Chapter 1

Objective, Scope and Role of Management Accountants

Introduction:
This chapter explains the need for management accounting and the role of management
accountants in the management functions of planning, directing and motivating, and controlling.

Specific Objectives:
At the end of the lesson, the students should be able to:
Describe the role of management accountants.
Differentiate management accounting from financial accounting.
Learn the standards of ethical conduct for management accountants.
Learn the certifications available to management accountants.

Duration: 4 hours (Lecture/Discussion/Problem Solving)

LESSON PROPER

MANAGEMENT ACCOUNTING (also called Managerial accounting or Internal accounting)-

field of accounting that provides economic and financial information for internal users, particularly
the managers or decision-makers in an organization.

Applications of Management Accounting

1) Business- managerial accounting provides the economic information needed by the
business managers so they can attain their profit/other economic goals.

2) Non profit organizations- these organizations likewise need the economic information
provided by management accountants in attaining their organization’s objectives.

Principles governing the design of management accounting system

1) The system should help to establish the decision-making authority over the organization’s
assets.
2) The information generated by the system should support planning and decision-making.
3) The reports should provide a means for performance monitoring and evaluation.

Distinctions among Management Accounting, Cost Accounting and Financial Accounting

The accounting system is part of the organization’s Management Information System (MIS).

The cost accounting system, which accumulates data about the costs of producing goods and
services, is part of the organization’s overall accounting system. It accumulates cost information
for both management accounting and financial accounting.

Users of reports
Purpose
Types of reports
Basis of reports
Standards of presentation
Management Accounting Financial Accounting
Internal Users: officers and External users: stockholders,
managers creditors, concerned
government agencies
To provide internal users To provide external users
with information that may be with information about the
used by managers in carrying organization’s financial
out the functions of planning, position and results of
controlling, decision making, operation.
and performance evaluation.
Different types of reports, Primarily financial
such as budget, financial statements and the
projections, cost analyses , accompanying notes to such
etc. depending on the statements.
specific needs of
management.
Reports are based on a Reports are based almost
combination of historical, exclusively on historical
estimated and projected data. data.
In preparing reports, the Reports are prepared in
management of a company accordance with GAAP and
can set rules to produce other pronouncements of
information most relevant to authoritative accounting
its specific needs. bodies,

Reporting entity Focus of reports is on the Financial reports relate to the

company’s value chain, such business as a whole
as a business segment,
product line, supplier or
customer.
Period Covered Reports may cover any time Reports usually cover a year,
period- year, quarter, month, quarter, or month.
week, day, etc. Reports may
be required as frequently as
needed.

Standards of Ethical Conduct for Management Accountants

The Institute of Management Accountants, formerly the National Association of Accountants, has
promulgated the following standards of ethical conduct for management accountants. Management
accountants shall not commit acts contrary to these standards nor shall they condone the
commission of such acts by others within their organization,
1) COMPETENCE- management accountants have the responsibility to:
• Maintain an appropriate level of professional expertise by continually developing
knowledge and skills.
• Perform their professional duties in accordance with relevant laws, regulations and
technical standards.
 • Provide decision support information and recommendations that are accurate, clear,
precise and timely.
• Recognize and communicate professional limitations or other constraints that
would preclude responsible judgement or successful performance of an activity.

2) CONFIDENTIALITY- management accountants have the responsibility to:

• Keep information confidential except when disclosure is authorized or legally
required.
• Inform all relevant parties regarding appropriate use of confidential information.
• Monitor subordinates’ activities to ensure compliance.
• Refrain from using confidential information for unethical or illegal advantage.

3) INTEGRITY- management accountants have the responsibility to:

• Mitigate actual conflicts of interest. Regularly communicate with business
associates to avoid apparent conflicts of interest. Advise all parties of any potential
conflicts.
• Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
• Abstain from engaging in or supporting any activity that might discredit the
profession.

4) CREDIBILITY- management accountants have the responsibility to:

• Communicate information fairly and objectively
• Disclose all relevant information that could reasonably be expected to influence an
intended user’s understanding of the reports or recommendations.
• Disclose delays or deficiencies in information , timeliness, processing, or internal
controls in conformance with organization policy and /or applicable law.

Resolution of Ethical Conflict

When management accountants encounter problems in identifying unethical behavior or in
resolving an ethical conduct, they should follow the established policies of the organization
bearing on the resolution of such conflict. If the policies do not resolve the ethical conflict,
management accountants should consider the following courses of action:
1) Discuss such problem with the immediate supervisor except when such supervisor is
involved, in which case, the problem should be presented to the next higher managerial
level. If satisfaction cannot be achieved when the problem is initially presented, submit
the issue to the next higher managerial level.

If the immediate supervisor is the chief executive officer or equivalent, the acceptable
reviewing authority may be a group such as the audit committee, executive committee,
board of directors, board of trustees or owners. Contact with levels above the immediate
superior should be initiated only with the superior’s knowledge, assuming the superior is
not involved. Communication of such problems to authorities or individuals not employed
or engaged by the organization is not considered appropriate, unless it is believed that there
is a clear violation of the law.
 2) Clarify relevant ethical issues by confidential discussion with an impartial advisor to obtain
a better understanding of possible courses of action.
3) Consult your own attorney as to legal obligations and rights concerning the ethical conflict.
4) If the ethical conflict still exists after exhausting all levels of internal review, there may be
no other recourse on significant matters than to resign from the organization and to submit
an informative memorandum to an appropriate representative of the organization. After
resignation, depending on the nature of the ethical conflict, it may also be appropriate to
notify other parties.

Certifications available to Management Accountants

The CMA Program or Certificate in Management Accounting is a program for management
accountants designed to recognize their unique qualifications, high standards and professional
expertise in the field of management accounting.

Qualified management accountants earn the designation CERTIFIED MANAGEMENT

ACCOUNTANT (CMA), the internal accountant’s counterpart to the Certified Public Accountant
(CPA).

In the Philippines, the Philippine Association of Management Accountants (PAMA) conducts the
Certificate In Management Accounting program through its continuing education arm, the
Philippine Institute of Management Accountants (PIMA).

Controller- The Chief Management Accountant

The controller is the chief management accounting executive of an organization who is mainly
responsible for the accounting aspects of management planning and control.

Functions of the Controller

1) Planning for control- to establish, coordinate and administer , as an integral part of the
management, an adequate plan for the control of operations.
2) Reporting and interpreting- to compare performance with operating plans and standards
and to report and interpret results of operations for the concerned users of such
reports.
3) Evaluating and consulting- to consult with all levels of management responsible for
policy or action concerning any phase of operation of the business as it relates to
the attainment of objectives and effectiveness of policies, organizational structures
and procedures.
4) Tax administration- to establish and administer tax policies and procedures.
5) Government reporting- to supervise or coordinate the preparation of reports to
to government agencies.
6) Protection of assets- to ensure protection of assets of the business through internal
control and assuring proper insurance coverage.
7) Economic appraisal- continuously appraise economic and social forces and government
influences and to interpret their effect on the business.
Distinctions between Controllership and Treasurership
Controllership Treasurership
1. Planning and Control 1. Provision of capital
2. Reporting and interpreting 2. Investor relations
3. Evaluating and consulting 3. Short term financing
4. Tax administration 4. Banking and custody
5. Government reporting 5. Credit and collection
6. Protection of assets 6. Investments
7. Economic appraisal 7. Insurance

Activity
Discussion of exercises/problems in Ch. 1 & Ch.2, Strategic Cost Management, 2021 edition, Ma.
Elenita B.Cabrera.