ACT 102

Managerial Accounting

Chapter 1
NATURE OF MANAGEMENT ACCOUNTING;
THE FINANCE FUNCTION IN BUSINESS

In any organization, decisions are made based on available information. Hence, to arrive at sound decision both
qualitative and quantitative information are needed. Qualitative information is concerned with attitudes and opinions,
expressed in descriptions, interviews and conversations. Quantitative information is generally concerned with
quantifiable values, expressed as measurements in length, time, volume, weight, height, etc. As to the question which is
better of the two? Not one is better from the other. Instead, the information provided by each should be used
collectively to obtain a comprehensive understanding of the subject you are reviewing. But, if you want accounting data
for the management to solve particular problem, then that is a quantitative information. This is where the course is all
about.

F. W. Taylor- “Management is an art of knowing what is to be done and seeing that it is done in the best
possible manner.” Management is knowing exactly what you want men to do, and then seeing that they do it in the best
and cheapest way.” Simply state, Management is the art of getting things done through people. Although technology
and data are increasingly important in modern organizations, people continue to be a primary focus of management.
Putting this all together, we can propose a definition of management: management is the process of planning,
organizing, leading, and controlling people in the organization to effectively use resources to meet organizational goals.

Management and Its Functions

Management has been defined as the effective motivation of men and the efficient utilization of resources for the
attainment of predetermined objectives. In the attainment of the organization’s objectives, management perform the
functions of planning, organizing, directing and controlling. Sometimes, a sixth function is also mentioned – decision-
making.

Functions:

1. Planning. This refers to the process of determining objectives, evaluating the different alternatives and choosing
the best among of them. An organization formulates first the long-range objectives. Short-range goals are then
set as a milestone towards the attainment of the long-range objectives so that in accomplishing the short-range
goals, management is assured of accomplishing the long-range activities. Management prepares a program of
activities geared towards the attainment of its objectives so that congruency of the objectives is assured in
undertaking the projects included in the program of activities.

Planning is an important function of management because it sets the pace for all subsequent steps in
the managerial process. You need to develop a roadmap for the future—predefined steps—to accomplish
organizational goals. In this step, you’ll have to evaluate methods and strategies to determine how you’ll
progress toward your goal.

You may have to look at how things were done in the past to make any adjustments to mitigate errors.
You have to consider both internal factors—people, time and cost—and external factors—competitors, policies
and general business environment—to arrive at a sound planning strategy. Planning is future-oriented and
determines an organization’s direction. It is a rational and systematic way of making decisions today that will
affect the future of the company. It is a kind of organized foresight as well as corrective hindsight. It involves
predicting of the future as well as attempting to control the events. It involves the ability to foresee the effects
of current actions in the long run in the future.

An effective planning program incorporates the effect of both external as well as internal factors. The
external factors are shortages of resources; both capital and material, general economic trend as far as interest
rates and inflation are concerned, dynamic technological advancements, increased governmental regulation
regarding community interests, unstable international political environments, etc.

2. Organizing is where you put your plan into action by establishing a system of authority or hierarchy in the
context of your organizational structure. Determine the tasks that need to be completed to achieve your goals
before assigning them to your staff. As opposed to the traditional ways of working where a manager made all
the decisions, today’s business world is more dynamic and flexible. Every member of the organization—
regardless of position—shares accountability and responsibility.
 So, define an organizational structure that aligns with your workplace and assign tasks that map to your
team’s skills and abilities. You have to get everyone on the same page and delegate tasks the way you see fit.

Organizing requires a formal structure of authority and the direction and flow of such authority through
which work subdivisions are defined, arranged and coordinated so that each part
relates to the other part in a united and coherent manner so as to attain the prescribed objectives.

3. Staffing is where you have to assign tasks based on each team member’s knowledge, skills and abilities. You
have to be careful here because you may have to hire new talent for specific tasks that require specific technical
expertise. Assessing the needs of your employees in terms of incentives, training and development and
compensation are critical for the success of this step.

An effective manager will have the insight to evaluate the competency and efficiency of their
employees. This is to ensure that their assigned tasks match their skills. You have to adopt an empathetic
approach to connect with your employees and understand their strengths and weaknesses.

