Introduction to Managerial Accounting

Prof. Pamela GonzalezSource: Cornerstones of Managerial Accounting, 5e

Managerial Accounting

Managerial accounting is providing accounting information for a company’s internal users.

1• To provide information for planning the organization’s actions.

2

• To provide information for controlling the organization’s actions.

3• To provide information for making effective decisions.

Objectives:

Planning

The detailed formulation of action to achieve a particular

end.

Setting Objectives

Identifying methods to achieve those objectives

ControllingThe managerial activity of

monitoring a plan’s implementation and taking

corrective action as needed.Actual

Performance

Expected Performanc

e

Decision Making

The process of choosing among competing

alternatives.

Financial and Managerial Accounting

Financial Accounting

Managerial Accounting

Provides information for external users. Must follow rules:

SECFASBIASB

Provides information for Internal users. Identifies, collects, measures, classifies, and reports financial and nonfinancial information to internal users in planning, controlling, and decision making.

Current Focus of Managerial Accounting

The business environment in which companies operate has changed

Effective managerial accounting systems provide information that helps improve companies’ planning, control, and decision-making activities.

Important uses of managerial accounting: 1. New methods of estimating product and service

cost and profitability2. Understanding customer orientation3. Evaluating the business from a cross-functional

perspective4. Providing information useful in improving total

quality management.

New Methods of Costing Products and Services

Today’s companies need focused, accurate information on the cost of products and services produced.

Activity-based costing (ABC) is a more detailed approach to determine the cost of goods and services.

Process-value analysis focuses on the way in which companies create value for customers.

Find ways to perform necessary activities more efficiently and eliminate those that do not create customer value.

Customer Orientation

Customer value is a key focus

Firms can establish a competitive advantage by creating better

customer value for the same or lower cost than competitors

Strategic PositioningCost Leadership: Provide the same or better value to customers at a lower cost than competitors.Superior products through differentiation: Increase customer value by providing something to customers not provided by competitors.

Value Chain

Set of activities required to design, develop, produce, market, and deliver products and services, and provide support services to customers.

In managing the value chain, a managerial accountant must understand and measure many functions of the business.

Total Quality ManagementContinuous improvement is the continual search for ways to increase the overall efficiency and productivity of activities by reducing waste, increasing quality, and managing costs.Has created a demand for a managerial

accounting system that provides information about quality.

This has led to a change in accounting, referred to as lean accounting, which organizes costs according to the value chain and collects both financial and nonfinancial information.

A more recent charge of managerial accountants is to help carry out the company’s enterprise risk management (ERM) approach.ERM is a formal way for managerial accountants to identify and respond to the most important threats and business opportunities facing the organization.

Firms reduce time to market by compressing design,

implementation, and production cycles.

Time as a Competitive Element

Time is a crucial element in all phases of the value chain

EfficiencyFor efficiency measures to be of value, costs must be properly defined, measured, and assigned

Role of Managerial Accountant

Assist those who are responsible for carrying out an organization’s basic objectives.

Positions that have direct responsibility for the basic objectives of an

organization are line positions

Positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives are staff positions

The controller supervises all accounting functions and reports directly to the general manager and chief operating

officer.

Managerial Accounting and Ethical Conduct

Ethical behavior involves choosing actions that are right, proper, and just.

To promote ethical behavior by managers and employees, organizations commonly establish standards of conduct referred to as Company Codes of Conduct.

Important parts of corporate codes of conduct are integrity, performance of duties, and compliance with the rule of law.

They also uniformly prohibit the acceptance of kickbacks and improper gifts, insider trading, and misappropriation of corporate information and assets.

Certification

•Three major forms of certification for managerial accountants:o Certificate in Management Accountingo Certificate in Public Accountingo Certificate in Internal Auditing•Each certification offers particular advantages to a managerial accountant.•All three certifications offer proof of achievement at a minimum level of professional competence.

The Certified Management Accountant (CMA)

•The Certificate in Management Accounting is designed to meet the specific needs of managerial accountants. •Four areas are emphasized in the qualifying examination for the CMA. They are:

o economics, finance, and management;o financial accounting and reporting;o management reporting, analysis, and behavioral issues; ando decision analysis and information systems

The Certified Public Accountant

(CPA)

•The Certificate in Public Accounting is the oldest and most well-known certification in accounting. •The purpose of the certificate is to provide minimal professional qualification for external auditors.

Only a Certified Public Accountant (CPA) is permitted (by law) to serve as an external auditor.

The Certified Internal Auditor (CIA)

•Internal auditing differs from external auditing and managerial accounting, and many internal auditors felt a need for a specialized certification.

•The Certified Internal Auditor (CIA) has passed a comprehensive examination designed to ensure technical competence and has two years’ experience.

Questions!