Management Accounting Overview CHAPTER ONE 1

OBJECTIVES 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. 2

OBJECTIVES..cont 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. 3

4 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. The managerial accounting Information system has three broad objectives:

Outputs Processes Inputs Economic Events Collecting Measuring Storing Analyzing Reporting Managing Special Reports Product Costs Customer Costs Budgets Performance Reports Personal Communication Users Management Accounting Information System 5

The Management Process is defined by the following activities: Planning Controlling Decision Making Planning requires setting objectives and identifying methods to achieve those objectives. Management Process 6

The Management Process is defined by the following activities: Controlling is the managerial activity of monitoring a plan’s implementation and taking corrective action as needed. Planning Controlling Decision Making Management Process 7

8 The Management Process is defined by the following activities: Planning Controlling Decision Making Control is usually achieved with the use of feedback. Management Process

Feedback is information that can be used to evaluate or correct the steps being taken to implement a plan. Management Process 9

The Management Process is defined by the following activities: Decision making is the process of choosing among competing alternatives. Planning Controlling Decision Making Management Process 10

Planning and Control Cycle 11 Decision Making Formulating long- and short-term plans (Planning) Measuring performance (Controlling) Implementing plans (Directing and Motivating) Comparing actual to planned performance (Controlling) Begin

Major Differences Between Financial & Managerial Accounting Managerial AccountingFinancial Accounting PurposeDecision making Communicate financial position to outsiders Primary UsersInternal managersExternal users Focus/EmphasisFuture-orientedPast-oriented Rules Do not have to follow GAAP; cost vs. benefit GAAP compliant; CPA audited Time Span Ultra current to very long time horizons Historical monthly, quarterly reports Behavioral Issues Designed to influence employee behavior Indirect effects on employee behavior 12

Historical Description of Management Accounting Most of the product-costing and internal accounting procedures used in this century were developed 1925Emphasis of inventory costing for external reporting 1950s/60sEffort to improve the managerial usefulness of traditional cost systems 1980s/90sSignificant efforts have been made to radically change the nature and practice of management accounting

Current Focus of Management Accounting Activity-Based 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. 14

Current Focus of Management Accounting Customer 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. 15

Current Focus of Management Accounting Strategic 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 16

Current Focus of Management Accounting Value-Chain 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. 17

Management Accounting and Value Creating value is an important part of planning and implementing strategy Value is the usefulness a customer gains from a company’s product or service 18

The Value Chain Illustrated 19

A Value Chain Implementation. 20

The role of management accountants in an organization is one of support. 21

A Typical Organizational Structure and the Management Accountant

Accounting and Ethical Conduct 23 Benefits of Ethical Behavior Can create customer and employee loyalty Avoid litigation costs Standards of Ethical Conduct for Management Accountants Competence Confidentiality Integrity Objectivity

Competence Follow applicable laws, regulations and standards. Maintain professional competence. Prepare complete and clear reports after appropriate analysis. 24 Standards of Ethical Conduct for Management Accountants -IMA

IMA Guidelines for Ethical Behavior 25 Confidentiality Do not disclose confidential information unless legally obligated to do so. Ensure that subordinates do not disclose confidential information. Do not use confidential information for personal advantage.

Avoid conflicts of interest and advise others of potential conflicts. Recognize and communicate personal and professional limitations. Do not subvert organization’s legitimate objectives. Integrity IMA Guidelines for Ethical Behavior 26

Integrity Avoid activities that could affect your ability to perform duties. Communicate unfavorable as well as favorable information. Refrain from activities that could discredit the profession. Refuse gifts or favors that might influence behavior. IMA Guidelines for Ethical Behavior 27

Communicate information fairly and objectively. Disclose all information that might be useful to management. Objectivity IMA Guidelines for Ethical Behavior 28

Professional Certifications 29 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 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 30