ACCT 8021 Exam 1- Notes of Review (supplement)
ACCT 8021 Exam 1- Notes of Review (supplement) ACCT 8021
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This 16 page Bundle was uploaded by Doris.Shaw on Tuesday September 13, 2016. The Bundle belongs to ACCT 8021 at University of Cincinnati taught by Professor Mintchik in Fall 2016. Since its upload, it has received 13 views. For similar materials see Management Control Systems in Accounting at University of Cincinnati.
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Date Created: 09/13/16
Management Control Systems Review Sheet for the 1st exam. Important terms: strategy, cost leadership vs. differentiation, critical success factors, upstream vs. downstream value chain activities, balanced scorecard, key performance indicators, SWOT analysis, strategy map, sustainability, value chain analysis. Strategy is the set of plans and policies that a firm employs to develop a sustainable competitive advantage. Strategic management is the most important management function since it most directly relates to the overall success of the firm. In strategic management, top managers determine how the firm is to compete and what specific goals it must set and achieve to be successful. The determination of these strategies and goals drives all other activities in the firm. Cost leadership is the competitive strategy in which the firm succeeds by producing at the lowest cost in the industry. Differentiation is the competitive strategy in which a firm succeeds by developing and maintaining a unique value for the product, as perceived by consumers. Critical Success Factors (CSF’s) are the critical factors or activities required for ensuring the success your business, “the limited number of areas in which satisfactory results will ensure successful competitive performance for the individual, department, or organization”. •Examples of the generic SCFs: •Product innovation; •Quality; Skill development The upstream phase includes: product development and the firm’s linkages with suppliers; operations refers to the manufacturing operations or, for a retailer or service firm, the operations involved i n providing the product or service; The downstream phase refers to linkages with customers, including delivery, service, and other related activities. Valuechain analysis is a strategic analysis tool used to identify where value to customers can be increased or costs reduced, and to better understand the firm’s linkages with suppliers, customers, and other firms in the industry. Management Control Systems Review Sheet for the 1st exam. The first, SWOT analysis, helps management to implement strategy by providing a system and structure in which to identify the organization’s critical success factors. The second, execution, is a management focus on making priorities and achieving these CSFs. The third, valuechain analysis, helps management to implement strategy by breaking the organization down into a sequence of valueproviding activities; management can identify the CSFs at each step in the value chain and ask the question, How do we add value at this step in the value chain? The final step, the balanced scorecard and strategy map, provides a means to collect, report, and analyze the CSFs; the BSC helps management to measure progress to strategic goals and to align employees’ performance efforts, incentives, and rewards to these strategy goals. An important supplement to the balanced scorecard, or in the form of a separate report, is the organization’s performance in the area of sustainability. Because of global warming, increases in commodity prices, and other factors, expectations for corporate social and environmental responsibility has increased significantly in recent years. Management Control Systems Review Sheet for the 1st exam. Chapter 1. Cost Management and Strategy. Be capable ● To explain the differences between financial accounting and managerial accounting. Management accounting: is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy. → a Focus on Strategy: •Internal users; •Emphasis on usefulness and timeliness, key characteristics of decisionrelevant information. Financial accounting is the process of recording, summarizing and reporting the myriad of transactions resulting from business operations over a period of time. These transactions are summarized in the preparation of financial statements, including the balance sheet, income statement and cash flow statement, that encapsulate the company's operating performance over a specified period. → Financial reporting: •External users; •Emphasis on accuracy and compliance. ● To explain the essence and the focus of the management control systems. The main focus of cost management information therefore must be usefulness and timeliness; Cost management focuses n ot on the measurement per se but on the identification of those measures that are critical to the firm’s success. Robert Kaplan’s classification of the stages of the development of cost management systems describes this shift in focus ● To describe 4 stages of the historical development of the management control systems. Stage 1. Cost management systems are basic transaction reporting systems. Stage 2. cost management systems focus on external financial reporting. The objective is reliable financial reports; accordingly, the usefulness for cost management is limited. → focus on the management accountant’s measurement and reporting role Stage 3. Cost management systems track key operating data and develop more accurate and relevant cost information for decision making; Developed. → shifts to o perational control Management Control Systems Review Sheet for the 1st exam. Stage 4. Strategically relevant cost management information is an integral part of the System. 