Chapter

1
SUMMARY
TABLE OF CONTENTS
• Summary
• Identify managers’ three primary responsibilities
• Distinguish financial accounting from managerial accounting
• Describe the roles and skills required of management
accountants within the organization
• Describe the role of the Institute of Management Accountants
(IMA) and apply its ethical standards
• Discuss the business trends and regulations affecting
management accounting
SUMMARY
• Regardless of your college major or intended career path, most of
you will become managers one day. A manager has responsibility
and control of selected parts of a company’s operations, or in some
cases, multiple aspects of a company.
• Only those of you that happen to stay at the ‘bottom’ of a company,
preferring never to get promoted, or never accept any responsibility
for some aspect of a business, will miss out on the management
opportunity.
• Fortunately, none of you will likely fall into this persona given that
you have taken the initiative to attend college. As you learned in
financial accounting, accounting is the language of business.
• As a manager, if you do not understand the language, you will not be
able to use it to make decisions. Understanding managerial
accounting will help you move up the ladder more quickly,
regardless of your chosen career path
SUMMARY
• How Can Managerial Accounting Help You?
• As an student in a college class, you likely want to how
your performance will be evaluated. Your expectations in
a business environment are similar. You want to know
what your boss will expect, i.e., how he or she measure
your performance. While you won’t be earning letter
grades in the business world, your performance will
ultimately translate into promotions, bonuses, raises,
reprimands, or perhaps a dreaded termination slip. The
more you know about accounting, the more quickly you
will advance in a company. Ultimately, accounting is the
language of business.
 SUMMARY
 Management accounting refers to accounting information developed for
managers within an organization. In other words, management accounting
is the process of identifying, measuring, accumulating, analyzing, preparing,
interpreting, and communicating information that helps managers fulfill
organizational objectives. This is the phase of accounting concerned with
providing information to managers for use in planning and controlling
operations and in decision making.

 Managerial accounting is concerned with providing information to

managers-that is people inside an organization who direct and control its
operations. In contrast, financial accounting is concerned with providing
information to stockholders, creditors, and others who are outside an
organization. Managerial accounting provides the essential data with which
organizations are actually run. Financial accounting provides the scorecard
by which a company’s past performance is judged.

 Because it is manager oriented, any study of managerial accounting must be

preceded by some understanding of what managers do, the information
managers need, and the general business environment.
Section 1
INTRODUCTION TO MANAGERIAL
ACCOUNTING
WHAT IS MANAGERIAL ACCOUNTING?
• Managerial accounting is often referred to as management accounting. The Institute
of Management Accountants describes management accounting as “a profession that
involves partnering in management decision-making, devising planning and
performance management systems, and providing expertise in financial reporting
and control to assist management in the formulation and implementation of an
organization’s strategy.”
• In short, managerial accounting supports the decision making process through
planning and controlling operations. Planning primarily occurs in the budgeting
process. Controlling occurs when managers compare actual performance with
budgeted amounts to identify differences and then act upon any differences that
appear to be significant.
MANAGERS’
RESPONSIBILITIES
Setting goals and
Planning
objectives

