Chapter Introduction to Cost and Management Accounting in a Global Business Environment Questions Financial accounting focuses on the needs of external users (stockholders, creditors, etc.) and is dedicated to processing information about historical, monetary transactions Cost accounting is a subset of both financial and managerial accounting It provides information on product/service cost that is used on the balance sheet and income statement Managerial accounting focuses on the information needs of an organization’s internal managers, needs that are related to the planning, controlling, and decision-making functions of those managers None of these accounting areas is more “important” than the other; each simply provides different information for different needs Thus, the determination of “importance” lies with the user and the user’s purposes Management accounting stresses the informational needs of internal users over those of external users (the focus of financial accounting) Because of this perspective, management accounting provides information in a format that is flexible and relevant to a particular manager's usage Financial accounting, on the other hand, must provide some uniformity in the manner in which information is presented for it to be comparable among companies Cost accounting is a subset of management accounting Cost accounting focuses on the determination of product or service cost Management accounting includes the provision of all internal accounting information to managers to help them perform their functions of planning, controlling, evaluating performance, and making decisions Some information generated by cost accounting is used in management accounting and some in financial accounting Thus, cost essentially links financial and management accounting Chapter Introduction to Cost and Management Accounting in a Global Business Environment Operating in a global environment means that more decision and control variables must be tracked For example, a firm operating in many countries must track variables such as national rules of income taxation, sets of local laws of commerce, production and sourcing sites, and currencies In addition, the multinational firm must monitor markets in many countries, deal with a multitude of local cultures and customs, and communicate in several languages Some other valuable information for the global firm would be: currency exchange rates; national inflation rates; details of import/export laws; prices for commodities in likely sourcing sites; distribution costs for various modes of moving goods, components, equipment, and materials; political issues in all relevant markets; and competitors’ prices in all markets These types of information are important to managers in safeguarding the firm’s assets and in allocating the firm’s resources to generate an optimal return on capital This statement is false Even small companies now have opportunities to arrange partnering with companies in other countries These opportunities have become available, in part, because of the reduction in tariffs among countries, the ability to travel and communicate easily among countries, and the use of the Internet for business purposes Student answers will vary No solution provided Chapter Introduction to Cost and Management Accounting in a Global Business Environment The sites listed under WebTrust (see also http://www.aicpa.org)have been examined by a licensed CPA or chartered accountant According to the principles of the WebTrust program, these sites are periodically examined by a WebTrust licensed CPA to ensure compliance with the WebTrust principles, which include: • Business practices disclosure • Transaction integrity • Information protection The VeriSign Secure Server ID installed at these sites allows consumers to perform electronic transactions securely All information sent to these sites will be electronically encrypted, to help ensure that nobody but the intended recipient can read your credit card number or other sensitive personal information It also provides assurance that you are doing business with a site that can legitimately display the WebTrust Seal The WebTrust Site Index includes the following sites: • Alpine Bank • Altus Mortgage Corporation • The American Institute of Certified Public Accountants • Bell Canada • Canada.etrade.com • Colegio de Contadores Públicos Autorizados de Puerto Rico • Colorado Society of CPAs • Competitor Communications Inc • E-Trade Group, Inc • Flexlease V.O.F • Fortune1000.ca • GalaxiWorld Casino • Innovation.pbnet.com • Les Systemes Fortune 1000 ltee • Main Net, Inc • National Tax Institute • Pennsylvania Institute for Certified Public Accountants • Portera.com • Resource Marketing, Inc • Shop-csc.com • The Ohio Society of CPAs • VERSUS Technologies, Inc • Webcoach Internet Services • Zurich Financial Services Australia Limited Chapter Introduction to Cost and Management Accounting in a Global Business Environment Chapter Introduction to Cost and Management Accounting in a Global Business Environment Economic trade agreements are essential to the globalization of business In the past, trade barriers (whether tariffs or import/export limitations) kept countries separate and more focused only on opportunities within their own geographic boundaries Trade agreements reduce the