CH 1.

Managerial Acounting, the Business

Organization, and Professional Ethics
INTRODUCTION TO
MANAGEMENT ACCOUNTING
16TH EDITION
CHARLES T. HORNGREN, ET AL

Management Accounting Definition

Management Accounting is the branch of accounting

that produces information for managers within an

organization.
It is the process of identifying, measuring,
accumulating, analyzing, preparing, interpreting,
and communicating information that helps
managers fulfill organizational objectives.

Financial Accounting Definition

Financial Accounting is the branch of accounting

that develops information for external decision

makers such as stockholders, suppliers, banks, and
government regulatory agencies.

Distinction Between Management

and Financial Accounting

Roles of Accounting Information

Accounting System is a formal

mechanism for gathering, organizing, and
communicating information about an
organizations activities.

Accounting and Decision Making

Decision Making: choosing among alternative courses
of action designed to achieve some objectives.
Users of Accounting Information:
Internal Managers who use the information for dayto-day operating decisions and for long-range
strategic decisions.
External parties, such as investors and government
authorities, who use the information for making
decisions about the company.

Roles of Accounting Information

It can help managers to answer three types of
questions:
1. Scorecard questions. So that data are
accumulated and classified.
2. Attention-directing questions, focused on
operating, imperfections, inefficiencies, and
opportunities.
3. Problem-solving questions, involves a special
study to assess possible courses of action and
recommends the best course to follow.

Essential Management Process

Planning

What objectives does the organization want to achieve?

When and how the organization achieve these objectives?

Controlling

Refers to implementing plans and using feedback to evaluate

the attainment of objectives.

Management by Exception
Concentrating more on areas that deviate from the plan and
less on areas that conform with plans and are presumed to be
running smoothy.
Budget

A quantitative expression of a plan of action and an aid to coordinating

and implementing the plan.

Performance Reports

Feedback provided by comparing results with plans and by

highlighting variances.

Variance

Deviations from plans.

Accounting Framework (ex. Starbucks Store)

Performance Report (ex. Mayfair Starbucks Store)

Influences on Accounting System

Accounting Standard
Internal Auditors
Management Audit
Sarbanes-Oxley Act

Cost-Benefit and Behavioral Considerations

Two important ideas when designing accounting
system:
The cost benefit balance
Weighting estimated costs against probable benefits, the primary
consideration in choosing among accounting systems and
methods.
Behavioral implications
The accounting systems effect on the behavior, specifically the
decisions, of managers.

Panning and Control for PLC and the Value Chain

Product Life Cycle (PLC) refers to the various

stages through which a product passes, from

conception and development to introduction into the
market to maturation and, finally, withdrawal from
the market.

Panning and Control for PLC and the Value Chain

Value Chain is the set of business functions or

activities that add value to the products or services of

an organization.

Accountings Position in the Organization

Work activities of management accountants:
Collecting and compiling information
Preparing standardized reports
Interpreting and analyzing information
Being involved in decision making
Positions:
Line managers
Directly involved with making and selling the organizations products or
services.
Staff Managers
Advisory to the line managers. They have no authority over line managers, but
they support the line managers by providing information and advice.

Partial Organization Chart of A Manufacturing Company

Controller and Treasurer Functions

Chief Financial Officer (CFO)
The top executive who deals with all finance and accounting
issues in an organization. The duty is oversees the accounting
function.

Roles in Financial Functions:

Treasurer
The executive who is concerned mainly with the companys
financial matters, such as raising and managing cash.
Controller
The accounting officer of an organization who deals mainly with
operating matters, such as aiding management decision making.

Controller and Treasurer Functions

Controllership

Planning for control

Reporting and Interpreting
Evaluating and Consulting
Tax Administration
Government Reporting
Protection of Assets
Economic Appraisal

Treasurership

Provision of Capital
Investor Relations
Short-Term Financing
Banking and Custody
Credit Management and
Cash Collections
Investments
Risk Management
(Insuramce)

Adaptation to Change
Business trends recently:
1. Shift from a manufacturing-based to a servicebased economy
2. Global competition
3. Advances in technology
4. Changes in business process management

Service Sector
Characteristics:
Labor is a major component of costs
2. Output is usually difficult to measure
3. Service Organizations cannot store their major
inputs and outputs
1.

Advances in Technology
e-commerce
B2C (business to consumers)
B2B (business to business)
ERP (Enterprise Resource Planning) System
XBRL eXtensible Business Reporting Language

Changes in Business Process Management

Business Process Reengineering
Computer-Aided Design (CAD)
Computer-Aided Manufacturing (CAM)
Computer-Integrated Manufacturing (CIM) System
Just-In-Time (JIT) Philosophy
Lean Manufacturing
Total Quality Management (TQM)
Six Sigma

Importance of Ethics

Practices need integrity, since the

information must correct and
accountable.

Ethical Conduct for Professional Accountants

Ethic

deals with human conduct in relation to what is morally good

and bad, right and wrong.
It is the application of values to decision making.
In the values, include honesty, fairness, responsibility, respect,
and compassion.

Standards of Ethical Conduct

Needs CPAs and CMAs
IMA Statement of Ethical Professional Practices
A code of conduct developed by the Institute of Management
Accountants, including competence, confidentiality, integrity,
and credibility.
Code of Conduct

Ethical Dillemas
To maintain high ethical standards, accountants and
others need to recognize situations that create
pressures for unethical behavior.
Some usual problems in Financial Executive:
1. Emphasize on short-term results
2. Ignoring the small stuff
3. Economic cycles (ex. Enron case)
4. Accounting rules (become more complex and less
intuitive, making abuse of the rules harder to
identify)