CHAPTER 1:

Managerial
Accounting and the
Business
Environment
Prepared by
Shannon Butler,
CPA, CA
Carleton University
 Learning Objectives
1 Describe the functions performed by managers.
2 Identify the major differences and similarities between
financial and managerial accounting.
3 Explain the basic concept of enterprise risk management.
4 Explain the nature and importance of ethics for accountants.
5 Explain the elements of corporate social responsibility.
6 Explain how intrinsic motivation, extrinsic incentives, and
cognitive biases affect employee behaviour.

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 Work of Management
• Every organization has managers who
perform several major activities such as:
• Planning
• Controlling
• Directing and Motivating
• Decision making

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 Planning
• Identify alternatives.
• Select alternative that does the best job of
furthering organization’s objectives.
• Develop budgets to guide progress toward
the selected alternative.

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 Directing and Motivating
• Directing and motivating involves managing
day-to-day activities to keep the organization
running smoothly.
• Employee work assignments.
• Routine problem solving.
• Conflict resolution.
• Effective communications.

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 Controlling

• The control function ensures that plans are

being followed.

• Feedback in the form of performance

reports that compare actual results with the
budget are an essential part of the control
function.

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 Decision Making
• The most basic managerial skill is the ability
to make intelligent, data driven decisions.
Many of these decisions revolve around the
following three questions:
• What should we be selling?
• Who should we be serving?
• How should we execute?

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 Big Data Part 1
• Companies are now making decisions using
analytical approaches that employ extensive
amounts of data from a variety of sources.
• It is estimated that less than 0.5% of available
data is currently being analyzed and used to
support decision making. This suggests that
business managers have an opportunity to
harness the big data phenomenon.

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 Big Data Part 2
• Big data refers to large collections of data that
are gathered from inside or outside a company to
provide opportunities for ongoing reporting and
analysis.
• Big data can be both “structured,” such as
memos and reports, and “unstructured,” such as
videos, pictures, audio, and other digital forms.

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 Big Data Part 3
• Big data is often discussed in terms of 5 Vs.
• The first three of those Vs—variety, volume,
and velocity—refine the definition of big data.
• Variety refers to the data formats in which
information is stored.

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 Big Data Part 4
• Volume refers to the continuously expanding
quantity of data that companies must gather,
cleanse, organize, and analyze.

• Velocity speaks to the rate at which data are

received and acted on by organizations. This is
particularly important where the data have a
limited shelf life.

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 Big Data Part 5
• The remaining Vs—value and veracity—define
users’ expectations with respect to big data.

• Value implies that the expenditure of time and

money by organizations to analyze big data
needs to result in insights that are valued by
stakeholders.

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 Big Data Part 6
• Veracity refers to the fact that users expect their
data to be accurate and trustworthy.
• For management accounting professionals,
veracity may be the most important of the five
Vs because their analysis and opinions, which
are relied on by numerous stakeholders must be
supported by verifiable data.

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 Data Analytics Part 1
• From a managerial accounting standpoint, the goal for
managers is to use data analytics to derive value from
big data.
• Data analytics refers to the process of analyzing data
with the aid of specialized systems and software to draw
conclusions about the information they contain.
• Managers often communicate the findings from their
data analysis to others through the use of data
visualization techniques, such as graphs, charts, maps,
and diagrams.

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 Data Analytics Part 2
• Data analytics can be used for descriptive, diagnostic,
predictive, and prescriptive purposes.
• Descriptive analytics are used to answer the question:
What happened?
• Diagnostic analytics are used to answer the question:
Why did it happen?
• Predictive analytics are used to answer the question:
What will happen?
• Prescriptive analytics can be used to answer the question:
What should I do?

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 Planning and Control Cycle

Exhibit 1-2

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 Strategy Part 1
• A strategy is a “game plan” that enables a
company to attract customers by
distinguishing itself from competitors.

• The focal point of a company’s strategy

should be its target customers.

• Customer value propositions, are the essence

of strategy.

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 Strategy Part 2
• Value propositions typically focus on
providing customers with one of the following:
• Products or services with exceptional
quality and innovation, operational
excellence (i.e., low-cost products or
services with reliable service), or
outstanding customer service.

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Comparison of Financial and Managerial Accounting

Accounting
• Recording
• Estimating Financial and
• Organizing Operational Data
• Summarizing

Financial Managerial
Accounting Accounting

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Comparison of Financial and
Managerial Accounting

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 Managerial Accounting: The
Broader Context
• A business process is a series of steps that are
followed in order to carry out some task in a
business.
• A value chain consists of the major business
functions that add value to a company’s
products and services.
• Business functions making up the value chain

Research and Product Manufacturing Marketing Distribution Customer
Development Design Service
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 Enterprise Risk Management
• Every business strategy or decision involves
risks.
• Enterprise risk management is a process used
to proactively identify and manage these risks.
• Companies should identify foreseeable risks
before they occur.
• Can reduce risks by implementing specific
controls to mitigate the identified foreseeable
risks.

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Enterprise Risk Management

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 Ethics
• Accountants must maintain a level of
competence appropriate to their designation.
• Confidentiality
• Integrity
• Objectivity

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 Ethics
• Confidentiality  is essential because of the importance
of the information they analyze.
• Integrity  is maintained by avoiding conflicts of
interest with their employers or clients, by
communicating the limits of professional competence,
and by not accepting favours that would compromise
their judgment.
• Objectivity  must be present in communications, so
that recipients can receive both favourable and
unfavourable information.
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 Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.

Environmental
Customers Employees Suppliers Communities Shareholders & Human Rights
Advocates

CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.
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 Leadership Part 1
• Leaders must be able to unite the behaviours
of employees around two common themes –
pursuing strategic goals and making optimal
decisions.
• Therefore, intrinsic motivation, extrinsic
incentives, and cognitive biases need to be
understood how they influence human
behaviour.

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 Leadership Part 2
• Intrinsic Motivation  Motivation that comes
from within us.
• Extrinsic Incentives  A way to highlight
important goals and to motivate employees to
achieve them by offering a type of reward.
• Cognitive Biases  Everyone possess
cognitive biases, or distorted thought
processes; it is important for leaders to
recognize this.

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 End of Chapter Summary Part
1
• Managerial accounting assists managers in carrying
out their responsibilities, which include planning,
directing and motivating, controlling, and decision
making.

• Managerial accounting differs from financial

accounting in that it is more toward the future,
emphasizes relevant data, places less emphasis on
precision, emphasizes segments of an organization, is
not governed by generally accepted accounting
principles, and is not mandatory.

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 End of Chapter Summary Part
2
• Enterprise risk management involves proactively
identifying and managing key risks faced by an
organization.

• Professional accounting organizations have their own

code of professional ethics to provide guidance for
members, regardless of their place of employment.

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 End of Chapter Summary Part
3
• Many companies have embraced corporate social
responsibility, whereby the needs of various
stakeholders are considered when making decisions.

• It is important for management accountants to

understand how behaviour is influenced by intrinsic
motivation, extrinsic incentives, and cognitive
biases.

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