fiscal and physical barriers and, thus, provide companies with greater opportunities for sales and/or production and provide individuals with greater opportunities to compare product/service quality, price, and delivery so as to make more rational decisions Student answers will vary No solution provided 10 Student answers will vary No solution provided 11 An American (or Canadian) company operating in a long-time capitalist country might find “capitalist” conditions in Russia to be different There is still a distinct involvement of the political system in the business arena in Russia; for example, in the need to obtain permits, etc Culturally, the Russian people have traditionally worked, not for themselves, but for the state; this might create an organizational culture that delivers less than the normal American/Canadian work ethic Alternatively, the newly created opportunities for capitalism and personal wealth could induce the Russian people to work harder than their American/Canadian counterparts who have always operated under these conditions 12 Each student will have different answers No solution provided 13 Each student will have different answers No solution provided 14 In general, government regulations exist to protect the people and the environment and to provide a climate for fair business competition Typically, regulations exist that prescribe practices with respect to labor, product safety, appropriate conduct in foreign business transactions, and fair trade Students from different countries should be asked to compare their answers and perceptions 15 There are many self-serving reasons to be a nonpolluter For example, a proactive strategy to reduce pollution may attract environmentally conscious consumers Further, such an approach may avoid subsequent regulation of operations by government and the legal entanglements caused by retroactive application Chapter Introduction to Cost and Management Accounting in a Global Business Environment of new laws Chapter Introduction to Cost and Management Accounting in a Global Business Environment 16 A legal standard is codified, compliance is mandatory, and violations of it may invoke sanctions Because legal standards generally vary by legal jurisdictions, no common set of global laws exists for personal or business conduct An ethical standard is inherently personal, is transportable across legal jurisdictions, and may be a basis for consistent personal conduct in global transactions It represents a moral view of what is acceptable and unacceptable in personal behavior Legal and ethical standards are similar in that legal standards generally represent the common element in a society’s moral view of behaviors On the other hand, legal standards apply to all members of a specified society, and sanctions exist for violations Ethical standards are nonbinding, may differ between individuals, and no explicit sanctions are imposed for violations of ethical standards 17 Each student will have different answers No solution provided 18 Factors that impede the development of an international code of ethics for profit-oriented businesses include differing political climates, standards of living, the ability to move from and into alternative societal classes, inflation rates that may destroy currency valuations, and (possibly most importantly) the ability to punish violators of the code The Caux Principles are an attempt to establish an international code of ethics; whether it can succeed will be determined in the future Each student will have different answers for these questions as well as whether they believe that laws will be able to overcome ethical differences (Note: Laws are for a populace; ethics are for a person–no law will ever MAKE an unethical person ethical!) 19 An organizational code of ethics is essential so that each member of the organization understands his/her moral obligations to other members A code of ethics will help frame organizational culture—if organizational members at all levels truly believe in and abide by it and if there are penalties that are enforced for code violations 20 Each student will have different answers No solution provided 21 A mission statement is important to an organization because it provides a clearly worded view of what the organization wants to accomplish and how the organization uniquely meets its Chapter Introduction to Cost and Management Accounting in a Global Business Environment targeted customers’ needs with products and services Without a mission statement, an organization may veer away from its “view of itself” and find that it is engaging in activities that are not, and can never be, part of what it wants to Chapter Introduction to Cost and Management Accounting in a Global Business Environment 22 Each student will have different answers No solution provided 23 Organizational strategy is the link between a firm’s goals and objectives and its operational plans Strategy is therefore a specification of how a firm intends to compete and survive Each organization will have a unique strategy because it has unique goals, objectives, opportunities, and constraints 24 Because of the fiduciary nature of not-for-profit organizations, it is essential that strategic planning be performed to ensure longevity and fiscal responsibility Thus, it is probably more important (at least legally) for not-forprofit, than for-profit, entities 25 Goals are qualitative expressions of desired results Objectives are quantifiable expressions of desired results With respect to this course, your goal may be to demonstrate basic competency in the field of cost and management accounting Consistent with this goal, your objective may be to achieve a minimum grade of B 26 Authority is the right, generally because of position or rank, to use resources to accomplish a task or achieve an objective Responsibility is the obligation to accomplish a task or achieve an objective Authority can be delegated, but responsibility must be assumed and maintained by the person to whom it is assigned However, sufficient authority must accompany responsibility or the assignment of responsibility cannot endure 27 Pure centralization is appropriate in very small firms that lack a pool of talented managers to make decisions In such a setting, decisions are best made by experienced decision makers who possess the “vision” of the organization’s future Pure decentralization is appropriate in an organization that has diverse global, cultural, and political operations as well as in firms that face very competitive local markets that are sensitive to local information Because they are in the best position to have all information required to identify and evaluate the decision alternatives, local managers make most decisions under pure decentralization 28 Each student will have different answers No solution provided 29 Although student responses will vary, most will address Chapter 10 Introduction to Cost and Management Accounting in a Global Business Environment curriculum design, faculty evaluations, faculty appointments and dismissals, tuition, resource allocations for students fees, and so forth Chapter 22 Introduction to Cost and Management Accounting in a Global Business Environment companies Chapter 23 Introduction to Cost and Management Accounting in a Global Business Environment 55 56 b Cost leadership is beneficial because, at least until competitors benchmark the organization to learn its cost “secrets,” the organization should be able to increase volume and generate higher profits These organizations commonly take full advantage of the economies of scale c Confrontation is beneficial because the organization is aware that all sources of positive returns are shortterm Thus, the organization must engage in continual improvement so that the “next” competitive advantage can be realized Each student will have a different answer; however, the following items may be mentioned a The upstream value chain would include shareholders/bond holders, farmers/wholesale grocers, equipment manufacturers, transportation companies, and so forth b Internal activities would include purchasing, receiving, product design (including nutritional content and package), manufacturing, packaging, and so forth c The downstream value chain would include wholesalers and retailers, transportation companies, market research, advertising firms, customers, and so forth a Each student will have a different answer; however, the following items may be mentioned: Then Now “Number cruncher” Decision support specialist Staff member with limited “Business partner” responsibilities Controller of costs Analyst of costs Provider of internal reports Developer of models Impediment to change Implementer of change Provider of data Provider of information Work in relative isolation Member of cross-functional teams Accountant Member of the finance function Reactive Proactive See Siegel & Kulesza, “Practice Analysis of Management Accounting,” Management Accounting (April 1996) and visit the IMA Web site at www.imanet.org Chapter 24 Introduction to Cost and Management Accounting in a Global Business Environment b Each student will have a different answer; however, the following items may be mentioned: interpersonal skills, communication skills, technological skills, critical thinking and analysis skills, planning and decisionmaking skills, broad-based learning, performance measurement and evaluation skills, and knowledge of the international marketplace Cases 57 Each student will have a different answer No solution provided 58 a A mission statement adds strength to an organization’s strategic planning process by providing a clear view of what the organization wants to accomplish and how it uniquely meets customers’ needs with products and services Without a mission statement, an organization may find that it is engaging in activities that are not, or can never be, part of what it wants to or is most competent to b A mission statement should be developed using input from everyone in the organization If handled in this manner, the statement will become internalized by the organization members and become a distinct part of the organizational culture c In developing a mission statement, organizational members need to consider the organization’s strengths (including core competencies) and weaknesses, opportunities for growth, customer base (current and desired), competition, constraints (whether physical, financial, technological, regulatory, etc.), profitability, and employees’ skills (current and those that can be obtained through training or hiring) d Each student will have a different answer No solution provided