CHAPTER 2

THE PROFESSIONAL ENVIRONMENT OF COST MANAGEMENT

TYPES OF FUNCTIONS IN ORGANIZATIONS

● Line authority is the authority to command action or give orders to subordinates. Line managers
are directly responsible for attaining the objectives of the business firm as efficiently as possible.
Sales and production managers typically have line authority.
● Staff authority is the authority to advise but not command others; it is exercised laterally or upward.
Staff managers give support, advice and service to line departments. Examples of staff authority
are found in personnel, purchasing, engineering and accounting.

The accounting function is usually "staff”, with responsibility for providing line managers and also other staff
managers, with specialized services. This includes advice and help in the areas of budgeting, controlling,
pricing and special decisions.

THE CHIEF FINANCIAL OFFICER, THE CONTROLLER, AND THE TREASURER

● The chief financial officer (CFO) - also called the finance director in many countries - is the
executive responsible for overseeing the financial operations of an organization.
● The responsibilities of the CFO vary among organizations, but they usually include the following
areas:
▪ Controllership - includes providing financial information for reports to managers and
reports to shareholders and overseeing the overall operations of the accounting system.
▪ Treasury - includes banking and short and long-term financing, investments, and
management of cash.
▪ Risk management - includes managing the financial risk of interest-rate and exchange-rate
changes and derivatives management.
▪ Taxation - includes income taxes, sales taxes, and international tax planning.
▪ Internal audit - includes reviewing and analyzing financial and other records to attest to the
integrity of the organization's financial reports and to adherence to its policies and
procedures.
● In some organizations, the CFO is also responsible for information systems. In other organizations,
an officer of equivalent rank to the CFO — called the chief information officer - is responsible for
information systems.
● The controller (also called the chief accounting officer) is the financial executive primarily
responsible for management accounting and financial accounting.
*Represents vice presidents of various departments outside of accounting and finance such as production,
personnel, and research and development.
**In addition to reporting to the chief financial officer, the internal auditor typically reports independently to
the board of directors and/or the audit committee (made up of select members of the board of directors).
CONTROLLERSHIP is the practice of the established science of control which is the process by which
management assures itself that the resources are procured and utilized according to plans in order to
achieve the company's objectives.
BASIC FUNCTIONS OF CONTROLLERSHIP
The basic principal functional responsibilities and activities of controllership may be categorized as follows:
1. Planning. Establish and maintain an integrated plan of operation consistent with the company's goals
and objectives, both short and long term, analyzed and revised, as required, communicated to all levels of
management, with appropriate systems and procedures installed.
2. Control. Develop and revise standards against which to measure performance and provide guidance and
assistance to other members of management in insuring conformance of actual results to standards.
3. Reporting. Prepare, analyze, and interpret financial remits for utilization by management in the decision
making process, evaluate the data with reference to company and unit objectives; prepare and file external
reports as required to satisfy government regulatory bodies, shareholders, financial institution, customers,
and the general public.
4. Accounting. Design, establish, and maintain general and cost accounting systems at all company levels,
including corporate, divisional, plant, and unit to properly record all financial transactions in the books of
accounts and records in accordance with sound accounting principles with adequate internal control.
5. Other Primary Responsibilities. Manage and supervise such functions as taxes, including interface with
the respective taxing authorities and agents; maintain appropriate relationships with internal and external
auditors; develop and maintain systems and procedures; develop record retention programs; supervise
assigned treasury functions; institute investor and financial public relations programs; office management;
and direct other assigned functions.

