Dr.

Syarifuddin
 Introduction:
CHAPTER
The Role,
History, and
Direction of
Management
Accounting
Objectives
Objectives

After
Afterstudying
studyingthis
this chapter,
chapter,you
youshould
shouldbe
beable to::
ableto

1. Discuss the need for management accounting

information.
2. Differentiate between management accounting
and financial accounting.
3. Provide a brief historical description of
management accounting.
4. Identify the current focus of management
accounting.
Continued
Continued
 Objectives
Objectives
5. Describe the role of management accountants in
an organization.
6. Explain the importance of ethical behavior for
managers and management accountants.
7. List three forms of certification available to
management accountants.
The managerial accounting system has three
broad objectives:
1. To provide information for costing out
services, products, and other objects of
interest to management.
2. To provide information for planning,
controlling, evaluating, and continuous
improvement.
3. To provide information for decision
making.
Management
Management Accounting
Accounting Information
Information
System
System
Collecting Special Reports
Measuring Product Costs
Storing Customer Costs
Analyzing Budgets
Reporting Performance Reports
Economic Managing Personal Communication
Events
Inputs Processes Outputs

Users
Management
Management Process
Process

The Management Process is defined by the

following activities:
Planning requires
Planning setting objectives
and identifying
Controlling methods to achieve
those objectives.
Decision Making
Management
Management Process
Process

The Management Process is defined by the

following activities: Controlling is
the managerial
Planning activity of
Controlling monitoring a
plan’s
Decision Making implementation
and taking
corrective action
as needed.
Management
Management Process
Process

The Management Process is defined by the

following activities:
Planning Control is
usually achieved
Controlling
with the use of
Decision Making feedback.
Management
Management Process
Process
Feedback
Feedbackisisinformation
informationthat
thatcan
canbe
beused
used
totoevaluate
evaluateororcorrect
correctthe
thesteps
stepsbeing
being
taken
takentotoimplement
implementaaplan.
plan.
Management
Management Process
Process

The Management Process is defined by the

following activities:
Planning Decision
making is
Controlling the process
of choosing
Decision Making among
competing
alternatives.
Differentiate Between
Management Accounting and
Financial Accounting
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

 Targeted
Targeted Users
Users

Management
accounting
focuses on
providing
information for
internal users.
Targeted
Targeted Users
Users

Financial
Financial
accounting
accounting focuses
focuses
on
on provided
provided
information
information for
for
ABC external
external users.
users.
Company
Annual
Report
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
Restrictions
Restrictions on
on Inputs
Inputs and
and Processes
Processes

Financial
Financialaccounting
Management
Management accounting
accounting reporting
accounting isisnot
reporting must
notsubject
must
subject totofollow
the the
therequirements
follow the
requirements
of
ofgenerally
generallyaccepted
accounting
accounting acceptedaccounting
procedures set
setby
accounting
procedures principles.
bythe SEC
SECand
principles.
the andthe
theFASB.
FASB.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
Types of Information

For
The
The management
Forrestrictions
management
restrictions accounting,
imposed on
accounting,
imposed the
thefinancial
onfinancial
financial or
accounting
financial ortend
accounting tend
nonfinancial
to produce
nonfinancial
to information
produceobjective
objectiveand may
maybe
andverifiable
informationverifiable much
muchmore
financial
befinancialmore
information.
subjective
subjectiveininnature.
information. nature.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
 Time
Time Orientation
Orientation

Management accounting
strongly emphasizes
providing information
about future events.
 Time
Time Orientation
Orientation

Financial accounting records and

reports events that have already
happened.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation and 5. Information about the
decisions based on very firm as a whole
detail information
Degree
Degree of
of Aggregation
Aggregation

Management
accounting provides
measures and internal
reports used the
evaluate performance of
entities, product lines,
departments, and
managers.
Degree
Degree of
of Aggregation
Aggregation

Financial accounting focuses

on overall firm performance.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules
3. Financial and
nonfinancial informa-
tion; subjective
information possible
4. Emphasis on the future
5. Internal evaluation and
decisions based on very
detail information
6. Broad, multidisciplinary
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
5. Information about the
firm as a whole
6. More self-contained
Breadth
Breadth