Decision Overseeing day-to-day

Directing
Making operations

Feedback used for

Improving continuous process
improvement

Evaluating results of
Controlling operations
PLANNING
From an accounting perspective,
planning is the communication of a
Setting goals and objectives
company’s goals. Because ultimately a and how to achieve them
company’s results are translated into
dollars, planning is achieved through the
budgeting process as a basis for
decisions made by managers.
Budgets are the financial plans of a Examples - Generate more
company. They identify the sources or sales via opening new stores.
inflows of economic resources, and the
uses or outflows of economic resources Reduce labor costs by
of a company. reducing store hours
Budgets identify the source from which
assets will be derived and how they will Budgets – the financial plan
be used. They ultimately create for inflows and outflow
benchmarks of profits, cash flows, and
the financial position that the company
expects to achieve.
DIRECTING
• While planning for the future, managers
have to oversee and supervise day-to- Overseeing company’s
day business undertakings.
• They have to delegate roles and day-to-day operations
responsibilities, guide the employees
on how to accomplish their chores,
motivate and inspire them until the
fulfillment of the tasks, and respond to
employees’ queries on how to pull off
their tasks. Example: Using
• Using a computerized accounting
system, managerial accountants take daily/weekly sales
into account and list all the assignments reports to adjust
and undertakings that must be realized.
• Some of these include running trial marketing strategies
balances and wrapping up accounting
processes every end of the month.
Example: Using
product cost reports to
adjust raw material
usage
IMPROVING
• Feedback is used by managers
to support continuous Feedback for
process improvement. continuous process
• Continuous process improvement
improvement is the
philosophy of continually
improving employees,
business processes and Example:
products.
• The objective of continuous Conduct meetings
process improvement is to and conferences for
eliminate the source of
problems in a process. In this day to day
way, the right products operations
(services) are delivered in the
right quantities at the right
time.
CONTROLLING
• Controlling keeps all business
activities on track and identifies
if the company’s objectives are
met.
• According to University of North
Florida, this can be achieved by
measuring performance,
comparing actual performance
with budgets, and taking action
when needed.
• In evaluating and assessing the
performance, managers have
different gauges
Evaluating results of
operations against plans and
making adjustments as
needed
Example: Comparing
budgeted sales with actual
sales to take corrective
actions
Example: Comparing
budgeted product costs
against actual product costs
to take corrective actions
DECISION MAKING
• Good decisions are derived from
tireless accession and
assessment of information. With
good decisions comes business
value.
• Managerial accounting supplies
the information necessary to
incite decision-making processes.
• Also, the management team
determines which among the
other possible choices or courses
of action will support the
company in effectively achieving
its objectives.
Management is continually
making decisions while it
plans, directs, and controls
operations
Price setting or product
offerings
Renovation of facilities
Operation openings or
closings
Section 2
DISTINGUISH FINANCIAL ACCOUNTING FROM MANAGERIAL
ACCOUNTING
MANAGERIAL VS. FINANCIAL
ACCOUNTING
• Managerial accounting and
financial accounting are two of
the most prominent branches of
accounting.
• They both deal with processing
information which is useful in
decision-making; however, they
have notable differences that
distinguish them from each
other.
• Managerial accounting processes
economic information to be
used by management in making
decisions.
• Financial accounting involves the
preparation of general-purpose
financial statements used by
various users in making informed
decisions.
 MANAGERIAL VS. FINANCIAL
16
ACCOUNTING

Issue Managerial Financial

Primary users Internal External
Plan, direct, control, Users make investing and
Purpose of information decide lending decisions
Primary accounting Internal reports useful to General purpose financial
product management statements
What is included? Defined by management Determined by GAAP
Internal & external Based on historical
Underlying basis of transactions, focus on transactions with external
information future parties
 MANAGERIAL VS. FINANCIAL
17
ACCOUNTING

Issue Managerial Financial

Data must be reliable and
Emphasis Data must be relevant objective
Business Unit Segments of the business Company as a whole
Depends on
Preparation management needs Annually & quarterly

Verification Internal audit External audit

Information SEC requires publicly traded
requirement No requirements cos. to issue audited fin. sts.
s
Impact on employee
behavior Careful consideration Adequacy of disclosure
Section 3
DESCRIBE ORGANIZATIONAL STRUCTURE AND THE ROLES AND SKILLS
REQUIRED OF MANAGEMENT ACCOUNTANTS WITHIN THE
ORGANIZATION
 ORGANIZATIONAL
19 STRUCTURE
Board of
Directors
Audit
Chief Executive Committee
Officer

