CHAPTER 1

THE ACCOUNTANTS ROLE IN THE ORGANIZATION

LEARNING OBJECTIVES
1. Describe how cost accounting supports management accounting and financial accounting
2. Understand how management accountants affect strategic decisions
3. Distinguish between the planning and control decisions of managers
4. Distinguish among the problem-solving, scorekeeping, and attention-directing roles of management
accountants
. !dentif" four themes managers need to consider for attaining success
#. Describe the set of business functions in the value chain
$. Describe three wa"s management accountants support managers
%. Understand how management accounting fits into an organi&ation's structure
(. Understand what professional ethics mean to management accountants
CHAPTER OVERVIEW
)hapter 1 is an important foundation chapter. *he theme of the te+t, )ost ,ccounting- , .anagerial
/mphasis, 110/, is the ma1or role that accounting pla"s in management decision making. ,ccounting provides
information managers need when making decisions. 2inancial accounting provides information to e+ternal
managers while modern cost accounting "ields insights into what managers and accountants do within an
organi&ation. .anagement accountants provide financial and nonfinancial information to help managers
decide how best to deal with challenges and opportunities.
.anagement accounting is successful when it provides information that improves managers' strategic,
planning, and control decisions. *he use of accounting in the planning and control process is introduced and
highlighted in the te+t e+ample.
, framework for understanding management accounting s"stems in providing managers information is
developed in the chapter. *he goals, roles, activities, and guidelines of management accounting s"stems are
described through understanding what managers do.
,n introduction and discussion of professional ethics including standards of ethical conduct for management
accountants is presented.
CHAPTER OUTLINE
Learning Objective 1:
Describe how cost accounting supports management accounting and financial accounting
!. ,ccounting s"stems- processing information from economic events into useful information for managers
and others
,. 3urpose of cost accounting- to provide information
1. !dentif"ing and measuring financial and other information related to the ac4uisition or consumption
of an organi&ation's resources
2. 3roviding users of economic information 5managers6 useful reports and access to needed
information
7. Cost accounting- provides information relating to cost of ac4uiring and utili&ing resources for both
management and financial accounting
1. Management accounting- focus on internal reporting for decision making of managers in
fulfilling organi&ation's goals
a. /mphasis on the organi&ation8the future and influencing behavior of managers and
emplo"ees
b. )oncern with development and implementation of strategies and policies
2. Financial accounting- focus on e+ternal reporting for decision making of those outside the
organi&ation
a. /mphasis on financial statements
b. 9trict adherence to :,,3
3. Cost management
a. ,pproaches and activities of managers in planning and control
b. !ntegral part of general management strategies and their implementation
Do multiple choice 1. Assign Exercise 1-16.
Learning Objective 2:
Understand how management accountants affect strategic decisions
!!. 9trategic decisions and management accounting- ke" to a compan"'s success in creating value for
customers while differentiating itself from its competitors
,. 3roviding information about the sources of competitive advantage
2 Chapter 1
1. Strategy- how an organi&ation uses what it has to get what it wants within the marketplace
2. *wo broad strategies used
a. 3roviding a 4ualit" product or service at a lower price than competitors
b. 3roviding a uni4ue product or service at a higher price than competitors
3. ;ole of management accountant- provide managers information in helping formulate strateg"
7. !dentif"ing and building resources and capabilities
1. 9trategic anal"sis- matching knowledge of marketplace opportunities and threats with compan"'s
resources and capabilities
2. 7alance sheet information about assets
a. )urrent resources
i. )ash ade4uac"
ii. !nventor" management
b. Long-term proucti!e assets- important strategic decisions for the right investments
i. ,nal"&e trends and measure efficiencies
ii. Develop network of relationships with customers and suppliers
iii. !dentif" financial and nonfinancial costs and benefits associated with alternative choices
c. !ntangible assets
Do multiple choice 2. Assign Exercise 1-16 "i# not pre!iously assigne$.
