1 -1 An electronic presentation by Douglas Cloud Pepperdine University

1 -2 Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada.

1 -3 Introduction: The Role, History, and Direction of Management Accounting CHAPTER

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. ObjectivesObjectives After studying this chapter, you should be able to: ContinuedContinued

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. ObjectivesObjectives

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 system has three broad objectives:

1 -7 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

1 -8 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

1 -9 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

1 -10 The Management Process is defined by the following activities: Planning Controlling Decision Making Control is usually achieved with the use of feedback. Management Process

1 -11 Feedback is information that can be used to evaluate or correct the steps being taken to implement a plan. Management Process

1 -12 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

1 -13 Differentiate Between Management Accounting and Financial Accounting

1 -14 Management Accounting Financial Accounting 1.Internally focused 1.Externally focused

1 -15 Management accounting focuses on providing information for internal users. Targeted Users

1 -16 Financial accounting focuses on provided information for external users. Targeted Users

1 -17 Management Accounting Financial Accounting 1.Internally focused 1.Externally focused 2.No mandatory rules 2.Must follow externally imposed rules

1 -18 Restrictions on Inputs and Processes Management accounting is not subject to the requirements of generally accepted accounting principles. Financial accounting reporting must follow the accounting procedures set by the SEC and the FASB.

1 -19 Management Accounting Financial Accounting 1.Internally focused 1.Externally focused 2.No mandatory rules 2.Must follow externally imposed rules 3.Financial and nonfinancial informa- tion; subjective information possible 3.Objective financial information

1 -20 Types of Information The restrictions imposed on financial accounting tend to produce objective and verifiable financial information. For management accounting, the financial or nonfinancial information may be much more subjective in nature.

1 -21 Management Accounting Financial Accounting 1.Internally focused 1.Externally focused 2.No mandatory rules 2.Must follow externally imposed rules 3.Financial and nonfinancial informa- tion; subjective information possible 3.Objective financial information 4.Emphasis on the future 4.Historical orientation

1 -22 Time Orientation Management accounting strongly emphasizes providing information about future events.

1 -23 Financial accounting records and reports events that have already happened. Time Orientation

1 -24 Management Accounting Financial Accounting 1.Internally focused 1.Externally focused 2.No mandatory rules 2.Must follow externally imposed rules 3.Financial and nonfinancial informa- tion; subjective information possible 3.Objective financial information 4.Emphasis on the future 4.Historical orientation 5.Internal evaluation and decisions based on very detail information 5.Information about the firm as a whole

1 -25 Management accounting provides measures and internal reports used the evaluate performance of entities, product lines, departments, and managers. Degree of Aggregation

1 -26 Financial accounting focuses on overall firm performance. Degree of Aggregation

1 -27 Management Accounting Financial Accounting 1.Internally focused 1.Externally focused 2.No mandatory rules 2.Must follow externally imposed rules 3.Financial and nonfinancial informa- tion; subjective information possible 3.Objective financial information 4.Emphasis on the future 4.Historical orientation 5.Internal evaluation and decisions based on very detail information 5.Information about the firm as a whole 6.Broad, multidisciplinary 6.More self-contained

1 -28 Management accounting is much broader than financial accounting. It includes aspects of managerial economics, industrial engineering, and management science. BreadthBreadth

1 -29 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

1 -30 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.

1 -31 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.

1 -32 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

1 -33 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.

1 -34 Supermarkets Value Chain: Apple Industry Planting and Cultivating Harvesting Distribution of Apples Applesauce Production Applesauce Distribution Firm B Firm C Firm A Product DisposalEnd-Use Customer

1 -35 Managing the value chain means that a management accountant must understand many functions of the business, from manufacturing to marketing.

1 -36 The philosophy of total quality management is to manufacture perfect products. This emphasis on quality has created a demand for management accounting systems that provide financial and nonfinancial information about quality.

1 -37 The role of management accountants in an organization is one of support.

1 -38 Partial Organization Chart, Manufacturing CompanyPresident Production Vice President Line Function Financial Vice President Staff Function Production Supervisor Machining Foreman Assembly Foreman Controller Treasurer Internal Audit CostFinancialSystems Ta x

1 -39 Ethical Behavior Michael Josephson’s* Ten Ethical Values: Honesty Integrity Promise keeping Fidelity Fairness Caring for others Respect for others Responsible citizenship Pursuit of excellence Accountability *Michael Josephson, “Teaching Ethical Decision Making and Principled Reasoning”

1 -40 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. Professional Certifications

1 -41 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

1 -42 The End Chapter One

1 -43