Chapter 1-1

Explain the need for management accounting information.

Explain the differences between management accounting and financial accounting.

Provide a brief historical description of management accounting.

Identify and explain the emerging themes of management accounting.

Describe the role of management accountants in an organization.

Learning Objectives

Chapter 1-2

Learning Objectives (continued)

Explain the importance of ethical behaviour for managers and management accountants.

Identify the three forms of certification available to management accountants.

Chapter 1-3

Management Accounting Information Systems

Inputs Processes Outputs

Users

Economic Events

CollectingMeasuringStoringAnalyzing ReportingManaging

Special ReportsProduct Costs Customer CostsPerformance ReportsPersonal Communication

Chapter 1-4

The Management Process

The Management Process is defined by the following activities:

– Planning

– Controlling

– Decision making

Chapter 1-5

The Management Process(continued)

Planning requires setting objectives and identifying methods to achieve those objectives.

Chapter 1-6

The Management Process(continued)

Controlling is the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.

Control is usually achieved with the use of feedback, which is information that can be used to evaluate or correct the steps being taken to implement a plan.

Chapter 1-7

The Management Process(continued)

Decision making is the process of choosing among competing alternatives.

Chapter 1-8

Conceptual Framework of Management Accounting

Cost Accounting Systems (Part I of Text)– ‘Know your costs’

– The how to of ‘cost accumulation & allocation’

Managerial Decision Making (Part II of Text)– ‘What difference will it make’ when a choice is to be made

between alternative courses of action?

– We assume economically-rational organizations and de-emphasize the role of individual decision-makers

Planning & Control Systems (Part III of Text)– Focus on how organizations run by delegation & accountability

– Information asymmetry (subordinate knows what superior does not know) results in problems of harmony of objectives. We assume economically rational decision makers who have their own goals within the organization

Chapter 1-9

Management Accounting Financial Accounting

1. Internal focus2. No mandatory rules3. Financial and nonfinancial

information; subjective information possible

4. Emphasis on the future5. Internal evaluation and

decisions based on detailed information6. Broad, multidisciplinary

1. External focus2. Externally imposed rules3. Objective financial

information4. Historical orientation5. Information about the

firm as a whole6. More self-contained

Comparison of Management and Financial Accounting

Chapter 1-10

Historical Description ofManagement Accounting

1880 - 1925 Most of the product-costing and internal accounting procedures used in this century were developed

1925 Emphasis of inventory costing for external reporting

1950s/60s Effort to improve the managerial usefulness of traditional cost systems

1980s/90s Significant efforts have been made to radically change the nature and practice of management accounting

Chapter 1-11

Emerging Themes ofManagement Accounting

Activity-Based Management Customer Orientation Cross-Functional Perspective Total Quality Management Time as a Competitive

Element Efficiency

Chapter 1-12

Most Innovative in Management? Comment from Peter Drucker

–"The most exciting and innovative work in management today is found in accounting theory, with new concepts, new methodology--even what might be called new economic philosophy--rapidly taking shape. And while there is enormous controversy over specifics, the lineaments of the new manufacturing accounting are becoming clearer every day.”

Peter E. Drucker, “The Emerging Theory of Manufacturing,” Harvard Business Review, May-June 1990, pp. 94-102.

Chapter 1-13

Partial Organization Chart - Manufacturing Company

President

ProductionVice-president

FinancialVice-president

Controller Treasurer MachiningSupervisor

AssemblySupervisor

Treasurer'sFunctions

Controller’sFunctions

Chapter 1-14

Role of Controller and Treasurer

Controller Treasurer

1. Collection of cash2. Monitoring of cash payments 3. Monitors cash availability4. Short-term investments5. Short and long-term borrowing6. Issuing of capital stock

1. Financial reports2. Securities commission reporting3. Tax planning and reporting4. Performance reporting5. Internal auditing6. Budgeting 7. Accounting systems and internal controls

Chapter 1-15

Management Accounting andEthical Conduct

Abuse of accounting information Acceptance of bribes or gifts Conflict of interest Disclosure of confidential information

Some Types of Unethical Conduct

Chapter 1-16

Standards of Ethical Conduct for Management Accountants

Competence Confidentiality Integrity Objectivity

Chapter 1-17

Competence

Maintain professional competence. Perform professional duties in accordance with relevant

laws, regulations, and technical standards. Prepare complete and clear reports and recommendations.

Management Accountants have a responsibility to

Chapter 1-18

Confidentiality

Refrain from disclosing confidential information. Inform subordinates as to how to handle confidential

information. Refrain from using confidential information for unethical or

illegal advantage.

Management Accountants have a responsibility to

Chapter 1-19

Integrity

Avoid conflicts of interest. Refrain from activity that would prejudice their ability to carry

out their duties ethically. Refuse gifts, favors, or hospitality that would influence their

actions. Refrain from subverting attainment of the organization’s

legitimate and ethical objectives.

Management Accountants have a responsibility to

Chapter 1-20

Integrity (continued)

Recognize and communicate professional limitations that would preclude responsible judgment.

Communicate unfavourable as well as favourable information.

Refrain from engaging in or supporting any activity that would discredit the profession.

Management Accountants have a responsibility to

Chapter 1-21

Objectivity

Communicate information fairly and objectively. Disclose fully all relevant information that could reasonably

be expected to influence user's understanding of the reports, comments, and recommendations presented.

Management Accountants have a responsibility to

Chapter 1-22

Resolution of Ethical ConflictCourses of actions

Discuss problems with immediate supervisor except when it appears the superior is involved.

If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners.

Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action.

Chapter 1-23

Resolution of Ethical Conflict (continued)

Courses of actions

If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse than to resign.

Except where legally prescribed, communication of such problems with external parties is not appropriate.

Chapter 1-24

CA- The distinguishing characteristic of the profession is its unchallenged right to provide assurance concerning the reliability of financial statements to external parties.

CMA-The distinguishing characteristic of the profession is its upholding of management accounting as a recognized, professional discipline, separate from public accounting.

CGA- CGA’s may specialize in financial, managerial, or tax accounting but the right to audit financial statements is somewhat restricted.

Professional Designations