QUALIFICATIONS OF THE CONTROLLER

The qualifications of an effective controller would include:
1. An excellent technical foundation in accounting and finance with an understanding and thorough
knowledge of accounting principles.
2. An understanding of the principles of planning, organizing, and control.
3. A general understanding of the industry in which the company competes and the social, economic, and
political forces involved.
4. A thorough understanding of the company, including its technologies, products, policies, objectives,
history, organization, and environment.
5. The ability to communicate with all levels of management and a basic understanding of the other
functional problems related to engineering, production, procurement, industrial relations, and marketing.
6. The ability to express ideas clearly in writing or in making informative presentations.
7. The ability to motivate others to achieve positive action and results.
THE TREASURER
● Although organizational structures vary from firm of firm, the role of finance is assigned to the Chief
of Financial Officer (CFO) or the Vice President-Finance who reports to the President. The CFO's
key subordinates are the Treasurer and the Controller.
● Treasurership is concerned with the acquisition, financing and management of assets of a
business concern to maximize the wealth of the firms for its owners.
● In most firms the treasurer has the following responsibilities:
▪ Funds Procurement
▪ Banking and Custody of Funds
▪ Investment of Funds
▪ Operating Responsibilities related to
- Credit and Collection
- Inventory Management
- Corporate pension and retirement fund
- Investor Relations
- Insurance
- Compliance with legal and regulatory provisions relating to funds procurement, use and
distribution as well as coordination of the finance function with accounting function.

ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS

● It is important to have an appreciation of what is and is not acceptable behavior in business and why.
● The Institute of Management Accountants (IMA) of the United States has developed a very useful
ethical code called the Standards of Ethical Conduct for Practitioners of Management Accounting and
Financial Management.
● Even though the standards were specifically developed for management accountants, they have much
broader application.

CODE OF CONDUCT FOR MANAGEMENT ACCOUNTANTS

There are two parts to the standards:
● The first part provides general guidelines for ethical behavior. In a nutshell, the management
accountant has ethical responsibilities in four broad areas namely
▪ to maintain a high level of professional competence
▪ to treat sensitive matters with confidentiality
▪ to maintain personal integrity, and
▪ to be objective in all disclosing.
● The second part of the standards gives specific guidance concerning what should be done if an
individual finds evidence of ethical misconduct within an organization.
▪ The ethical standards provide sound, practical advice for management accountants and
managers.
▪ They require professional behavior, especially in avoiding conflicts of interest.
▪ They require management accountants to bring bad news to the attention of their supervisors,
and to work competently.
 ▪ Most of the rules in the ethical standards are motivated by a very practical consideration - if
these rules were not generally followed in business, then the economy could come to a halt .

Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management
Practitioners of management accounting and financial management have an obligation to the public, their
profession, the organization they serve, and themselves, to maintain the highest standards of ethical
conduct. In recognition of this obligation, the Institute of Management Accountants has promulgated the
following standards of ethical conduct for practitioners of management accounting and financial
management. Adherence to these standards, both domestically and internationally, is integral to achieving
the Objectives of Management Accounting. Practitioners of management accounting and financial
management shall not commit acts contrary to these standards nor shall they condone the commission of
such acts by others within their organizations.
● Competence. Practitioners of management accounting and financial management have a
responsibility to:
▪ Maintain an appropriate level of professional competence by ongoing development of their
knowledge and skills.
▪ Perform their professional duties in accordance with relevant laws, regulations, and technical
standards.
▪ Prepare complete and clear reports and recommendations after appropriate analysis of
relevant and reliable information.
● Confidentiality. Practitioners of management accounting and financial management have a
responsibility to:
▪ Refrain from disclosing confidential information acquired in the course of their work except
when authorized, unless legally obligated to do so.
▪ Inform subordinates as appropriate regarding the confidentiality of information acquired in the
course of their work and monitor their activities to assure the maintenance of that
confidentiality.
▪ Refrain from using or appearing to use confidential information acquired in the course of their
work for unethical or illegal advantage either personally or through third parties.
● Integrity. Practitioners of management accounting and financial management have a responsibility
to:
▪ Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential
conflict.
▪ Refrain from engaging in any activity that would prejudice their ability to carry out their duties
ethically.
▪ Refuse any gift, favor, or hospitality that would influence or would appear to influence their
actions.
▪ Refrain from either actively or passively subverting the attainment of the organization's
legitimate and ethical objectives.
▪ Recognize and communicate professional limitations or other constraints that would preclude
responsibility judgment or successful performance of an activity.
▪ Communicate unfavorable as well as favorable information and professional I judgments or
opinions.
▪ Refrain from engaging in or supporting any activity that would discredit the profession.
● Objectivity. Practitioners of management accounting and financial management have a
responsibility to:
 ▪ Communicate information fairly and objectively.
▪ Disclose fully all relevant information that could reasonably be expected to influence an
intended user's understanding of the reports, comments, and recommendations presented.
● Resolution of Ethical Conflict. In applying the standards of ethical conduct, practitioners of
management accounting and financial management may encounter problems in identifying
unethical behavior or in resolving an ethical conflict. When faced with significant ethical issues,
practitioners of management accounting and financial management should follow the established
policies of the organization bearing on the resolution of such conflict. If these policies do not
resolve the ethical conflict, such practitioner should consider the following courses of action:
▪ Discuss such problems with the immediate superior except when it appears that the superior is
involved, in which case the problem should be presented initially to the next higher managerial
level. If a satisfactory resolution cannot be achieved when the problem is initially presented,
submit the issues to the next higher managerial level.
▪ If the immediate superior 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.
Except where legally prescribed, communication of such problems to authorities or individuals
not employed or engaged by the organization is not considered appropriate.
▪ Clarify relevant ethical issues by confidential discussion with an objective advisor (e.g., IMA
Ethics Counseling Service) to obtain a better understanding of possible courses of action.
▪ Consult your own attorney as to legal obligations and rights concerning the ethical conflict.
▪ 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.