Learning Objective 3:
Distinguish between the planning and control decisions of managers
!!!. .anagement accountant's role in implementing strateg" [Exhibits 1 and 2]
,. !mplementing strateg"- managers taking action b" using planning and control s"stems to help the
collective decisions of an organi&ation
1. %lanning
a. *hinking process
i. 9electing organi&ation goals
&he Accountant's (ole in the )rgani*ation +
ii. 3redicting results under various alternatives of achieving those goals
iii. Deciding how to attain desired goals
b. )ommunicating goals and how to attain them to entire organi&ation
2. Control
a. *aking actions to implement the planning decisions
b. Deciding on performance evaluation
3. Fee,ac-- linking planning and control to help future decision making
TEACHING TIP- *he decision-making process is akin to the thinking process. !ndividuals as well as groups
of all t"pes and si&es emplo" common elements in making decisions. *he ke" for the use of accounting in the
process is usuall" in <determining relevant information= but ma" be used in each stage. )hapter 11 e+pands
upon this process. ,n interesting reading on group decision making is from 2ortune, >ctober , 1((2, <?ow
3ublic >pinion ;eall" @orks,= pages 1A2B1A%, written b" Daniel Cankelovich.
2eedback is an interesting aspect to e+plore as it highlights the ongoing nature of decision making. >ne can
give numerous e+amples to prove the adage that in solving one problem, several more problems are created.
Do multiple choice +. Assign %ro,lem 1-2..
Learning Objective 4:
Distinguish among the problem-solving, scorekeeping, and attention-directing roles of management accountants
7. 9upporting managers b" providing information to improve strategic, planning, and control decisions
1. *hree roles of management accountants for success
a. %ro,lem sol!ing- comparative anal"sis for decision making
b. Score-eeping- accumulating data and reporting reliable results
c. Attention irecting- helping managers properl" focus their attention
2. :oals to assist managers in making better decisions [Survey of Company Practice]
a. Different decisions emphasi&e roles differentl"
i. 9trateg" and planning emphasi&e problem solving
ii. )ontrol emphasi&es scorekeeping and attention directing
b. !nteraction among t"pes of decisions means activit"0roles done simultaneousl"

c. !nformation must be relevant and timel" to be useful
Do multiple choice / an .. Assign %ro,lems 1-26 an Exercise 1-10 or 1-11.
/ Chapter 1
Learning Objective 5:
!dentif" four themes managers need to consider for attaining success
). /nhancing the value of management accounting s"stems b" guiding managers to focus on challenges
[Concepts in Action]
1. Customer #ocus [Exhibit 1-3]
Learning Objective 6:
Describe the set of business functions in the value chain
2. 2alue-chain and supply-chain anal"sis [Exhibits 1- and 1-!]
a. )ompanies add value through8
i. ;esearch and development
ii. Design of products, services, or processes
iii. 3roduction
iv. .arketing
v. Distribution
vi. )ustomer service
b. .anagers in all business functions are customers of management accounting information
3. De" success factors
a. )ost and efficienc"
b. Eualit"
c. *ime
d. !nnovation
4. )ontinuous improvement and benchmarking
Do multiple choice 6 an 0. Assign Exercises 1-13 or 1-24 an 1-22.
Learning Objective 7:
Describe three wa"s management accountants support managers
&he Accountant's (ole in the )rgani*ation .
D. 3roviding the most value through three ke" management accounting guidelines
1. /mplo" cost-,ene#it approach
2. ;ecogni&e behavioral and technical considerations
3. !dentif" different costs for different purposes
Do multiple choice 1. Assign %ro,lem 1-2/.
Learning Objective 8:
Understand how management accounting fits into an organi&ation's structure
/. @orking within the organi&ation
1. Fine and staff relationships [Exhibit 1-"]
2. *he chie# #inancial o##icer and the controller
Do multiple choice 3. Assign %ro,lem 1-20.
Learning Objective 9:
Understand what professional ethics mean to management accountants
!G. 3rofessional ethics
,. :uidelines
1. !., certification programs
2. !., 9tandards of /thical )onduct for .anagement ,ccountants [Exhibit 1-#]
a. )ompetence
b. )onfidentialit"
c. !ntegrit"
d. >b1ectivit"
7. *"pical challenges- :uidance as to <;esolution of /thical )onduct= [Exhibit 1-$]
Do multiple choice 14. Assign Exercise 1-2+ an %ro,lems 1-21 an 1-23.
CHAPTER QUIZ SOLUTIONS: 1. , 2. c 3. 4. c . a #. , $. %. (. c 1A. a
6 Chapter 1
CHAPTER QUIZ
1. @h" do most companies adhere to :,,3 for their basic internal financial statementsH
a. :,,3 is re4uired b" law for publicl" held companies.
b. *o use :,,3 and another s"stem of reporting would be too costl" for most companies.
c. ,ccountants are re4uired b" their code of ethics to use :,,3 accounting.
d. ,ccrual accounting provides a uniform wa" to measure an organi&ation's financial
performance.
