision--

making authority throughout an organization.making authority throughout an organization.

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Line and Staff Relationships

Line positions are directlyrelated to achievement of the basic objectives of anorganization.

Example: Productionsupervisors in amanufacturing plant.

Staff positions supportand assist line positions.

Example: Cost

accountants in themanufacturing plant.

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The Chief Financial Officer (CFO)

  A member of the top management team responsible

for:

` Providing timely and relevant data to support planning

and control activities.

` Preparing financial statements for external users.

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Learning Objective 3

Understand theUnderstand the

importance of upholdingimportance of upholding

ethical standards.ethical standards.

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Code of Conduct for Management Accountants

 The Institute of Management Accountant¶s (IMA)

Statement of Ethical Professional Practice

consists of two parts that offer guidelines for: Ethical behavior.

Resolution for an ethical conflict.

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Competence Follow applicable

laws, regulations

and standards.

Maintain

professional

competence.

Provide accurate, clear,

concise, and timely decision

support information.

IMA Guidelines for Ethical Behavior 

 Recognize andcommunicate professional

limitations that preclude

responsible judgment.

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 Mitigate conflicts of 

interest and advise others

of potential conflicts.

Abstain from activities that

might discredit the

profession.

 Refrain fromconduct that

would prejudice

carrying out

duties ethically.

Integrity

IMA Guidelines for Ethical Behavior 

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 Follow employer¶s established policies.

For an unresolved ethical conflict:

` Discuss the conflict with immediate supervisor or next highest uninvolved manager.

` If immediate supervisor is the CEO, consider theboard of directors or the audit committee.

` Contact with levels above the immediate supervisor should only be initiated with the supervisor¶s

knowledge, assuming the supervisor is not involved.

IMA Guidelines for Resolution of an EthicalConflict

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 Follow employer¶s established policies.

For an unresolved ethical conflict:

` Except where legally prescribed, maintainconfidentiality.

` Clarify issues in a confidential discussion with anobjective advisor.

` Consult an attorney as to legal obligations.

IMA Guidelines for Resolution of an EthicalConflict

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 Abandoning ethical standards in business would

lead to a lower quality of life with less

desirable goods and services at higher prices.

Why Have Ethical Standards?

Without ethical standards in business, the

economy, and all of us who depend on it for 

 jobs, goods, and services, would suffer.

 Ethical standards in business are essential for a

smooth functioning economy.

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Company Codes of Conduct

Employees Customers Suppliers

  And to the communities in

which the company operates.

 BroadBroad--based statements of abased statements of a

company¶s responsibilities to:company¶s responsibilities to:

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Codes of Conduct on the International Level

 In addition to integrity and objectivity, resolution of ethicalconflicts, competence, and confidentiality, the IFAC¶s code

deals with the accountant¶s ethical responsibilities in:

Taxes,

Independence,Fees and commissions,

 Advertising and solicitation,

Handling of monies, and

Cross-border activities.

The Code of Ethics for Professional Accountants, issued by the International

Federation of Accountants (IFAC), governs the

activities of professional accountants worldwide.

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Corporate Governance

The system byThe system by

which a company is directedwhich a company is directed

and controlled.and controlled.

 Board of Directors

Top

Management

Stockholders

To pursue

objectives of 

Incentives andmonitoring for 

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The Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 was intended to protect the

interests of those who invest in publicly traded companies byimproving the reliability and accuracy of corporate financial

reports and disclosures. Six key aspects of the legislation include:

The Act requires both the CEO and CFO to certify in writing

that their company¶s financial statements and disclosuresfairly represent the results of operations.

The Act establishes the Public Company Accounting Oversight

Board to provide additional oversight of the audit profession.

The Act places the power to hire, compensate, and terminatepublic accounting firms in the hands of the audit committee.

The Act places restrictions on audit firms, such as prohibiting

public accounting firms from providing a variety of non-audit

services to an audit client.

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The Sarbanes-Oxley Act of 2002

 (continued) The Act requires a public company¶s independent 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.

The Act establishes severe penalties for certain behaviors,

such as:

Up to 20 years in prison for altering or destroying anydocuments that may eventually be used in an official

proceeding.

Up to 10 years in prison for retaliating against a

³whistle blower.´

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Corporate Social Responsibility

 CSR extends beyond legal compliance

to include voluntary actions that satisfy

stakeholder expectations.

Corporate social responsibility (CSR) is a concept

whereby organizations consider the needs

of all stakeholders when making decisions.

Customers Employees CommunitiesSuppliers Stockholders

Environmental

& Human Rights

 Advocates

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Certified Management Accountant

 A management accountant

who has the necessary qualifications and

who passes a rigorous professional exam earns

the right to be known as a Certified

Management Accountant (CMA).

 Information about becoming a CMA and the CMAInformation about becoming a CMA and the CMA

program can be accessed on the IMA¶s website atprogram can be accessed on the IMA¶s website at

www.imanet.orgwww.imanet.org or by calling 1or by calling 1--800800--638638--4427.4427.

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End of Chapter 1