Chief Operating Chief Financial

Officer Officer
Vice Presidents
of various
Treasurer Controller Internal Audit
operations
ORGANIZATIONAL
STRUCTURE
• A typical organizational structure for publicly held companies starts with the board of
directors, elected by the stockholders (owners) of the company to oversee the
company. Because the board meets only periodically, they hire a chief executive
officer (CEO) to manage the day to day operations.
• The CEO hires other executives to run various aspects of the organization, including
the chief operating officer (COO) and the chief financial officer (CFO). The COO is
responsible for the company’s operations, and the CFO is responsible for all of the
company’s financial concerns.
ORGANIZATIONAL
STRUCTURE
• The internal audit department reports to the CFO or CEO for day-to-
day administrative matters. This internal audit department also reports to
a subcommittee of the board of directors called the audit committee.
• The audit committee oversees the internal audit function as well as the annual
financial statement audit by independent CPAs.
• Both the internal audit department and the independent CPAS report to the audit
committee for one reason: to ensure management will not intimidate them or bias
their work.
The Department in a company can be viewed as
having either of the following:
• Line Department - is directly involved in producing
goods or services to the customers of the company

• Staff Department - provides services, assistance and

advice to the departments with line or other staff
responsibilities. A staff department has no direct
authority over a line department.
For example:

Service Industry Line Staff

Airline Crew, Baggage Information systems,
handling, gate staff accounting, HR
Hotel Housekeeping, Maintenance,
reception staff manager, grounds
Hospital Doctors, nurses, Admission, records,
caregivers billing
Banking Tellers, loan officers, Branch Manager,
trust officers, broker information system
Telecommunications Sales, customer Information system,
service, customer regional management,
installation staff network maintenance
CHANGING ROLES OF MANAGEMENT
ACCOUNTANTS
• Technology has changed the roles of
management accountants.
• They are still involved with the
traditional tasks of ensuring accurate Impact of technology
financial records, however,
computers have taken over the task
of performing routine mechanical Ensuring accurate
accounting tasks. financial records
• Freed from the routine mechanical
work, management accountants
spend more time planning, analyzing Planning, analyzing, and
interpreting accounting
and interpreting accounting data to
data
provide decision support.

Providing decision
support
REQUIRED SKILLS OF MANAGERIAL
ACCOUNTANTS
• Today’s management accountant
requires solid knowledge of both
financial and managerial Knowledge of Analytical skills
financial and (critical thinking)
accounting, analytical skills,
managerial
knowledge of how a business accounting
functions, the ability to work on a
team, and oral and written
communications skills. Knowledge of how
Ability to work on
a business
functions a team

Oral and written

communications
skills
 THE ROLES AND SKILLS REQUIRED OF
MANAGEMENT
ACCOUNTANTS
Video WITHIN
Time – “Why Markets THE
and Clients ORGANIZATION
Need Creative Accountants”
 “Dr. Stone explains how to be a creative
accountant while also being ethical”.
 Dr. Dan Stone is Gatton Endowed Chair at
the University of Kentucky, C.P.A., where he
holds a joint appointment in the Von Allmen
School of Accountancy and the School of
Management. Dr. Stone is Director of
Graduate Studies and Director of the PhD
program for the Von Allmen School of
Accountancy. He has published over 40
academic works, including articles, essays,
and poetry. His recent research investigates
online deception, dual-process models of the
effects of financial reward, and knowledge
sharing and motivation quality among
professionals.
 https://www.youtube.com/watch?v=Fsq
kwS88Rhg
Section 4
DESCRIBE THE ROLE OF THE INSTITUTE OF MANAGEMENT
ACCOUNTANTS (IMA) AND USE ITS ETHICAL STANDARDS TO MAKE
REASONABLE ETHICAL JUDGMENTS
Institute Of Management Accountants
(IMA)
www.imanet.org
• The Institute of Management
Accountants (IMA) is the professional
association for management
accountants. Certification Practice
• The goal of the IMA is to advance the (CMA) Development
management accounting profession
primarily through certification,
practice development, education
and networking. Education Networking
• The IMA issues two different
professional certifications: the
Certified Management Accountant
(CMA) and the Certified Financial
Manager (CFM). Public
Ethical Education
Standards
SUMMARY OF IMA ETHICAL
STANDARDS
• The IMA Statement of Ethical Maintain
Professional Practice requires professional
compliance with 4 ethical competence
standards: Competence,
Confidentiality, Integrity and
Credibility. Preserve
confidentiality of
• Failure to comply with the information
standards may result in
disciplinary action.
Uphold integrity