2. *he ke" to a compan"'s success is creating value for customers while
a. increasing the market value of its stock.
b. reducing costs to the least amount necessar".
c. differentiating itself from its competitors.
d. emplo"ing the best managers and cost accountants available.
3. , 4uantitative e+pression of a plan of action is called a5n6
a. strategic anal"sis report. c. financial statement.
b. performance report. d. budget.
4. *he primar" users of information provided b" a management accountant are
a. downstream components to the total value chain.
b. upstream components to the total value chain.
c. managers within the organi&ation.
d. customers of the organi&ation.
. , managerial emphasis for cost accounting means
a. accountants are focused on decision support.
b. accountants are the watchdogs that make sure managers adhere strictl" to strategic plans.
c. managers use cost accounting for providing financial information but look elsewhere for nonfinancial
information.
d. managers must take courses in cost accounting.
#. *he design of a management accounting s"stem should be guided b" the
a. re4uirements for financial reporting.
b. challenges facing managers.
c. standards developed for cost accounting b" the )ost ,ccounting 9tandards 7oard.
d. preferences of the organi&ation's financial officer.
$. 2our themes are common to man" managers. *he critical theme for all of these is
a. developing relationships with suppliers.
b. benchmarking and continuous improvement.
c. reducing costs and improving efficiencies.
d. improving customer focus and customer satisfaction.
&he Accountant's (ole in the )rgani*ation 0
%. @hich of the following is not a ke" guideline used b" management accountantsH
a. Different costs for different purposes
b. )ost-benefit approach
c. 7ehavioral consideration
d. *echnical supremac"
(. IIIIIIII management e+ists to provide advice and assistance to those responsible for attaining the
ob1ectives of the organi&ation.
a. Fine
b. 2unctional
c. 9taff
d. ;isk
1A. @hich of the following is not one of the ethical responsibilities of a management accountantH
a. )ompliance
b. )onfidentialit"
c. !ntegrit"
d. >b1ectivit"
1 Chapter 1
WRITING/DISCUSSION EXERCISES
1. Descr!e "#$ c#s% &cc#'(%() s'**#r%s +&(&)e+e(% &cc#'(%() &(, -(&(c&. &cc#'(%()
What are some basic characteristics of accounting that all accountants use whether in
financial or managerial accounting? *he 2inancial ,ccounting 9tandards 7oard 52,976 describes
a hierarch" of accounting 4ualities in its second 9tatement of 2inancial ,ccounting )oncepts. *he
characteristics deemed important for financial accounting are the same as those described throughout the
te+t as those of managerial accounting. *he )oncepts describe the users of accounting information as
<decision makers= with the constraints of cost0benefit and materialit". *he 4ualities of accounting
information are given as <understandabilit", decision usefulness, relevance, and reliabilit".= ;elevance is
further described b" the terms <predictive value, feedback value, and timeliness.= ;eliabilit" is
characteri&ed b" <verifiabilit", neutralit", and representational faithfulness.= *he additional 4ualit" of
comparabilit", including consistenc", belongs to the descriptors of decision usefulness. *hese 4ualities
appl" to all accounting information, financial or managerial, in processing an" economic transaction that
have occurred into information useful for making decisions.
*he definition given for accounting b" the 1(41 )ommittee on *erminolog" of the ,merican !nstitute of
,ccountants is <. . . the art of recording, classif"ing, and summari&ing in a significant manner and in terms
of mone", transactions, and events which are in part, at least, of a financial character, and interpreting the
results thereof.= *his definition was before the stud" of cost accounting as an academic sub1ect, but note
the statement from the current te+t about accounting s"stems8<3rocessing an" economic transactions
entails collecting, categori&ing, summari&ing, and anal"&ing.= 9ome basic characteristics define
accounting.
2rom 2,97 9tatement of 2inancial ,ccounting )oncepts Jo. 2 59tamford, )*- 2,97, 1(%A6
2. U(,ers%&(, "#$ +&(&)e+e(% &cc#'(%&(%s &--ec% s%r&%e)c ,ecs#(s
Explain how routine reports to managers not only provide information but also influence
behavior regarding the planning and controlling of operations. *hroughout the te+t, the
behavior or performance of people is noted in response to goals set, structure of bonus calculations, choice
of financial reporting 5absorption versus variable costing and the build up of inventor"6, designation as cost
center versus profit or investment center, etc. *he information provided will be acted upon based upon the
user's understanding and individual goals. :oal congruence as a concept is introduced at a later point but
has pertinence here. 3eople will work to achieve their own goals within the compan"'s structure. *he" will
look to the measurement being used to further their own goals. .anagers must be careful in designing
measures of performance to insure the measures work to attain the compan"'s strategic goals.