Staffing is the function of hiring and retaining a suitable work-force for the enterprise both at managerial
as well as non-managerial levels. It involves the process of recruiting, training, developing, compensating and
evaluating employees and maintaining this workforce with proper incentives and motivations. Since the human
element is the most vital factor in the process of management, it is important to recruit the right personnel.

4. Directing is concerned with supervising your team’s progress. In this step, you have to keep an open channel of
communication and get regular updates to stay on top of things. A great way to do this is by giving and receiving
feedback to address any problem areas and improve performance. This is where you have to act as a leader,
navigate conflict and motivate your employees to take initiative.

As a manager, you have to give each team member enough autonomy to help them stay motivated and
perform without constant supervision. Besides monitoring your team, you also have to keep your manager and
other stakeholders informed with progress reports. The entire organization should work like a well-oiled
machine to achieve your goals in a time-effective manner.

The directing function is concerned with leadership, communication, motivation, and supervision so that

the employees perform their activities in the most efficient manner possible, in order to achieve the desired
goals.

5. Controlling is where you have to measure the progress of each step established in the planning stage against
your organizational goals. This step requires you to coordinate with your employees to ensure that they’re
moving in the right direction and in the right manner.

Not only do you have to ensure that every step is going according to plan, but also watch out for
potential problems to take corrective measures. Make timely adjustments and modifications where necessary.
It’ll help you accomplish your goals faster within your timeframe and your budget. Take this opportunity to
cooperate with everyone on your team.

The function of control consists of those activities that are undertaken to ensure that the events do not
deviate from the pre-arranged plans. The activities consist of establishing standards for work performance,
measuring performance and comparing it to these set standards and taking corrective actions as and when
needed, to correct any deviations.

6. Decision Making. This refers to the process of making a choice from among two or more alternatives and is
involved in all of the aforementioned functions of management. However, it is often considered as a function of
management. The decision-making process involves the following:

 Definition of the problem

 Analysis of facts
 Development of alternative solutions
 Evaluation of the different alternatives
 Choosing the best alternatives

The decisions made by the management vary depending on the organizational level at which the same is
being made. Top management is concerned with the formulation of the basic organization’s objectives and
major organization’s policies. Example are the determination of whether the organization should concentrate on
the use of local materials or both local and imported materials. Should the company cater to the lower income
group or to middle class? When should expansion or contraction be undertaken?
 The lower-level management, in consonance with the general objectives and policies, must set up the
objectives of each division, department or section and formulate its policies. Example are those on sales and
collection campaigns, recruitment and training of employees, short-term investment of funds and production
scheduling and routing.

In making decisions, management considers all relevant factors, quantitative and qualitative. Although
quantitative factors can be stated in units of measure while qualitative cannot be so stated, the latter are
sometimes given more weight than the former.

Accounting and Its Functions

Accounting has been defined as “a service activity. Its function is to provide quantitative information primarily
financial in nature, about economic entities that is intended to be useful in making economic decisions”. (SFAS No. 1)

Accounting is the system of recording and keeping track of financial transactions in a business and summarizing
this information in reports. These reports provide information to people who are interested in knowing about the
financial aspects of a business. The information guides business managers, investors, and creditors in planning and
decision making. In fact, accounting is often referred to as “the language of business” because business people
communicate, evaluate performance, and determine value using dollars and amounts generated by the accounting
process.

Financial accounting provides financial information primarily for external use. By reporting on the financial
activities of the organization, financial accounting generates information needed by investors and creditors.

Most managerial decisions require more detailed information than what is provided by external financial
reports. For instance, in their external financial statements, large corporations such as General Electric Company show
single amounts on their balance sheets for inventory. However, managers need more detailed information about the
cost of each of several hundred products.

In as much as we all have to make decisions in our individual ventures and to the organization we belong, it is
imperative for us to develop proficiency in making use of accounting information in the decision-making process.

Management Accounting Defined

Management Accounting as defined by the AAA Committee on Management Accounting, is an area of

accounting concerned with the application of appropriate techniques and concept in processing historical and projected
economic data of an entity to assist management in setting up reasonable economic objectives and in making rational
decisions towards the attainment of these objectives. It is a service activity or staff function concerned with assisting
management by providing relevant accounting information to serve as the basis in decision making. Because of the wide
scope of management accounting and its dynamic nature, anybody desirous of being successful thereat must have an
adequate knowledge of management, economics, marketing, statistics, business law and the social sciences to enable
him to identify and foresee future problems thereby making him more perceptive in determining the needs of the
management.