战略有关 → the ultimate goal, the management accountant is an integral part of management, not a reporter but a full business partner, working on management teams to implement the firm’s strategy. ● To name four functions of management from chapter 1 and explain how managerial accounting f acilitates execution of these functions. Cost management information is assembled to aid management in the following 4 functions: •Strategic management The principal focus of management control systems Is the development and implementation of a sustainable competitive position. Monitoring of Critical Success Factors (CSFs) is necessary Critical to a firm’s success due to global competition and rapidly changing markets •Planning and decisionmaking involve budgeting and profit planning, cash flow management, and other decisions related to operations. Information is needed to support recurring decisions such as scheduling production and pricing; and for shortrun planning (budgeting) and profit planning (CostVolumeProfit analysis) •Management and operational control Information is needed to identify inefficient operations and reward effective management practices. OC takes place when midlevel managers monitor the activities of operatinglevel managers and employees. MC is the evaluation of midlevel managers by upperlevel managers. •Preparation of financial statements requires management to comply with the financial reporting requirements of regulatory agencies. Information is needed to guarantee compliance with regulatory reporting requirements Management Control Systems Review Sheet for the 1st exam. ● to recall the term for the variety of contemporary management techniques (e.g., lean accounting, enterprise resource planning) when the definition of the technique is given. The first six methods focus directly on strategy implementation—the balanced scorecard/ strategy map, value chain, activitybased costing, business intelligence, target costing, and lifecycle costing. The next seven methods help to achieve strategy implementation through a focus on process improvement—benchmarking标杆管理, business process improvement, total quality management, lean accounting, the theory of constraints制约理论, enterprise sustainability, and enterprise risk management. ● Balanced Scorecard An accounting report that addresses a firm's performance in four areas: financial, customer, internal business processes, and innovation and learning ● Strategy Map A method, based on the balanced scorecard, which links the four perspectives in a causeandeffect diagram ● ValueChain Analysis An analysis tool used to identify the specific steps required to provide a competitive product. This tool helps identify steps that can be eliminated or outsourced. ● Activitybased Costing and Management Activitybased costing is used to improve the tracing of manufacturing costs to products and therefore the accuracy of product costs. Activitybased management (ABM) uses activity analysis to help managers improve the value of products and services and to increase the firm’s competitiveness. ● Data intelligence/Business Analytics An approach to strategy implementation in which the management accountant uses data to understand and analyze business performance. ● Target Costing This costing method determines the desired cost for a product on the basis of a given competitive price so that the product will earn a desired profit. ● LifeCycle Costing This costing method is a method used to identify and monitor the costs of a product throughout its life cycle. Management Control Systems Review Sheet for the 1st exam. ● Benchmarking Process by which a firm identifies its CSFs, studies the best practices of other firms in achieving these CSFs, and institutes change based on the assessment results. ● Business Process Improvement This technique involves managers and workers committing to a program of continuous improvement in quality and other CSFs ● Total Quality Management A technique by which management develops policies and practices to ensure the firm's products and services exceed customer's expectations. This approach includes increased product functionality, reliability, durability, and serviceability. ● Lean Accounting This accounting technique has been developed to support lean manufacturing and uses value streams to measure the financial benefits of a firm's progress. ● Theory of Constraints This technique focuses on production and service speed, including improvement in cycle time. It helps firms to decrease production bottlenecks and to increase the speed at which raw materials can be converted to finished products and delivered to the customers. ● Sustainability Means the balancing of the company's short and long term goals in all three dimensions of performance social, environmental, and financial. ● Enterprise Risk Management Companies use this framework to assess and manage variety of risks that could affect the company's performance ● To describe the essence, advantages and potential threats of two strategic positioning approaches introduced by Mark Porter: Cost leadership vs. Differentiation. •Cost Leadership—outperform competitors by producing at the lowest cost, consistent with quality demanded by the consumer Cost advantages usually result from productivity in the manufacturing process, in distribution, or in overall administration. A potential weakness of the cost leadership strategy is the tendency to cut costs in a way that undermines demand for the product or service, for example, by deleting key features. Management Control Systems Review Sheet for the 1st exam. E.g.: Firms known to be successful at cost leadership are typically very large manufacturers and retailers, such as