Chapter 1
The Accountant’s Role in the Organization
Management Accounting
• Management accounting measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization
• Managers use management accounting information to– choose, communicate and implement strategy– coordinate product design, production and marketing
decisions
• Management accounting focuses on internal reporting
• Management accounting is future oriented
Pages 2-3
Financial Accounting• Financial accounting measures and records business
transactions and provides financial statements that are based on generally accepted accounting principles (GAAP)
• Managers are responsible for the financial statements issued to investors, government regulators, and other parties outside the organization
• Financial accounting focuses on external parties
• Financial accounting reports on what happened in the past
Pages 2-3
Cost Accounting and Cost Management
• Cost accounting measures and reports information relating to the cost of acquiring and utilizing resources
• Cost accounting provides information for management and financial accounting
• Cost management describes the approaches and activities of managers in short-run and long-run planning and control decisions
• These decisions increase value of customers and lower costs of products and services
• Cost management is an integral part of a company’s strategy
Pages 3-4
Management Accountants and Strategy
• Strategy specifies how an organization matches its own capabilities with opportunities in the marketplace to accomplish its objectives
• Strategy examples– Quality products or services at low prices (WestJet)– Unique products or services at higher prices (Clublink)
• Management accountants provide information to management such as– Who are our customers and suppliers– Sensitivity of market to price, quality and service– Industry characteristics (size, growth)
Pages 4-6
Planning and ControlManagement ManagementDecisions Accounting System
Pages 6-8
PLANNING• increase advertising
rates
Budgets• pages sold, rates per
page, revenue
CONTROLAction
• implement rate increase
Accounting System• invoices / receipts
recorded in ledger
PerformanceEvaluation
• comparison of actual and budgeted revenues
PerformanceReports
• pages sold, rate per page, revenue
Fe
edb
ack
Financialrepresentation
of plans
Recordingtransactionsin accounts
Comparingbudgeted andactual results
Key Management Accounting Guidelines
Cost-Benefit Approach• spend resources if they promote decision making that
better attains the organization’s goals in relation to the cost of these resources
Pages 8 - 9
Behavioural and Technical Considerations• systems are not confined exclusively to technical
matters• always consider the influences of human activity
Different Costs for Different Purposes• define”cost” depending on the situation under
consideration
Line and Staff Relationships
• Line management is directly responsible for attaining the objectives of the organization– manager in a manufacturing division
Pages 9 - 10
• Staff management exists to provide advice and assistance to line management• management accountant
• Chief financial officer (CFO) oversees• Controllership, Treasury, Tax, and Internal
Audit functions in the organization
Functions of Management Accounting
• Management accountants perform three functions
Attention-directing• make visible opportunities and problems on
which managers need to focus
Problem-solving• conduct comparative analysis to identify the best
alternatives in relation to the organization’s goals
Page 11
Scorekeeping• accumulate data and report reliable results to all
levels of management
Four Themes of Value Enhancement
1. Customer Focus• attract and retain profitable customers
3. Key success factors (KSFs)• keep attention focused on critical factors relative to
our competitors
4. Continuous improvement and benchmarking• never-ending search for higher levels of
performance
Page 12 - 15
2. Value-chain and supply-chain analysis• manage these critical functions
Key Themes in Management Decision Making
Customer Focus
Key Success Factors• Cost and Efficiency• Quality• Time • Innovation
ContinuousImprovement
AndBenchmarking
Page 13
Value-Chainand
Supply-ChainAnalysis
The Value Chain
• Sequence of business functions in which utility (usefulness) is added to the products or services of an organization
• Management accounting helps managers to administer each of these business functions
Researchand
Development
Product, ServiceProcess Design
Production Marketing DistributionCustomer
Service
Management Accounting
Page 14
E-Business Value Matrix
BusinessCriticality(Importance of the application
to the success of the business)
Page 16
High
Low
OperationalExcellence
RationalExperimentation
NewFundamentals
BreakthroughStrategies
Low High
Practice Innovation(Creating new markets or new
ways of doing business)
Ethical Guidelines
• Professional accounting organizations play an important role in promoting high standards of ethics in the accounting profession
Pages 15 - 20
• Code of Professional Ethics• Society of Management Accountants of Canada (SMAC)
• Act in a responsible manner • Maintain independence• Maintain confidentiality of information• Serve with courtesy and good faith• Maintain standards of competence