Simply stated, Managerial accounting helps managers make good decisions. Managerial accounting provides
information about the cost of goods and services, whether a product is profitable, and whether to invest in a new
business venture and how to budget. It compares actual performance to planned performance and facilitates many
other important decisions critical to the success of organizations.

Management accounting is a specialized branch of accounting which helps management in decision making by
supplying relevant accounting information. This is an accounting branch which records various financial and statistical
data and presents this data in form of reports to internal management for better decision making.

Nature of Management Accounting

1. Provides Accounting Information. Management accounting primarily serves the purpose of supplying
accounting information to the management team. It provides all relevant and true information from different
sources like cost and financial accounting which helps managers in framing policies.

2. Technique Of Selective Nature. Management accounting records and communicates only the most relevant
information to managers. It selects that data and information from various sources which is more useful to
management for their decision making.

3. Concerned With Future. It is a type of accounting that helps in deciding the future course of action.
Management accounting enables managers in the forecasting of future events by providing all relevant
information that is used for analysis purposes. 
 4. Cause And Effect Analysis. Management accounting properly analyses every element of balance sheet and profit
and loss account. It studies the cause and effect of various facts and figures. In case there are losses then the
reasons for incurring such losses are found. Management accounting studies and compares different variables
influencing the amount of profit like sales, capital employed and expenditure.

5. No Fixed Conventions. There are no fixed norms and rules for management accounting, unlike financial
accounting. Management accounting tools or techniques differ from organization to organization. It does not
have any prescribed format for providing information. Management accounting supplies information to
managers in a way in which it is more beneficial for them to take decisions.

6. Provides Data and Not Decisions. Management accounting only provide information to managers but not a
decision. It informs the management about various facts and figures by supplying all relevant data to them. Such
data is analyzed by managers for taking various decisions.

Scope of Managerial Accounting

The main purpose of management accounting is to utilize the accounting information in solving the business
problems and taking scientific decisions. Moreover, the scope of management accounting is very wide. Therefore, it is
very difficult of pinpoint the exact scope of management accounting. However, the scope of management accounting is
listed below.

1. Cost Accounting is the most important accounting technique or it is also considered as the pedestal factor in
management accounting as it provides cost analysis tools for a business like the marginal cost, operational cost,
inventory costing, budget control, etc. which is required by the business management for drafting and outlining
the business needs.

Cost accounting helps to determine the overall budget for any business and also provides different was
to estimate and calculate the overall cost of providing the service to the customer. Cost accounting is extremely
helpful to the business analyst or the business executives as any activity of the business depends on the cost
involved.

2. Financial statements play an important role in financial accounting and they are prepared regularly at the end of
every financial year. Financial statements include the balance sheet of the company and total profit or loss
earned by the business or the company in the current financial year.

Financial accounting is very important for the financial forecasting of the organization as it gives the
overall financial information incurred during the current fiscal year. Financial accounting is also important in
terms that it helps the management to operate effectively and to implement coordination among the business
processes to execute business planning.

3. Budgeting and Forecasting. Are also included under the scope of management accounting which comprises of
budget control and business forecasting trends. The budget control system is based on a financial basis and the
performance of the business. Budget control helps to identify and analyze the reasons and weak areas that tend
to slow down the coordination and degrade the business performance.

Business forecasting is one of the important functions of management accounting as it gives the vision
of the business from the stakeholder’s point of view. Business budget and forecasting define the goals and
future plans of the business and the possible set of outcomes due to the actions performed which helps to
prepare the business for any circumstances.

4. Inflation Accounting. Inflation analysis is very important in business and it is defined as the rapid change in the
financial results during the changes in the market prices. Inflation accounting constitutes inflation analysis tools
which help to identify the causes which result in inflation and helps to eradicate them for better performance.