Chapter 25 Introduction to Cost and Management Accounting in a Global Business Environment 59 60 a Long-range goals enable an organization to develop a business philosophy that should state the direction of the organization and the limits within which management is free to exercise discretion The development of longrange goals is important for providing the basis for plans, enhancing efficiency of organization decision makers, and providing a basis by which alternative courses of action can be evaluated Long-range goals serve as a means to orient individuals within the firm to the organizational goals and provide the basis for individual goals and goal congruence Goals also serve as standards against which long-term progress can be measured and evaluated b Long-range goals are normally set by persons at the highest level of the organization However, input should be solicited from employees at all levels of the organization The goals are developed by weighing various constraints such as present and future economic conditions, the desires of owners and management, and the firm’s resources c Strategic planning is the development of a consistent set of goals, plans, resources, and measurements by which goal achievement can be assessed Strategic planning recognizes that an organization functions in an environment and takes into account the interactions between the organization and its environment in everything the organization does or plans to Management control is the process by which managers ensure that resources are obtained and used in an efficient and effective manner to accomplish the organization’s goals Management control implies that performance measurements are reviewed to determine if corrective action is necessary Strategic planning and management control are interrelated Management control is carried out within the framework established by strategic planning and is the process by which management evaluates resource usage and whether the plans and long-range goals will be achieved The purpose of management control is to encourage managers to take actions in the best interest of the organization so that the goals can be achieved (CMA) a Overseas customers may not have access to the information needed to call up Dell and order a computer They might Chapter 26 Introduction to Cost and Management Accounting in a Global Business Environment be less aware of what Dell has available to offer than customers in the United States who may be more sophisticated computer purchasers Chapter 27 Introduction to Cost and Management Accounting in a Global Business Environment b Students will find the first retail attempt failed The operation of retail outlets did not align well with the core strategy and competencies of Dell Dell withdrew from operating retail stores However, Dell has once again entered the retail market by selling its products directly to consumers via the Internet 61 Each student will have a different answer No solution provided 62 Each student will have a different answer No solution provided 63 a A pluralistic society is likely to have higher costs of communicating with and of coordinating the efforts of workers Among the benefits of pluralism are a richer organizational culture, a greater ability for a company to understand nuances of many cultures, political ties with other countries and markets Additionally, not all workers will require the same days off to celebrate religious and cultural holidays Finally, such a diverse group of workers can provide substantial input into the design of products and production processes so that they may be competitive in a global market b Whether students perceive plurality to be advantageous is likely to hinge on their perceptions of the benefits discussed in part (a) Also relevant will be their evaluations of the costs of racism, sexism, and age and other forms of discrimination that are more likely to surface in a pluralistic workforce a The following competitive influences may affect each of the business choice: • Cable company – with passage of the Telecommunications Act, many providers are entering the cable market, thus creating an unknown marketplace • Airline – other major and regional airlines; whether to operate at “hubs;” landing fees charged at different airports • Hot-sauce plant – access to suppliers and plant capacity; permits to build; access to qualified employee base • Fast-food – political climate; access to suppliers; dilution of disposable income of populace; first-mover advantage 64 Chapter 28 Introduction to Cost and Management Accounting in a Global Business Environment 65 b The following competitive tactics may relate to each of the business choices: • Cable company – cost leadership, confrontation • Airline – product/service differentiation, cost leadership • Hot-sauce plant – cost leadership, compression of scope, product/service differentiation, confrontation • Fast-food – confrontation, cost leadership, product/service differentiation c The following key variables may be most important to each of the business choices: • Cable company – customer service, number of channels offered • Airline – customer service, flight frequency, size and features of planes • Hot-sauce plant – quality, price, flavor • Fast-food – price, quality, location, brand recognition d Each student will