ItIt
Management
includes
includesaspects
Management accounting
aspectsofofmanagerial
accountingisismuch
mucheconomics,
managerial broader
broaderthan
economics, industrial
than financial
industrial
financial
accounting.
engineering,
accounting. and
engineering, andmanagement
managementscience.
science.
 HISTORICAL DESCRIPTION OF
MANAGEMENT ACCOUNTING

1880 - 1925 Most of the product-costing and internal

accounting procedures used in this century
were developed
1925 Emphasis of inventory costing for external
reporting
1950s/60s Effort to improve the managerial usefulness
of traditional cost systems
1980s/90s Significant efforts have been made to
radically change the nature and practice of
management accounting
Current
Current Focus
Focus of
of Management
Management Accounting
Accounting

Activity-Based
Activity-Based Management
Management

Activity-based management is a system

wide, integrated approach that focuses
management’s attention on activities with the
objective of improving customer value and
the resulting profit.
Current
Current Focus
Focus of
of Management
Management Accounting
Accounting

Customer
CustomerOrientation
Orientation

Customer value is the difference between

what the customer receives (customer
satisfaction) and what the customer gives up
(customer sacrifice).

What is received is called the total product.

Current
Current Focus
Focus of
of Management
Management Accounting
Accounting

Strategic
Strategic Positioning
Positioning

Strategic cost management is the use of cost data

to develop and identify superior strategies that
will produce a sustainable competitive advantage.
Strategies:
1) Cost leadership
2) Superior products through differentiation
Current
Current Focus
Focus of
of Management
Management Accounting
Accounting

Value-Chain
Value-ChainFramework
Framework

The internal value chain is the set of activities

required to design, develop, produce, market,
and deliver products and services to customers.

The industrial value chain is the linked set of

value-creating activities from basic raw
materials to the disposal to the final products by
end-use customers.
 Planting and
Value Chain: Cultivating
Apple Industry
Harvesting Firm
B
Distribution of
Apples
Firm
A Applesauce
Production Firm
C
Product Disposal Applesauce
Distribution

End-Use Customer Supermarkets

Managing
Managingthethevalue
valuechain
chainmeans
meansthat
thataamanagement
management
accountant
accountantmust
mustunderstand
understandmany
manyfunctions
functionsofofthe
the
business,
business,from
frommanufacturing
manufacturingtotomarketing.
marketing.
This
Thisemphasis
emphasison
onquality
qualityhas
hascreated
createdaademand
demandforfor
management
The accounting systems that provide
providefinancial
Thephilosophy
management ofoftotal
accounting
philosophy quality
systems
total thatmanagement
quality isistoto
financial
management
and
andnonfinancial
manufactureinformation
perfect about
aboutquality.
nonfinancial perfectproducts.
manufactureinformationproducts. quality.
The
The role
role of
of
management
management
accountants
accountants in
in anan
organization
organization isis one
one of
of
support.
support.
 PARTIAL ORGANIZATION CHART,
MANUFACTURING COMPANY
President

Line Function Staff Function

Production Vice Financial Vice

President President

Production
Supervisor Controller Treasurer

Machining Assembly Internal

Foreman Foreman Audit Cost Financial Systems Tax
 Ethical
Ethical
Behavior
Behavior
Michael Josephson’s* Ten Ethical Values:
Honesty Caring for others
Integrity Respect for others
Promise keeping Responsible
Fidelity citizenship

Fairness Pursuit of excellence

Accountability
*Michael Josephson, “Teaching Ethical Decision Making and Principled
Reasoning”
 PROFESSIONAL
PROFESSIONAL CERTIFICATIONS
CERTIFICATIONS

CMA: One of the main purposes of the CMA was to establish

management accounting as a recognized, professional
discipline, separate from the profession of public
accounting.
CPA: The responsibility of a CPA is to provide assurance
concerning the reliability of financial statements.
CIA: The focus of the CIA is to recognize competency in
internal auditing rather than external auditing as with
the CPA.
 The
The CMA
CMA

Four areas emphasized on the exam:

1) Economics, finance, and management
2) Financial accounting and reporting
3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems
Chapter One

The
The End
End