5. Financial Statement Analysis. As already mentioned in the financial accounting that the financial statements are
prepared at the end of every financial year to study and analyze the financial growth of the business. The
financial statements give insights into the business and help the business to grow by interpretations and
conclusions drawn from the financial statements. Thus it can be concluded that the scope management
accounting analyses the business data and interprets it effectively into understandable form effective business
planning and decision making so that the profit can be maximized and resources can be fully utilized.

6. Revaluation Accounting. This type of accounting system is ensuring that the capital is maintained intact in real
terms. By keeping this fact in mind, correct amount of profit is calculated and used for managerial decision
making.
 7. Inventory Control refers to exercising control over the utilization of raw materials, processing of work in
progress and disposal of finished goods for a specific period.

8. Reporting/Management Reporting. Reporting is crucial for any business management. Fetching reports timely
is extremely important to the management of business growth and resources. The timely report helps the
management in effective decision making and keeps the management ware of the operations going on. The data
and reports are present to the management in the form of graphs, charts, and presentations which are easy to
understand.

Is divided into two types. They are interim reporting and external reporting. Interim reporting is
supplying information to the top management. External reporting is supplying information to outsiders i.e.
shareholders, banks and financial institutions.

Interim reporting deals with the submission of financial results by means of weekly, fortnightly, monthly,
quarterly or half yearly accounts or statements to the top management.

9. Taxation. It includes the computation of corporate income tax in accordance with the tax laws, filing of returns
and making tax payments.

10. Methods and Procedures Design and Installation. Management accounting is relating to the most efficient and
economic system of accounting suitable to any size and type of undertaking. Moreover, it employs best use of
mechanical and electronic devices.

11. Internal Audit is conducted by the business organization with the help of paid employee who has thorough
accounting knowledge. All the relevant records are maintained under the management accounting system so
that the internal audit is conducted in an effective manner.

12. Financial Management. Is the management and planning of the financial resources of the business. Raising
funds and using the funds wisely is very important for effective financial management in the business. The
objective of considering financial management as scope of management accounting is to maximize the business
profit by using the fund efficiently. Finance was and finance is the most important aspect of any business which
flows like blood and without efficient financial management, a business cannot run.

13. The Interpretation of Data is defined as the translation of business data into facts and figures which can be
easily understood by the business management. The work interpretation is as important as financial statements
for the business as it helps to avoid any wrong conclusion about the business data. If the data is not understood
and interpreted correctly it can lead to disaster for a business in the market. The data for the current year is
interpreted and also compared with the previous data for understanding the growth of the business.

Role of Management Accounting in the Performance of Managerial Functions

Management accounting by its nature facilitates the performance of management functions:

1. Management accounting assists in the planning function of the management by providing the latter with
quantitative information derived from historical data which serve as the basis in making projections. These
projections are the primary content of the feasibility studies and budget and are utilized in profit making.

2. Performance of the organizing function is facilitated by making recommendations on division and assignment of
functions for more effective internal control

3. So that management may carry its directing function more effectively, management accounting provides it with
progress report on operation/projects to enable management to conduct operations as planned. Through
progress report, the different levels of management are made aware of the accomplishments and cost incurred
to-date on on-going projects or activities or by each organizational segment. Examples are those on sales for
each project, collection campaigns, building under-construction and departmental expenses.

4. Accounting assists management in its controlling function by providing the latter with analytical reports on
variances between the budgets and standards and the actual results of operation. The differences are analyzed
and the possible causes are determined to assist management in determining responsibility there from and in
adopting corrective measures.