have a different answer No solution provided a A strategic alliance would be considered illegal in the United States when it interfered with free trade – for instance, if price fixing occurred among organizations b Each student will have a different answer, but the following issues may be mentioned: establishment of a consistent source of supply (both in quantity and quality), a strong customer base, integration of activity (such as airline, hotel, and car rental alliances), and so forth c Each student will have a different answer No solution provided Reality Check 66 Each student will have a different answer No solution provided Chapter 29 Introduction to Cost and Management Accounting in a Global Business Environment 67 Solution taken from “Succeeding in E-Business” (www.deloitte.com/tidalwave/succeed.htm) (October 2001) a Executive focus on strategy and risks: • Does our vision include e-business? Have we developed our business plans with e-business in mind? • What opportunities and risks does e-business pose to our business or industry? • Have we done enough to deal with the risks that ebusiness might pose? • Is our board sufficiently informed about these risks and opportunities? • What are our competitors doing in e-business? Are we leaders, fast followers, or laggards? • Is e-business getting the right level of senior management attention? Do we have senior-level thought leaders? • Do we have the right mix of skills in the organization to capitalize on e-business? • Is the level of funding sufficient to achieve our goals? b Customers: • What our customers want? Convenience of on-line business? Lower prices? New products or services? Better information? • How will our customers’ behavior change as a consequence of the Internet? • Are we using the Internet to attract new customers? Globally? • What value can we add for customers that will distinguish us from our competitors? • What can others add that would diminish the relative value of our offerings? • How can we make ourselves attractive to potential Internet customers? c Products and services: • What is our value proposition in cyberspace? • How does cyberspace affect the nature of our existing products or services? Do we need to change them? Will other products or services replace ours? What is currently being offered in cyberspace? What’s new? • What new products or services can we sell on the Internet by leveraging our present digital assets and core competencies? Chapter 30 Introduction to Cost and Management Accounting in a Global Business Environment Chapter 31 Introduction to Cost and Management Accounting in a Global Business Environment d Value chain: • How can we alter our value chain? • Will disintermediation jeopardize our existing distribution network or supply sources? e Competition: • How will cyberspace alter our industry in five years, and who will be our competitors? • What scenarios should we be considering and planning for? • What are our competitors doing on the Internet and how we compare? • Should we be leaders or followers? What are the risks if others lead? • What advantages others have in e-business that might damage our competitiveness and how can we reduce the risks? f Business processes and technology: • How can we use the Internet to streamline our business processes, reduce cycle time, and become more cost competitive? • Is our technology infrastructure aligned with our current and twenty-first-century business objectives? Is it scalable, reliable, and secure? • How we provide a secure e-business environment for our customers? • Are our Internet-based sales or procurement systems adequately integrated with our ERP and other backoffice systems? • Are our systems and information assets adequately protected? g Regulatory and tax environment: • Are we complying with the laws and regulations of the jurisdictions in which we are doing e-business? Are we managing/minimizing our legal liabilities in those jurisdictions? • Are we complying with tax regulations and minimizing our tax liability as we e-business in various jurisdictions? Chapter 32 Introduction to Cost and Management Accounting in a Global Business Environment 68 The purpose of this question is to get students to think about the role of laws and ethics in the conduct of business Among the important points that should be made in the position papers include: whether the laws in the firm’s home country or local foreign law should govern the actions of firms; whether ethics or law should be the standard governing actions in foreign jurisdictions; and the extent to which “being competitive” should be a criterion in choosing a business course of action (Interesting article: Reed & Portanger, “Bribery, Corruption Are Rampant in Eastern Europe, Survey Finds,” The Wall Street Journal, November 9, 1999.) 