WalMart, Texas Instruments, and Dell.HP (HewlettPackard). •Differentiation—creating value for the customer through product innovation, product features, customer service, etc. that the customer is willing to pay for. The appeal of differentiation is especially strong for product lines for which the perception of quality and image is important. A weakness of the differentiation strategy is the firm’s tendency to undermine its strength by attempting to lower costs or by ignoring the necessity of having a continual and aggressive marketing plan to reinforce the differentiation.If the consumer begins to believe that the difference is not significant, lowercost rival products will appear more attractive. E.g.:Tiffany, Bentley, Rolex, Maytag, and BMW are good examples of firms that have a differentiation strategy. ● To recognize the pursued strategic positioning approach when the specific example is given and to evaluate the appropriateness of a choice (is such strategic positioning appropriate in the given circumstances). Skills : ost leadership vs. Differentiation CL: DF: Calvin Klein ● To name four main standards of ethical behavior from the IMA Statement of Ethical Professional Practice and to recognize the underlying principles behind each of these standards. I. Competence. 1.Maintain an appropriate level of professional expertise by continually developing knowledge & skills. 2.Perform professional duties in accordance with relevant laws, regulations, & technical standards. 3.Provide information & recommendations that are accurate, clear, concise, & timely. 4.Recognize and communicate professional limitations. II. Confidentiality. Management Control Systems Review Sheet for the 1st exam. 1.Keep information confidential except when disclosure is authorized or legally required. 2.Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates’ activities to ensure compliance. 3.Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through a third party. III. Integrity. 1. Mitigate actual conflicts of interest, regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. 2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. 3. Abstain from engaging in or supporting any activity that might discredit the profession. IV. Credibility. 1. Communicate information fairly and objectively. 2. Disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, analysis, or recommendations. 3. Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law. ● To name three steps recommended by IMA for resolution of the ethical conflict. 1. Discuss the situation with a superior not involved in the issue 2. Clarify the issue through discussion with an IMA Ethics Counselor or impartial advisor 3. Consult your own attorney as to your legal obligations and rights ● To identify the primary ethical principle which is at stake in certain situations. Skills ● To describe main principles of the enterprise risk management framework. Enterprise risk management is a framework and process that firms use to managing the risks that could negatively or positively affect the company’s competitiveness and success. ERM supports value creation by enabling management to: • Deal effectively with potential future events that create uncertainty. • Respond in a manner that reduces the likelihood of downside outcomes and increases the upside. ● To name five steps of Strategic Decision Making. 1. Determine the strategic i ssues surrounding the problem. 2. Identify the alternative actions. 3. Obtain information and conduct analyses of the alternatives. 4. Based on strategy and analysis, choose and implement the desired alternative. 5. Provide an ongoing evaluation of the effectiveness of implementation in step 4. ● To identify the company in example as retailer, manufacturer, wholesaler, etc. Merchandisers that sell to other merchandisers are called wholesalers 批发商; those selling directly to consumers are called retailers. Examples of merchandising firms are the large Management Control Systems Review Sheet for the 1st exam. retailers, such as WalMart, Target, and Amazon.com. Examples of manufacturers are Ford, General Electric, and Cisco Systems. Retailer: For these wealthy Americans, Home Depot, Target, and Costco are the three most popular retailers (Costco is another lowcost retailer, with fewer customers—and a different customer base). The retail giant, Target Manufacturer: SanDisk Corp, the Sunnyvale, California, firm, is the world’s largest manufacturer; auto manufacturer, BMW; Samsung, the large Korean manufacturer of electronics; Johnson Industrial Controls, Inc. (JIC), is a large manufacturer; ● Be familiar with the ideas from the articles and cases we discussed in class (see more specific guidance on this below). Skills Management Control Systems Review Sheet for the 1st exam. Chapter 2. Implementing Strategy: The Value Chain, the Balanced Scorecard, and the Strategy Map. Important ideas: SWOT is the tool of the formulation of a strategy制定的策略. The balanced scorecard (and the related strategy map) is (are) the tool (s) to communicate, monitor and motivate the execution of the strategy. Be capable ● To describe the intent of the mission statement for the corporation. A firm succeeds by implementing a strategy, that is, a plan for using resources to achieve sustainable goals within a competitive environment. Finding a strategy begins with determining the purpose and longrange direction, which is the mission of the company. The mission is developed into specific performance objectives, which are then implemented by specific corporate strategies, that is, specific actions to achieve the objectives that will fulfill the mission. A firm must define clearly what it means by success in its mission statement. Then it must develop a roadmap