Difference Between Financial Accounting and Managerial Accounting

Difference Financial Accounting Managerial Accounting

Users of Reports External Users: Shareholders, creditors, Internal Users: managers, officers and
 regulators and etc. other employees
Types of Reports Financial statements: balance sheet, income Internal Reports: job cost sheet, cost of
statement, statement of cash flows goods manufactured, production cost
reports
Frequency of Quarterly, annually As frequently as needed (reports could be
Reports provided to cover any specific period such
as a day, month, week or month).
Purpose of Reports Helps external users make decisions, credit Assist internal users in planning and control
terms, investments and other decisions decision-making process
Focus of Reports Pertains to the company as a whole; Pertains to departments, sections of the
Uses GAAP structure; business;
Compose from a multitude or combination of Very detained reporting
other more individual data No GAAP constraints
Nature of Reports Monetary, reports tend to be accumulated, Non-Monetary;
concise, and generalized; Reports are highly detailed, technical,
Information is simultaneously more transparent specific, and often experimental. Firms are
and less revealing; always looking for a competitive
Reports to be maintained with precision so that advantage, so they examine a multitude of
their accuracy is not in question; information that could seem pedantic or
Reports are predictively valuable and historically confusing to outside parties;
factual to help those wishing to invest or get Works with estimations and hardly on
involved with the organization to make better precise, verifiable or proven details or
financial decisions; and facts; and
Largely looks at reports particularly to show Specifically deals with confidential material
company's profitability and efficiency. and exclusively for a company's top
management to make critical decision; and
Offers reports on areas of weaknesses and
problems and how they should be fixed to
the concerned management.
Verification of Audited by CPA No independent audit
Reports
Time Orientation History oriented for it summarizes results of Future oriented and the emphasis is the
operation and their effects on financial condition projected data
and cash flows
Existence Mandatory for business entities as they are Optional for its existence and itd functions
required to keep books of accounts and issue depends upon the management of a
financial statements company

Relevant Accounting Information

Relevance in accounting means the information we get from the accounting system will help the end-users to
make important decisions. End users can be either internal or external stakeholders. Internal stakeholders include
managers, employees, and business owners. By external stakeholders, we mean investors, lenders, etc. Therefore,
relevance in accounting indicates the capacity to influence the end-users of the financial statement in their decision-
making process. However, relevance information is relative. What is relevant of one kind of problem may not be
relevant to another.

A piece of information is relevant if it provides an actionable insight or can make a difference in the decision
making of the end-user. In accounting, this relevant information may be useful for both business managers or outsiders.
This information may be seen in the company’s financial statements or the investor presentation. For the information to
be relevant to users, it must provide details about past events and it should have the power to enable the users to
predict future scenarios so that users can take appropriate decisions. Also, relevant information can include some
adjustments which were missed in past reports, and by seeing these corrections or adjustments, the user can change his
decision. The third characteristic of relevant information is timeliness because out of date information will not be useful
for the end-user.

Social Responsibility of the Management Accountant

The social responsibility of management accountant emanates from the responsibility of every member of
society to contribute to the welfare of the community and protect it from adverse effects that the behavior of other
members may bring about. Some of these are pollution caused by industrialization, health hazard arising from harmful
ingredients and sub-standard living conditions of employees due to inadequate compensation.
 Although business establishment are profit oriented, their responsibility to society should not be overlooked in
their economic endeavor because the well-being of the community contributes to the continued existence of economic
entities. Social awareness maybe manifested by the adoption of pollution control program, fair employment practices,
safety of products and energy conservation programs.

Social responsibility of the management accountant arises from his proximity to management and the fact that
the latter relies on him for financial information before making decisions. He has the responsibility to make management
aware of its responsibility to the society by encouraging the latter to undertake socially desirable activities geared
towards the social well-being of the community. In analyzing different alternatives available to management, the
management accountant should bring to the attention of management the impact of each on society rather than guided
solely by profit motive.

Estimated cost should include the cost of the projects or programs geared to counteract the adverse effect of
industrialization rather than pass them on to the public. In case management is considering the adoption of expansion
program, the management accountant may include in his analysis the impact of such an expansion on the economy of
the community. Estimates of cost should include provisions for the maintenance of ecological balance, fair
compensation to employees’ fringe benefits and safety measures. Management should be made aware that these costs
are part of cost of operations and that they should not be passed on to the government or to other members of the
society.

When faced with the problem of whether the company must temporarily close shop or not, management must
consider the human resources as a factor for a shutdown for a contraction has chain effects in a community. Employee’s
welfare contributes a lot to the image and the goodwill it brings about the general acceptance of its products.

The Finance Function in Business

Finance may be defined as the art and science of managing money. Its function is to the find funds and their
effective utilization in business concerns. Broadly, finance is defined as the management of money that includes
activities such as investing, borrowing, lending, budgeting, saving, and forecasting.