Perform duties
with credibility
ETHICAL
BEHAVIOR
• Why should we do anything, let alone
the right thing, if what we are being
asked to do (or what we are observing
others doing) is legal and unobservable?
• The simple answer to this question is:
values. An ethical dilemma occurs
when we find ourselves in a situation or
circumstance that conflicts with our
personal values.
• These values, which are cross-cultural
and universal include: honesty, respect,
responsibility, fairness, and
compassion.
• Examples of unethical behavior:-
allowing reimbursement of false
expense reports, manipulating income,
performing tasks not qualified to
perform.
ETHICAL BEHAVIOR
Steps to resolve ethical
dilemmas
• To resolve ethical dilemmas, the IMA
suggests that management accountants
• first follow their company’s established Follow company’s policies for
policies for reporting unethical behavior.
•
reporting unethical behavior
If not resolved in this way, discuss the
situation with the immediate
supervisor unless the supervisor is
involved in the unethical situation.
• If the immediate supervisor is involved Discuss with immediate
and is the CEO, notify the audit supervisor
committee or board of directors.
• Discuss the unethical situation with an
objective advisor such as an IMA ethics
counselor for clarification. Discuss with objective
• Consulting an attorney regarding legal advisor
obligations and rights is also advisable.

Consult an attorney
DISCUSS TRENDS IN THE BUSINESS
ENVIRONMENT
Video Time – “Why do we Hate Whistle-Blowers?”
 “Why do we hate whistle-blowers?” she
touches on the lessons learned from
whistle-blowers in some of the nation’s
most high-profile cases and make the
argument for why we need more
whistle-blowers”
 Kelly Richmond Pope, Associate
Professor in the School of Accountancy
and MIS at DePaul University in Chicago,
IL. My passion is white-collar crime. My
research has been published in such
journals as Behavioral Research in
Accounting, Auditing: A Journal of
Practice and Theory, Journal of Business
Ethics, The CPA Journal and Journal of
Accountancy.
 https://www.youtube.com/watch?v=J1O
oFvcTess
Section 5
DISCUSS TRENDS IN THE BUSINESS
ENVIRONMENT
CURRENT
TREND
• In the last century, North
American economies have
shifted away from manufacturing Competing in global
toward service companies, with marketplace
the latter comprising the largest
sector of the US economy and
employing 55% of the workforce.
• The costs of international trade Time-based
have plummeted over the past competition
decade, allowing foreign
companies to compete with
domestic firms. To compete in Advanced
this global market,
manufacturers have moved Information Systems
operations to other countries to
be closer to new markets and
less expensive labor.
E-Commerce
CURRENT
TREND
• Large companies are turning to more
advanced information systems:
enterprise resource planning (ERP) Just-in-Time
systems integrate all of a company’s Management
worldwide functions, departments
and data. Companies use the Internet
in everyday operations, such as Total Quality
budgeting, planning, selling and Management
customer service. This new “sales
clerk” can sell to thousands of
customers at once, 24 hours a day,
365 days a year without a break or ISO Certification
vacation.

Cost Benefit Analysis

CURRENT
TREND
• Just-in-Time Management reduces the
cost of holding inventory by only
beginning production when there is an Just-in-Time
order from a customer. This means that
raw materials are not stored before Management
production, and finished units are
shipped directly to the customer when
they are completed.
• In Total Quality Management (TQM) Total Quality
each business function examines its
own activities and works to improve Management
performance by continually setting
higher goals.
• The International Organization for
Standardization (ISO) has developed ISO Certification
international quality management
standards and guidelines. Earning this
certification provides competitive
advantage in the global marketplace.
• Cost Benefit Analysis weighs costs
against benefits of undertaking Cost Benefit Analysis
improvement initiatives.