to accomplish that mission, which we call strategy. Briefly, strategy is a plan to achieve competitive success. ● To describe the underlying principles of SWOT analysis and the extent of its use (i.e., appropriate tasks and circumstances for the application). SWOT analysis is a systematic procedure for identifying a firm’s critical success factors: its internal strengths and weaknesses and its external opportunities and threats. SWOT analysis guides the strategic analysis by focusing attention on the strengths, weaknesses, opportunities, and threats critical to the company’s success A final step in the SWOT analysis is to identify quantitative measures for the critical success factors (CSFs). ● to prepare SWOT analysis of the hypothetical or actual company, given the set of circumstances. Skills The internal analysis of your organization should include its culture, expertise, resources, and unique qualities within the marketplace. The extent to which your organization could adapt to changing circumstances is also a factor that needs to be considered. A 'strength' is something that has a positive implication. It adds value, or offers your organization a competitive advantage. Strengths include tangible assets such as available capital, equipment, credit, established and loyal customers, existing channels of distribution, copyrighted materials, patents, information and processing systems, and other valuable resources. These are the characteristics of your product or service that are detrimental to growth. Weaknesses are those things that detract from the value of your offering or place you at a disadvantage w hen compared with your competitors. External factors include the environment your organization operates in, its market, ecosystem, and all of the third parties involved. Management Control Systems Review Sheet for the 1st exam. Opportunities can occur for a variety of reasons and may result from changes within the market, customer lifestyle changes, advances in technology, new production methods, etc. These opportunities for growth can also occur from a resolution of a problem associated with company’s current product. The final part of the SWOT process involves assessing the external risks your organization faces. These are referred to as threats and are made up of external factors that are beyond your control. ● to describe the main principles of the value chain analysis and the reasons why we perform it. •An analysis for better understanding the details of the organization’s competitive strategy •CSFs must be implemented in each and every phase of operations •Helps a firm better understand its competitive advantage by analyzing what processes add value (processes that do not add value can be deleted or outsourced) •Will include upstream (prior to manufacturing or operations) and downstream activities (Marketing, distributing, and servicing) ● To recognize steps involved in value chain analysis and the extent of its use. •Two steps: •Identify the valuechain activities at the smallest level possible •Develop a competitive advantage by reducing cost or adding value ● to describe the underlying principles of preparing the balanced scorecard and the extent of its use (i.e., appropriate tasks and circumstances for the application) key tools for the implementation of strategy. The p rimary objective of the balanced scorecard is to serve as an action plan, a basis for implementing the strategy expressed in the CSFs, by aligning performance of managers and employees with the firm’s strategy. This report groups a firm’s CSFs into four areas: •Financial perspective (financial measures) •Customer perspective (customer satisfaction) •Internal process perspective (e.g., productivity and speed) •Learning and growth (e.g., training and number of new patents or products) Benefits •Provides a means for communicating and implementing strategy •Provides a means to achieve a desired organizational change in strategy •Can be used to determine management’s compensation and rewards •Aligns managers’ efforts with strategy •Coordinates efforts within the firm to achieve CSFs Management Control Systems Review Sheet for the 1st exam. ● To prepare effectively the balanced scorecard based on business strategy and mission of the hypothetical company. You should be capable to identify at least two companyspecific goals for each dimension (also known as “critical success factors”) as well as the associated benchmarks to monitor the progress (also known as “quantitative measures of CSF” or “key performance indicators”) To identify the specific key performance indicators that might be used under certain perspectives. Skills For example: 210 Several potential critical success factors for a large savings and loan institution might include: 1. Spread between the cost of funds and the earnings on investments and loans 2. Amount of total deposits, number of depositors, number of new offices, number of loans 3. Decrease in loan losses, number of bad loans, losses due to theft and fraud 4. Training hours per employee and employee turnover 5. Customer satisfaction as measured by phone survey or other means 211 Several critical success factors for a small chain of retail jewelry stores might include: 1. Growth in sales, number of new customers, number of new products, number of branch stores 2. Operating costs, by category 3. Customer satisfaction as measured by phone survey or mail survey 4. Identification and introduction of new products Management Control Systems Review Sheet for the 1st exam. 5. Effective promotion and advertising using a variety of media 6. Competitive service policies 7. Identification of attractive store locations 8. Effective control of inventory to prevent fraud and theft