1 Copyright © 2008 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license. Mowen/Hansen Introduction to Managerial Accounting Chapter One Cornerstones of Managerial Accounting

2 Management Accounting Internal accounting system Designed to support the information needs of managers

3 Management Accounting is not bound by GAAP (Generally Accepted Accounting Principles) Generally Accepted Accounting Principles Management Accounting

4 Three broad objectives To provide information for costing out… ServicesProductsOther objects of interest to management Objective 1

5 To provide information for… Continuous Improvement Planning Evaluation Controlling Three broad objectives Objective 2

6 To provide information for… Decision Making Three broad objectives Objective 3

7 Focuses on the external user Financial Accounting Management Accounting Focuses on the internal user Differences in Targeted Users

8 Must follow GAAP Financial Accounting Management Accounting No guidelines that it must follow Differences in Restrictions

9 Produces objective and verifiable financial information Financial Accounting Management Accounting May be financial or nonfinancial. Much more subjective Differences in Types of Information

10 Reports on events that have already happened Financial Accounting Management Accounting Includes historical, but focuses on future events Differences in Time Orientation

11 Focuses on overall firm performance (a more aggregated viewpoint). Financial Accounting Management Accounting Focuses on performance of… entities, product lines, departments and managers Differences in Degree of Aggregation

12 Needs to be flexible enough to provide both financial and managerial accounting information Accounting System

13 Developments in technology, transportation and communication have created the need for better information Current Focus

14 Objective: Find ways to perform necessary activities more efficiently and eliminate those that do not create customer value. Activity-Based Costing A more detailed approach to determining the cost of goods and services Emphasizes cost of many activities or tasks that must be done to produce a product

15 Advantage comes when company can create better customer value Customer Value What Customer Receives =- What Customer Gives Up Customer Orientation

16 Superior Products through differentiation Two strategies: Cost Leadership Both strategies require an understanding of the firm’s…. Value Chain Increasing Customer Value

17 Cross-Functional Perspective Management accountant must understand many functions of the business to manage the value chain A decision affecting one function affects the others This perspective allows management to see the big picture and… ◦Increase quality, reduce time, and improve efficiency

18 Total Quality Management “Acceptable quality” attitude is unacceptable A philosophy of perfect products (zero defects) Management accounting must provide both financial and nonfinancial information about quality Continuous improvement is fundamental

19 Time as a Competitive Element Time is crucial in all phases of the Value Chain Companies try to eliminate “non-value- added” time Managers must be able to respond quickly and decisively to changing market conditions

20 Efficiency Both financial and nonfinancial measures are needed Cost is a critical measure of efficiency To be effective, cost must be properly ◦Defined ◦Measured ◦Assigned

21 Choosing actions that are right, proper and just 1.Honesty 2.Integrity 3. Promise keeping 4. Fidelity 5. Fairness 6. Caring for others 7. Respect for others 8. Responsible citizenship 9. Pursuit of excellence 10. Accountability 10 Core Values Ethical Conduct

22 Certified Management Accountant (CMA) Certification available to management accountants Establish management accounting as a recognized professional discipline Candidates must: –Pass an examination which underscoring the multidisciplinary nature of management accounting

23 Candidates must: Pass an examination reflecting the needs of management accounting and underscoring its interdisciplinary flavor Meet an experience requirement Participate in continuing education Have a commitment to ethical principles Certified Management Accountant (CMA)

24 Certified Public Accountant (CPA) Another certification available to management accountants Purpose of the CPA certificate ◦Provides minimal professional qualifications for external auditors Candidates must: Pass an examination Be licensed in the state in which they practice

25 Certified Internal Auditor (CIA) Created in 1974 Candidates must: Pass an examination Have two years experience