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Chapter 1:Managerial

Accounting:An Overview

Modified Slides

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Financial and Managerial Accounting:Seven Key Differences

Financial Accounting Managerial Accounting

1. Users External persons who Managers who plan for

make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on

versus relevance objectivity and verifiability relevance

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focus oncompanywide reports segment reports

6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS

and prescribed formats or any prescribed format

7. Requirement Mandatory for Not

external reports Mandatory

Lik e Exhibit 1-1, page 2

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The Work of Management and the Need for

Management Accounting Information

Decision Making in: Planning (including Strategy formulation

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Strategy: Customer Value Propositions

Understand and respond to

individual customer needs.

CustomerIntimacy

Strategy

Operational

Excellence

Strategy

Deliver products and services

faster, more conveniently,

and at lower prices.

Product

Leadership

Strategy

Offer higher quality products.

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The Work of Management and the Need for

Management Accounting Information

Decision Making in: Planning (including Strategy formulation),

Controlling:

By Directing & Motivating to implement plans(e.g., by allocation & extrinsic incentives; p. 17)

By gathering, evaluating, and responding to

feedback on actual results versus plans (e.g.,budgets) reported to managers in performance

reports

Control decisions necessary

Financial & nonfinancial information required.

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The Planning and Control Cycle

Decision

Making

Formulating long-

and short-term plans

(Planning)

Measuring

performance

(Controlling)

Implementing

plans: Directing

and Motivating

(Controlling)

Comparing actual

to planned

performance

(Controlling)

Begin

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Cost Management

The approaches and activities of managers touse resources to increase value to customers

and to achieve organizational goals (e.g., lower

the costs of products and services.)

(From: Horngren, Datar, & Rajan, Cost

Accounting, 14thEdition, Pearson Prentice Hall,

Upper Saddle River, NJ, 2012, page 848).

Cost management should be across the internal

value chain*; e.g., see Exhibit 1-6 page 16:

Business functions making up the value chain

Product Customer

R&D Design Manufacturing Marketing Distribution Service*Also, across the supply chain.

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Corporate Organization Chart

Purchasing Personnel Vice PresidentOperations

Treasurer Controller

Chief FinancialOfficer

President

Board of Directors

Management Accountants in the

Organizational Structure

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Line and Staff Relationships

Line positions are directlyrelated to achievement of

the basic objectives of an

organization.

Example: Productionsupervisors in a

manufacturing plant.

Staff positions support andassist line positions.

Examples: Cost accountant

in a manufacturing plant and

Controller/Chief AccountingOfficer, who is primarily

responsible for management

accounting and financial

accounting.

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Business Environment: Process Management

Managers need to continually improve the businessprocessesacross business functions in the value chain;

for example (management accounting supportive

response examples in brackets):

Lean Thinking; e.g., Lean Productionsuch as just-in-time, pull versusjust-in-case, push (e.g., Lean Accounting

(page 489) and Backflush costing (not in textbook))

Theory of Constraints:a lean model that is designedto

effectively manage constraints; (Throughput accounting orsuper variable costing, pages 279-282; e.g.: John B.

MacArthur, From Activity-Based Costing to Throughput

Accounting, posted in Blackboard)

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A constraint(also called a bottleneck) is anything thatprevents you from getting more of what you want.

The constraint in a system is determined

by the step that has thesmallest capacity.

Theory of Constraints (continued)

http://www.thermofab.com/drum_buffer_rope.html

http://www.thermofab.com/drum_buffer_rope.htmlhttp://www.thermofab.com/drum_buffer_rope.html

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Theory of Constraints (continued)

A sequential process of identifying andremoving constraints/bottlenecks in a system:

1. Identify the systems constraints.

2. Decide how to exploit the systems constraints.3. Subordinate everything else to the above

decision.

4. Elevate/relax the systems constraints (see

pages 550-551).

5. If in the previous steps a constraint has been

broken, go back to step 1

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Business Environment: Other Factors

Strategic Management:e.g., combat increased

international competition (strategic cost managementmodels; e.g., ABC (Ch 7) & Target Costing (Appendix A))

Enterprise Risk Management:a process used byorganizations to proactively identify and manage risk; e.g.,

by sharing the risk, accepting the risk, or reducing the riskby implementing specific controls (e.g., measure thebenefits and costs of alternative enterprise riskmanagement approaches)

Corporate Social Responsibility: a concept wherebyorganizations consider the needs of all stakeholderswhenmaking decisions that extend beyond legal compliance toinclude voluntary actions to satisfy stakeholderexpectations (e.g., environmental cost management)

Ethi C d f C d t f

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Ethics: Code of Conduct forManagement Accountants

The Institute of Management Accountant (IMA) Statementof Ethical Professional Practicehas the following threemajor parts (for more detail, see Exhibit 1-9, page 16):

1. Ethical Principles(honesty, fairness, objectivity, andresponsibility)

2. Standards of ethical behavior (competence,confidentiality, integrity, and credibility)

3. Resolution of Ethical Conflict(discuss with immediatesuperior &/or successive management levels, clarifyethical issues with an IMA Ethics Counselor or other

impartial advisor, and consult your own attorney)

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Ethics (continued)

Ethical Codes of Conduct at the International Level:

The IFACs International Ethics Standards Board forAccountants (IESBA) develops ethical standards andguidance for use by professional accountants. Itencourages member bodies to adopt high standards ofethics for their members and promotes good ethicalpractices globally. The IESBA also fosters internationaldebate on ethical issues faced by accountants.(http://www.ifac.org/Ethics/index.php)

The Foreign Corrupt Practices Act of 1977.

ACFE Occupational Fraud & Abuse Reports:http://www.acfe.com/fraud/report.asp; Most occupational fraud(26.3%) committed in accounting department - 2012 Report, 53

Appendix 1A: Corporate Governance

Sarbanes-Oxley Act 0f 2002.

Internal Control:preventative controland detective control.

http://www.ifac.org/Ethics/index.phphttp://localhost/var/www/apps/conversion/Walmart%20&%20FCPA%20April%202013.docxhttp://www.acfe.com/fraud/report.asphttp://www.acfe.com/fraud/report.asphttp://localhost/var/www/apps/conversion/Walmart%20&%20FCPA%20April%202013.docxhttp://www.ifac.org/Ethics/index.php

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Certified Management Accountant

A management accountant

who has the necessary qualifications and

who passes a rigorous professional exam earns

the right to be known as a CertifiedManagement Accountant (CMA).

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CMA Exam Content: Exhibit 1-4, page 8

Information about becoming a CMA and the CMA program can be accessed

on the IMAs website at www.imanet.orgor by calling 1-800-638-4427.

Part 1 Financial Plann ing, Performance and Contro l

Planning, budgeting, and forecasting

Performance management

Cost management

Internal controls

Professional ethics

Part 2 Financial Decision Making

Financial statement analysis

Corporate finance

Decision analysis and risk managementInvestment decisions

Professional ethics

http://www.imanet.org/http://www.imanet.org/