Several potential critical success factors for a large retail discount store might include: 1. Growth in sales, number of new branch stores 2. Operating costs, by category 3. Customer satisfaction, as measured by phone survey or mail survey 4. Identification and introduction of new products 5. Effective promotion and advertising using a variety of media 6. Competitive service policies 7. Identification of attractive store locations 8. Effective inventory management, both to reduce employee theft and also to reduce waste, overstocking and excessive outofstock conditions 9. Choice of merchandise mix, to attract customers Several potential critical success factors for an autorepair shop might include: 1. reliability of service 2. fair pricing 3. warranty for service; and policies for satisfying customer complaints when they occur 4. inventory management to reduce loss, waste and to reduce the cost of carrying inventory of parts 5. proper location with sufficient parking and easy access 6. effective marketing using the appropriate media Learning and Growth ● Training dollars per employee ● Number of emerging technologies evaluated ● Number of new manufacturing processes developed ● Number of new manufacturing processes under development Internal Processes ● Product manufacturing time ● Raw materials inventory ● Order processing time ● Manufacturing defects Customer ● customer perception of order taking convenience and accuracy ● customer perception of product quality Management Control Systems Review Sheet for the 1st exam. ● customer retention ● customer satisfaction with speed of service Financial Perspective ● revenue growth ● gross margin ● operating cost ratio ● selling expense to sales ratio ● to describe general principles of the strategy map tool. A strategy map is a causeand effect diagram of the relationships among the BSC perspectives. •Shows how the achievement of CSFs in one perspective should affect the achievement of goals in another perspective •The financial perspective is the target in the strategy map because financial performance is the ultimate goal for most profitseeking organizations •Success in the other perspectives leads directly to improved financial performance and shareholder value ● to describe why it might be necessary to introduce the fifth perspective – sustainability – in the traditional balanced scorecard and to identify potential CSF related to sustainability perspective. Expanding the Balanced Scorecard and Strategy Map: Sustainability • The balancing of shortterm and longterm goals in all three dimensions of the company’s performance–financial, social, and environmental • Environmental reports use environmental performance indicators (EPIs) to measure sustainability •These indicators are in three areas: Operational measures (stresses to the environment/regulatory compliance issues) Management measures (efforts to reduce environmental effects) Environmental measures (environmental quality) • Sustainability reports also use social performance indicators (SPIs) to measure sustainability •These indicators are in three areas: Working conditions (worker safety and training) Community involvement (for example, employees participation in community activities such as Habitat for Humanity) Philanthropy (direct contributions) Management Control Systems Review Sheet for the 1st exam. Presentation of biases. ● Be capable to recognize characteristics of the sound judgment. Judgment is the process of reaching a decision or drawing a conclusion where there are a number of possible alternative solutions. factors contribute to the development of good judgment: Natural ability ; Personal experience ; Observing others including mentors ;Selfstudies/books Environmental factors affecting judgment: ● External Factors: Time pressure; Limited resources; Boss, regulatory, industry ● Internal F actors: Judgment traps (–Rush to solve;–Judgment triggers) Judgment shortcuts; Bias caused by selfinterest ● Be aware of the existence and be capable to describe the essence of the following biases that affect decisionmaking (or identify in the example): rush to solve, availability bias, confirmation tendency, overconfidence, anchoring tendency. → Important terms Rush to solve 急于解决 “Rush to solve” happens when we do not see the issue clearly, and solve the wrong problem as a result. Good solution to the right problem is always better than the great solution to the wrong problem Availability tendency 易取得性误导倾向 The tendency to consider information that is easily retrievable from memory as being more likely, more relevant, and more important for a judgment. Confirmation tendency 确认偏误 We tend to have preferences; We tend to seek confirming evidence; We give confirming evidence greater weight than disconfirming evidence; We often cannot know something to be true without checking to see how it might be false. Overconfidence tendency 过度自信的倾向 The tendency for decision makers to overestimate their own abilities to perform tasks or to make accurate diagnoses or other judgments and decisions. Most of us are overconfident in our judgment abilities and do not acknowledge the actual level of uncertainty that exists. Anchoring tendency 锚定偏见: 一般的投资者下决定时，往往过分依赖最初接收的信息 或熟悉（被多次重提）的信息，然后一锤定音。 The tendency of decision makers to make assessments by starting from an initial numerical value and then to adjust insufficiently away from that initial value in forming a final judgment. Management Control Systems Review Sheet for the 1st exam. Assigned Readings: ● Be able to recognize the main features of the Enterprise Risk Management, advantages of the Enterprise Risk Management, and lessons learned during its implementation in UnitedHealthGroup.
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