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
• Summarizin Data
g

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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