managerial accounting: an introduction to concepts, methods, and uses

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Managerial Accounting: An Introduction To Concepts, Methods, And Uses Chapter 12 Incentive Issues Maher, Stickney and Weil

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Managerial Accounting: An Introduction To Concepts, Methods, And Uses. Chapter 12 Incentive Issues. Maher, Stickney and Weil. Learning Objectives (Slide 1 of 3). Describe key characteristics of divisional incentive compensation plans. - PowerPoint PPT Presentation

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Page 1: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Managerial Accounting:

An Introduction To Concepts, Methods, And UsesChapter 12

Incentive Issues

Maher, Stickney and Weil

Page 2: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Learning Objectives (Slide 1 of 3)

Describe key characteristics of divisional incentive compensation plans.

Explain how incentive plans can affect the development phase of the product life cycle.

Compare and contrast expectancy and agency approaches to motivation.

Describe the balanced scorecard as a way to tie performance measures to organizational goals.

Page 3: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Learning Objectives (Slide 2 of 3)

Explain the importance of performance measures for the four balanced scorecard perspectives.

Explain what constitutes fraudulent financial reporting.

Define the two most common types of fraud and demonstrate their impact on financial statements.

Page 4: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Learning Objectives (Slide 3 of 3)

Identify the incentives for committing financial fraud.

Explain how environmental conditions influence fraudulent conduct.

Identify controls that can be instituted to prevent financial fraud.

Page 5: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Discuss Divisional Incentive Compensation

Plans (Slide 1 of 4)

Page 6: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Discuss Divisional Incentive Compensation

Plans (Slide 2 of 4)

Page 7: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Discuss Divisional Incentive Compensation

Plans (Slide 3 of 4)

Page 8: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Discuss Divisional Incentive Compensation

Plans (Slide 4 of 4)

Page 9: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Review Incentives and the

Product Life Cycle

Page 10: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Views of Behavior (Slide 1 of 3)

Define the expectancy theory view

Page 11: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Expectancy Theory Perspective

EmployeeEffort RewardsPerformance

Expectancy of Objective Probability

That Effort Will Result in Performance

That Effort Will Result in Rewards

Expectancy of Objective Probability

Page 12: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Views of Behavior (Slide 2 of 3)

Agency theory - focuses on: Relations between principals and

agents where principals assign responsibility and agents work on behalf of the principal

The cost of agents pursuing their own interests instead of those of the principal

Page 13: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Views of Behavior (Slide 3 of 3)

Define the Agency theory view

Page 14: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Balanced Scorecard (Slide 1 of 5)

Define The balanced scorecard

Most companies use four categories or “perspectives” of performance measures A company can build an incentive plan

around these four perspectives

Page 15: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Draw the Balanced Scorecard

Page 16: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Balanced Scorecard (Slide 2 of 5)

Learning and growth perspective - indicates how well the infrastructure for innovation and long-term growth is working

Focuses on developing the capabilities of employees

Key measures for evaluating manager performance in this area might include:

Employee satisfaction

Employee retention

Employee productivity

Page 17: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Balanced Scorecard (Slide 3 of 5)

Internal business & production process perspective - indicates how well internal business processes are working Closely related to the learning and growth

perspective Employees are the best source of better ideas

for better business processes Supplier relations are critical for success

Company may provide incentives for good supplier relations such as certification programs

Page 18: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Balanced Scorecard (Slide 4 of 5)

Customer perspective - indicates how the company’s strategy and operations add value to customers Focuses on how a company should look to its

customers for success Company should provide incentives to employees

to meet customer expectations Performance measures might include:

Customer satisfaction and retention Market share Customer profitability

Page 19: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Balanced Scorecard (Slide 5 of 5)

Financial perspective - indicates whether company’s strategy and operations add value to shareholders

Performance measures include:

Net income

Return on investment

Page 20: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Explain Motivational Issues in Designing Incentive Systems

Page 21: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Problems With Incentive

Compensation Plans

Page 22: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Fraudulent Financial Reporting

Define Fraudulent financial reporting

Page 23: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Types of Fraud What are the two most common types

of financial statement fraud?

Page 24: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Causes of Financial Fraud

Fraudulent financial reporting may occur because of a combination of pressures, incentives, opportunities, and environment

May result from: High-pressure performance evaluation

systems The environment top management sets for

dealing with ethical issues Lack of, or inadequate, internal controls

Page 25: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Internal Controls Companies establish internal controls

to help prevent fraud. Define Internal Controls

Page 26: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Internal Controls

A basic internal control would involve a separation of duties so that one employee could not carry out a series of tasks to commit fraud and take steps to hide it

Page 27: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

Auditing Internal auditors can deter fraud by

reviewing and testing internal controls and ensuring controls are in place and working properly

Independent auditors provide an opinion on the financial statements Fraud detection is not their primary

responsibility, but presence of auditors and their review of the internal control system should help to deter it

Page 28: Managerial Accounting:  An Introduction To Concepts,  Methods, And Uses

If you have any comments or suggestions concerning this PowerPoint Presentation for Managerial Accounting, An Introduction To Concepts, Methods, And Uses, please contact:

Dr. Michael Blue, CFE, CPA, CMA [email protected]

Bloomsburg University of Pennsylvania