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AGUS SISWANDI

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MANAGEMENT MANAGEMENT ACCOUNTINGACCOUNTING

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Chapter One

Introduction: The Role, History, and

Direction of Management Accounting

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Learning Objectives

Explain the need for management accounting information.

Explain the differences between management accounting and financial accounting.

Provide a brief historical description of management accounting.

Identify and explain the current focus of management accounting.

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Learning Objectives (continued)

Describe the role of management accountants in an organization.

Explain the importance of ethical behavior for managers and management accountants.

Identify three forms of certification available to management accountants.

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Management AccountingInformation Systems

Processes

Users

Inputs Outputs

Economic Events

CollectingMeasuring

StoringAnalyzingReportingManaging

Special ReportsProduct Costs

Customer CostsBudgets

Performance ReportsPersonal Communication

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Objectives of ManagementAccounting System

To provide information for costing out services, products, and other objects of interest to management.

To provide information for planning, controlling, evaluation, and continuous improvement.

To provide information for decision making.

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The Management Process

The Management Process is defined by the following activities:

– Planning– Controlling– Decision making

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The Management Process(continued)

Planning requires setting objectives and identifying methods to achieve those objectives.

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The Management Process(continued)

Controlling is the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.

Control is usually achieved with the use of feedback, which is information that can be used to evaluate or correct the steps being taken to implement a plan.

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The Management Process(continued)

Decision making is the process of choosing among competing alternatives.

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Management Accounting Financial Accounting

1. Internally focus2. No mandatory rules3. Financial and nonfinancial

information; subjective information possible

4. Emphasis on the future5. Internal evaluation and

decisions based on very detailed information

6. Broad, multidisciplinary

1. Externally focus2. Must follow externally

imposed rules3. Objective financial

information4. Historical orientation5. Information about the

firm as a whole6. More self-contained

Comparison of Management and Financial Accounting

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Historical Description ofManagement 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

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Emerging Themes ofManagement Accounting

Activity-Based Management Customer Orientation Cross-Functional Perspective Total Quality Management Time as a Competitive Element Efficiency

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Comment from Peter Drucker

– "The most exciting and innovative work in management today is found in accounting theory, with new concepts, new methodology--even what might be called new economic philosophy--rapidly taking shape. And while there is enormous controversy over specifics, the lineaments of the new manufacturing accounting are becoming clearer every day.”

Peter E. Drucker, “The Emerging Theory of Manufacturing,” Harvard Business Review, May-June 1990, pp. 94-102.

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Partial Organization Chart, Manufacturing Company

President

ProductionVice-President

FinancialVice-President

Controller

Treasurer

MachiningForeman

AssemblyForeman

Treasurer'sFunctions

Controller’sFunctions

Production Supervisor

Line Function Staff Function

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Role of Controller and Treasurer

Controller Treasurer

1. Collection of cash2. Monitoring of cash

payments3. Monitors cash availability4. Short-term investments5. Short and long-term

borrowing6. Issuing of capital stock

1. Financial reports2. SEC reporting3. Tax planning and reporting4. Performance reporting5. Internal Auditing6. Budgeting 7. Accounting systems and

internal controls

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Management Accounting andEthical Conduct

Abuse of accounting information Acceptance of bribes or gifts Conflict of interest Disclosure of confidential information

Some Types of Unethical Conduct

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Standards of Ethical Conduct for Management Accountants

Competence Confidentiality Integrity Objectivity

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Competence

Maintain professional competence. Perform professional duties in accordance with relevant

laws, regulations, and technical standards. Prepare complete and clear reports and recommendations.

Management Accountants have a responsibility to

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Confidentiality

Refrain from disclosing confidential information. Inform subordinates as to how to handle confidential

information. Refrain from using confidential information for unethical

or illegal advantage.

Management Accountants have a responsibility to

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Integrity

Avoid conflicts of interest Refrain from activity that would prejudice their ability to

carry out their duties ethically Refuse gifts, favors, or hospitality that would influence their

actions. Refrain from subverting attainment of the organization’s

legitimate and ethical objectives.

Management Accountants have a responsibility to

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Integrity (continued)

Recognize and communicate professional limitations that would preclude responsible judgment.

Communicate unfavorable as well as favorable information.

Refrain from engaging in or supporting any activity that would discredit the profession.

Management Accountants have a responsibility to

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Objectivity

Communicate information fairly and objectively Disclose fully all relevant information that could

reasonably be expected to influence user's understanding of the reports, comments, and recommendations presented.

Management Accountants have a responsibility to

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Resolution of Ethical ConflictCourses of actions

Discuss problems with immediate supervisor except when it appears the superior is involved.

If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners.

Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action.

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Resolution of Ethical Conflict (continued)

Courses of actions

If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse than to resign.

Except where legally prescribed, communication of such problems with external parties is not appropriate.

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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

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End of Chapter 1