The finance function refers to practices and activities directed to manage business finances. The functions are
oriented toward acquiring and managing financial resources to generate profit. The financial resources and information
optimized by these functions contribute to the productivity of other business functions, planning, and decision-making
activities.

The Chief Financial Officer

The Chief Financial Officer (CFO) is an officer of a company or organization that is assigned the primary
responsibility for managing the company's finances, including financial planning, management of financial risks, record-
keeping, and financial reporting. In some sectors, the CFO is also responsible for analysis of data. His title depends upon
the size and the nature of the organization. In a small business, he may be the owner or the Chief Accountant. In a bigger
organization, he may be the Comptroller (or Controller or the Treasurer). In much bigger organization, he may be the
Vice President for Finance.

Controllership

Because of the work load of an accountant focusing on accounting works and supervising his people,
management often appoints an officer who is made responsible for the control function of accounting in the
organization – the Controller. The Controller is the highest accounting executive in an organization. Controllership,
therefore, is the function of business management responsible for financial and management accounting, taxes, and the
related areas of auditing and internal control.

Functions of the Controller

1. Planning for Control. This function refers to the establishment, coordination and maintenance of an integral
plan for the control of expense budget, operations. Such a plan would provide to the extent required in
business, sales forecast, expense budget, cost standards, profit plans and programs for capital investment and
financing, together with the necessary procedure to effectuate the plan.

2. Reporting and Interpreting Result of Operation and System Installation. The controller reports and interpret
the results of operations to all level of management and to owners of the business after measuring performance
against approved operating plans and standards. This function includes the formulation of accounting policy, the
design, installation and maintenance of accounting and cost systems and the compilation of statistical records.
 3. Evaluating Company Objectives and Policies. The controller measure and reports on the validity of the
objectives of the business and on the effectiveness of its policies, organizational structure and procedures in
attaining these objectives. To perform these functions, the controller must control with all segments of
management responsible for policy or action concerning any phase of the operation of the business. This
function also elevates the position of the controller to top management.

4. Tax Administration and Reporting to Government Agencies. The controller supervises all matters related to
taxes and submit reports to government agencies as required.

5. Protection of Assets. The controller must provide protection for the assets of the business. This includes
adequate insurance coverage and the establishment and maintenance of adequate internal control and auditing.

6. Interpreting and Reporting on Effects of External Factors on the Business. The controller makes a continuous
appraisal of the social, political and economic factors and their effects on the attainment of the objectives of the
business.

Organizing the Controller’s Department/Sub-division of Controller’s Department

1. General Accounting. This refers to all accounting functions undertaken to be able to prepare periodic reports of
the financial operations of an enterprise and its financial conditions. It includes the following:

1.1 Bookkeeping. This refers to the recording of business transactions in a systematic and chronological order. It
involves the use of books of account.

1.2 Accounts Payable. This refers to controlling payables and involves posting to creditors’ subsidiary records
(accounts payable subsidiary ledger) and preparing/processing vouchers for the issuance of checks.

1.3 Accounts Receivable. This refers to controlling receivables by posting transactions with customers to
receivable subsidiary records and processing credit memoranda and refund vouchers.

1.4 Inventory Accounting. This refers to maintaining inventory records by posting transactions affecting
inventory items to stock cards.

1.5 Plant Accounting. This refers to maintaining plant, property and equipment records to keep track of the
acquisitions, interdepartmental transfer and disposals. This function enable the accounting department to
determine the accountability of each manager for fixed assets and compute the corresponding
depreciation/amortization charges.

2. Cost Accounting. Refers to the function concerned with costing products and services. Cost data are
accumulated and analyzed and subsequently used in setting selling prices. They also serve as the basis for other
management decisions.

3. Internal Audit. This refers to the function for seeing to it that the company’s policies are being observed,
accounting records are available and that financial resources are being safeguards. It involves observing flow of
goods and services, checking vouchers before they are paid, random testing of business forms and records and
the like

4. System and Procedures. This refers to the installation and review of accounting system to ensure that there are
checks and balances in the organization and that all business transactions can be reflected on the accounting
records and ultimately on the periodic reports.