+. Ds%()'s" !e%$ee( %"e *.&((() &(, c#(%r#. ,ecs#(s #- +&(&)ers
Describe the steps in a decision-making or thinking process. /+hibit 1-1 can be used as an
e+ample. 9tudents ma" be given a situation or asked to use a recent decision the" have made. ,n" goal-
setting situation can be an e+ample. 3erhaps the student selects the goal of making good grades for the
semester to gain a <good student discount= for car insurance purposes. Dnowing what is e+pected for the
discount and for earning specific grades in each class assists in predicting results under various alternative
wa"s of achieving the goal. Deeping a log of how time was spent would measure action taken. )omparing
the log of how the time was spent to the planned usage of time comprises control. /valuating the results of
time spent and grades earned are an e+ample of feedback.
/. Ds%()'s" &+#() %"e *r#!.e+/s#.0()1 sc#re2ee*()1 &(, &%%e(%#(/,rec%() r#.es #-
&he Accountant's (ole in the )rgani*ation 3
+&(&)e+e(% &cc#'(%&(%s
Describe the steps in making a decision in terms of the roles of management
accountants. Using the e+ample given in Fearning >b1ective 3 above, the keeping of a stud" log would
be an e+ample of scorekeeping. )omparing the log of how the time was actuall" spent to the planned usage
of time spent would be an e+ample of attention directing. /valuating or anal"&ing the results of time spent
and grades earned is an e+ample of problem solving because of the characteristic of relevance in providing
feedback and predictive value as to how time should be spent and for what it should be spent doing.
9tudents could provide other e+amples of the use of problem solving, scorekeeping, and attention directing,
especiall" in the area of sports.
.. I,e(%-3 -#'r %"e+es +&(&)ers (ee, %# c#(s,er -#r &%%&(() s'ccess
List some activities a management accountant could do to keep up to date with or ahead
of changes in the field of management. ,ctive membership in professional organi&ations is one
wa" to keep current. >ne of the points made in the !., 9tandards of /thical )onduct for .anagement
,ccountants is to <maintain an appropriate level of professional competence b" ongoing development of
their knowledge and skills.= 5)ompetence section6 Deeping up on the news b" reading current periodicals,
listening to programs on current business practices, or attending seminars sponsored b" professional
organi&ations are all helpful.
6. Descr!e %"e se% #- !'s(ess -'(c%#(s ( %"e 0&.'e c"&(
Describe how managers in all areas of the value chain are customers of accounting
information. nclude a definition of !value" as it applies to the !value" chain along with
the meaning of !success" for management accounting. *he section in the te+t describing the
value chain notes that usefulness added to the products or services of a compan" result in value to the
customer. *hroughout the section, </nhancing the Galue of .anagement ,ccounting 9"stems,= runs the
theme of integration of functions and information for improved decision making b" managers, a definition
of success for management accounting. *his is a focus of modern cost accountingBdecision support.
0. Descr!e %"ree $&3s +&(&)e+e(% &cc#'(%&(%s s'**#r% +&(&)ers
Explain the cost-benefit approach guideline #a$ when considered within the confines of
an individual company and #b$ when considered as interplay between society and the
individual company. *he e+planation given in the section of the te+t <)ost-7enefit ,pproach= is useful
for using within the compan" situation. *he interpla" between societ" and compan" can have a different
meaning of cost-benefit- the compan" must bear the cost of additional processing or information for the
benefit of societ" to have a cleaner environment, for e+ample, or to make better decisions about investing or
lending, a t"pical financial accounting function.
Explain why !bean counters" would have !behavioral considerations" as a key
guideline in performing their management accounting functions. ,s pointed out in the
<7ehavioral )onsideration= section in the te+t, <management control is primaril" a human activit" that
should focus on how to help individuals do their 1obs better.= *he role that management accounting
s"stems pla" in helping managers make better decisions demands that accountants understand the
importance of people in each step of the decision-making process and operations of the compan".
1. U(,ers%&(, "#$ +&(&)e+e(% &cc#'(%() -%s (%# &( #r)&(4&%#(s s%r'c%'re
14 Chapter 1
Describe the knowledge% skills% and abilities re&uired of a management accountant
following the different costs for different purposes theme. *he section in the te+t, <9urve"s of
)ompan" 3ractices8, Da" in the Fife,= can be helpful for this e+ercise. *he !., has also published the
results of a surve" on the D9,s 5knowledge, skills, abilities6 needed for management accounting. )heck
the @eb site of !., 5http566777.imanet.org6 for additional information.