COMPANY CODE OF CONDUCT

Those who engage in unethical behavior often justify their actions with one or more of the following
reasons:
● the organization expects unethical behavior,
● everyone else is unethical, and/or
● behaving unethically is the only way to get ahead.

To counter the first justification for unethical behavior, many companies have adopted formal ethical codes
of conduct. These codes are generally broad-based statements of a company's responsibilities to its
employees, its customers, its suppliers and the community in which the company operates. Codes give
broad guidelines rather than that spells out specific do’s and don’ts or suggests proper behavior in a
specific situation. Companies with a strong code of ethics can create strong customer and employee
loyalty. While liars and cheats may win on occasion, their victories are often short-term. Companies in
business for the long term find that it pays to treat all of their constituents honestly and loyally.

INTERNATIONAL CERTIFICATIONS
The three certifications available to management accountants are as follows:
• Certificate of Management Accounting (CMA)
• Certificate in Public Accounting (CPA)
• Certificate in Internal Auditing (CIA)

CMA. A Certified Management Accountant is one who has passed the rigorous qualifying examination, has
met an experience requirement, and participates in continuing educations. The CMA Certificate is granted
by the Institute Management Accountants (IMA).
https://www.imanet.org/cma-certification/getting-started?ssopc=1

CPA. A Certified Public Accountant is one who has met the pre-qualification educational requirements,
passed the CPA licensure examinations given by the Professional Regulatory Board of Accountancy and
has satisfied all other legal and regulatory requirements of a public accountant. The CPAs main
responsibility is to provide assurance concerning the reliability of the information contain in the firm's
financial statements.

CIA. Since one of the management control responsibilities of the management accountant is to develop
effective systems to detect and prevent errors and fraud in the accounting records, it is common for the
management accountant to have strong ties to the control-oriented organization such as the Institute of
Internal Auditors (IIA) granting Certification in Internal Auditing (CIA), To attain the status of Certified
Internal Auditor an individual must pass a comprehensive examination designed to ensure technical
competence and have the required number of years of work experience.
https://iia-p.org/

LOCAL CERTIFICATION
CAT. An accounting technician prepares the financial information which professional accountants or
business managers use when making decisions. To attain the status of a Certified Accounting Technician,
one must pass a comprehensive exam comprising a total of nine (9) subjects, divided into first part and
second part. The CAT certificate is granted by the National Institute of Accounting Technicians (NIAT).
https://niat.edu.ph/