69 The delivery of medicine had already occurred What caught the manager's notice was the size of the delivery charge, which included the bribe to keep the driver from being shot An internal investigation was launched It was discovered that no one in the company had taken any money A lawyer investigated: It was not a violation of the Foreign Corrupt Trade Practices Law because the people demanding payment were not government officials, but vigilantes or bandits The company's conclusion was to leave it alone-there was no corruption within the company's own ranks If it happened again, however, they would need to launch a wider awareness and discussion of the subject within the company http://www.globalethics.org/dilemmas/jan97dil.html 70 a The quote indicates that the predominant concern of American businesses should be profit generation There is nothing explicit or implied in the statement to indicate that profits must be derived from that set of activities that is legal within the local jurisdiction Given that the pursuit of profit is constrained to legal activities, Friedman’s statement is merely a pro-capitalism one b Ethically, one might feel that the pursuit of profit should be constrained such that profit is not pursued to the detriment of human life, human happiness, the environment, etc In short, ethically, one might easily identify several objectives that managers should hold in preference to maximization of profits c Taking a long-term view, it might be logical to argue that managers’ profit-maximizing actions are those actions that are both legal and ethical In the long run, illegal actions draw fines, lawsuits, new regulations, and other costly sanctions; unethical acts tarnish business reputation, and lose customers and market share Chapter 33 Introduction to Cost and Management Accounting in a Global Business Environment Hence, in the long run, there may be no conflict between Friedman’s statement as to managers’ obligations and the legal and ethical obligations of managers Chapter 34 Introduction to Cost and Management Accounting in a Global Business Environment 71 a Every organization does not have to have a mission statement However, having one aids the organization by providing a clear statement of what the organization wants to accomplish and how it uniquely meets customers’ needs with products and services Without a mission statement, an organization may find that it is engaging in activities that are not, and never can be, part of what it wants to or is most competent to b A mission statement can help an organization encourage ethical behavior in its employees by establishing ethics as an organizational characteristic that cannot be violated By including ethical behavior as part of the mission statement, the organization is reinforcing such behavior as a distinct and critical part of organizational culture c A mission statement can help an organization pursue high quality and customer service in the same way that it helps organization members with ethics—it reinforces these concepts as part of organizational culture and, thus, “demands” the organization to aspire to continual improvement 72 Each student will have a different answer No solution is provided; however, it is essential that students realize that computer software piracy is illegal as well as unethical 73 a Earnings management refers to any accounting method or practice that allows a company to “meet consensus earnings estimates, preserve a glowing earnings trend, convert a loss to a profit, increase management compensation (tied to stock performance), or hide an illegal transaction.” (SEC Assc Dir Paul Gerlach as quoted in The Wall Street Journal, August 11, 1999.) b Companies include Enron, Global Crossing, W R Grace, Bankers Trust, Cendant, Sunbeam, Waste Management, Underwriters Financial Group, Livent, Mercury Finance, Telxon, Rite Aid, MCN Energy Group, and McKesson HBOC (just to name a few) c If an organization’s management accountant is, in fact, primarily dealing with internal accounting and finance matters, then it is more likely that the financial accountant would be more involved in earnings management situations Chapter 35 Introduction to Cost and Management Accounting in a Global Business Environment Chapter 36 Introduction to Cost and Management Accounting in a Global Business Environment d Each student will have a different answer However, SEC Director Levitt “roundly criticized a business community that greeted ‘accounting hocus-pocus’ with nothing more than ‘nods and winks.’ Among the accounting tactics he blasted were improper revenue recognition, unjustified restructuring charges, and the artifices called ‘cookiejar reserves.’ Accountants know all of these (and more) as ‘accounting irregularities’-intentional misstatements in financial reports, which Levitt and his team regard as very often the equivalent of fraud.” Fraud is, of course, illegal Thus, “for those who can't get with the program, the punishment increasingly could be criminal prosecution.” The SEC cannot bring criminal actions, but “the chairman has been out jawboning people who do, like Attorney General Janet Reno and various U.S Attorneys.” (Loomis, “Lies, Damned Lies, and Managed Earnings,” Fortune (August 2, 1999) ... Introduction to Cost and Management Accounting in a Global Business Environment companies Chapter 23 Introduction to Cost and Management Accounting in a Global Business Environment 55 56 b Cost. .. digital assets and core competencies? Chapter 30 Introduction to Cost and Management Accounting in a Global Business Environment Chapter 31 Introduction to Cost and Management Accounting in a... Services Australia Limited Chapter Introduction to Cost and Management Accounting in a Global Business Environment Chapter Introduction to Cost and Management Accounting in a Global Business Environment