5. Tax Planning and Government Reporting. This refers to:

 Awareness of tax measures and periodic reports required by government agencies

 Planning company’s operations and other transactions to minimize tax liabilities; and
 Submitting periodic reports required by government agencies promptly

6. Budget and Budgetary Control. This refers to the preparation of financial plan based on plan level or volume of
production/sales, periodic comparison between actual results of operation on one hand and budgeted figures
on the other hand, analysis of variance arrived at and preparation of financial reports showing comparison made
and variances arrived at for adoption of remedial measures.

7. Forward Planning. This involves awareness of changes in the external environment and the interplay between
political, social and economic factors and the possible effects thereof on company objectives and operations.

Controller Versus Treasurer

 From the above enumerated functions of controller, it maybe noted that he performs financial management
functions aside from purely accounting functions. This is the reason why he is thought of more as financial officer than as
the chief accounting executive. While it is true that the treasurer also performs financial management functions, it is
always advisable to have their functions clearly defined. A corporation employs a controller and a treasurer as a “check
and balance” arrangement.

CONTROLLER TREASURER
Planning for control which includes budgeting Determination of financial requirements and
procurement of funds
Reporting and interpreting results of operation and Cash management, banking, custody of funds and foreign
system installation exchange problems
Evaluation of objectives, policies and procedures and Investor relations
consulting with all segments of management regarding
the same
Tax administration and government reporting Corporate investments
Protection of assets Credit and collections
Economic appraisal (forward planning) Insurance
Employees’ benefits

The Controller’s and Treasurer’s Function

Controller Treasurer
Generally,

Takes care of internal finance function by maintaining the
company’s financial health through inspection activities
namely: accounting and auditing.
Controls the disbursement of money to assure
management that it is used honestly, efficiently and in
accordance with predetermined plans.
Takes care of custodial and external finance functions
Responsible for obtaining capital from external sources,
safekeeping and managing cash, valuables and property
of the management

In Small Company,
No controller Treasurer discharges also the function of the controller so
that to maintain a sort of check and balance in the
organization, cash management and property of the
property
In Big Company,

Numerous duties of the controller and the treasurer are expanded, resulting to both cannot participate in
general financial management. In this case a vice president for finance will be hired. The VP for finance will serve as
the buffer between the controller and the treasurer so that these two are now one position farther from the
president.

The VP for Finance

 Supervises and coordinates the work of the controller and the treasurer and participates in the financial
planning and formulation of general financial policies

 He performs functions related to the entire organization which is incidental to his being a part of the top
management such as formulation of corporate objectives and policies, organization development and public
relations

Staff Authority of Controller

Staff authority is limited to auxiliary and facilitating activities such as planning, recommending, advising and
assisting. On the other hand, line authority refers to command, act or decide on matters affecting others. He exercises
staff authority in relation to entire organization.

The Accountant (Chief Accountant)

The accountant is responsible for the general accounting function such as bookkeeping, control of accounts
receivable, accounts payable, inventory, plant, property and equipment and preparation of periodic financial
reports/statements as may be required by the departments. He interprets corporate accounting policies and
procedures, establishes objectives of accounting operations and advises the controller on accounting problems.

The Cost Accountant

The cost accountant is the person responsible for cost accounting functions in an enterprise. He is responsible
for establishment of cost standards and cost control.

The Internal Auditor

The internal auditor is a person responsible for internal auditing functions. He sees to it that prescribe company
policies and procedures are being observed, that its records are reliable and that it financial resources are being
safeguarded against improper use and disbursement disposal or storage. In accomplishing these, he

 Develops audit policies in collaboration with the chief accountant

 Establishes and appraises financial and operating procedures;
 Evaluate the system of internal control; and
 Direct activities of audit staff (such as surprise cash count, test checking of payroll, receivable ledger, inventory
stock cards and cost sheet and pre-auditing of disbursement audit

The External Auditor

The external auditor is the independent CPA, who in his professional capacity performs an objective examination
of the financial statement of his clients and makes a report of his examination with the expression of an expert and
independent opinion regarding the fairness of the financial statements.

Assignment Questions:

1. Who are the different parties interested in the results of operations of the business concern and for what
reasons(s) are they interested there in?

2. Why it is imperative for an organization, be it political, civic or business, to have a financial statement?

3. How does management accounting facilities the carrying out of management functions?