*he ,merican !nstitute of )ertified 3ublic ,ccountants 5,!)3,6 in its <Gision 3ro1ect= has identified
characteristics of leaders or persons who stand out among their peers. *he term <pathfinders= has been
applied to those who displa" the traits necessar". *he characteristics can be obtained through the ,!)3,
@eb site 5http566777.cpa!ision.org 6.
3. U(,ers%&(, $"&% *r#-ess#(&. e%"cs +e&( %# +&(&)e+e(% &cc#'(%&(%s
'rom the perspective of #a$ a stockholder% #b$ a company manager% #c$ an employee other
than a manager% and #d$ a customer% explain why a code of ethics is important for the
accountants within a company. (onsider the functions performed% the measures
employed% and the concept of professional status. *he section in the te+t, <9urve"s of )ompan"
3ractice8)ommon /thical Dilemmas,= can be helpful in addressing this e+ercise as well as the section on
professional ethics. ,ccountants consider themselves to be professionals. , code of ethics is usuall"
regarded as a necessar" aspect of a professional class. !n the e+planation of management accounting
functions, the function of scorekeeping receives particular attention as one in which accountants are
responsible for the reliabilit" of the reported information and act as watchdogs for top management.

&he Accountant's (ole in the )rgani*ation 11
SUGGESTED READINGS
7hide, ,. K 9tevenson, ?., <@h" 7e ?onest if ?onest" Doesn't 3a"H= %arvard &usiness 'evie(
59eptember->ctober 1((A6 p.121 L(pM.
7rooks, F., &usiness and Professiona) Ethics for Accountants 52AAA6 9outh-@estern )ollege 3ublishing,
)incinnati >?.
)isco, 9. K 9trong, D., <*he Galue ,dded !nformation )hain,= *nformation +ana,ement -ourna)
5Nanuar" 1(((6 p.4 L(pM.
2rost, 3., <@h" )ompassion )ountsO= -ourna) of +ana,ement *n.uiry 5Nune 1(((6 p.12$ L$pM.
:uilding, )., )ravens, D. K *a"les, .., <,n !nternational )omparison of 9trategic .anagement
,ccounting 3ractices,= +ana,ement Accountin, 'esearch 5.arch 2AAA6 p.113 L23pM.
?alal, @., <)orporate )ommunit"- , *heor" of the 2irm Uniting 3rofitabilit" and ;esponsibilit",=
Strate,y and /eadership 5Nanuar" 2AAA6 p. 1A L$pM.
?oward, ;., <Galues .ake the )ompan"- ,n !nterview with ;obert ?aas,= %arvard &usiness 'evie(
59eptember->ctober 1((A6 p.134 L11pM.
Fitman, N., <:enuine ,ssets- 7uilding 7locks of 9trateg" and 9ustainable )ompetitive ,dvantage,=
Strate,ic 0inance 5Jovember 2AAA6 p.3$ L#pM.
.artinson, >. and Piegenfuss, D., <Fooking at @hat !nfluences /thical 3erception and Nudgment,=
+ana,ement Accountin, 1uarter)y 52all 2AAA6 p.41 L$pM.
.ichlitsch, N., <?igh-3erforming, Fo"al /mplo"ees- *he ;eal @a" to !mplement 9trateg",= Strate,y and
/eadership 5Nanuar" 2AAA6 p.2% L#pM.
.oriarit", 9., <*rends in /thical 9anctions within the ,ccounting 3rofession,= Accountin, %ori2ons
5December 2AAA6 p.42$ L13pM.
.o"e, N. and Upton, D., <Data @arehousing 1A1,= Strate,ic 0inance 52ebruar" 2AA16 p.34 LpM.
*horne, F., <*he Development of *wo .easures to ,ssess ,ccountants' 3rescriptive and Deliberate .oral
;easoning,= &ehaviora) 'esearch in Accountin, 5Gol. 1282AAA6 p.13( L31pM.
@eber, N. K @asieleski, D., <!nvestigating !nfluences on .anagers' .oral ;easoning,= &usiness and
Society 5.arch 2AA16 p.$( L33pM.
@est !!!, :.3. K De)astro, N., <*he ,chilles ?eel of 2irm 9trateg"- ;esource @eaknesses and Distinctive
!nade4uacies,= -ourna) of +ana,ement Studies 5.a" 2AA16.
12 Chapter 1