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Introduction: Introduction: The Role, History, The Role, History, and Direction of and Direction of Management Management AccountingAccounting

11

PowerPresentation® prepared by PowerPresentation® prepared by

David J. McConomy, Queen’s UniversityDavid J. McConomy, Queen’s University

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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 recent developments affecting management accounting.

Learning ObjectivesLearning Objectives

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Learning Objectives (continued)Learning Objectives (continued)

Describe the role of management accountants in an organization.

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

Identify the different professional accounting designations available for management accountants.

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Management Accounting Management Accounting Information SystemsInformation Systems

Inputs Processes Outputs

Users

Economic Events

CollectingMeasuringStoringAnalyzing ReportingManaging

Special ReportsProduct Costs Customer CostsBudgetsPerformance ReportsPersonal Communication

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The Management ProcessThe Management Process

The Management Process is defined by the following activities:

–Planning

–Controlling

–Decision making

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The Management ProcessThe Management Process(continued)(continued)

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

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The Management ProcessThe Management Process(continued)(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 ProcessThe Management Process(continued)(continued)

Decision making is the process of choosing among competing alternatives.

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Conceptual Framework of Conceptual Framework of Management AccountingManagement Accounting

Cost Accumulation and Product Costing (Part I of Text)– ‘Know your costs’

– The role of indirect costs

Managerial Decision Making (Part II of Text)– ‘What difference will it make’ when a choice is to be made

between alternative courses of action?

– We assume economically-rational organizations and what is good for the sub-unit is good for the organization as a whole.

Planning & Control Systems (Part III of Text)– Focus on how organizations run by delegation & accountability

– Information asymmetry results in difficulty assessing goal congruence. We assume economically rational decision makers who have their own goals within the organization

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Management Accounting Financial Accounting

1. Internally focused2. 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 focused

2. Must follow externally

imposed rules

3. Objective financial

information

4. Historical orientation

5. Information about the

organization as a whole

6. More self-contained

Comparison of Management Comparison of Management and Financial Accountingand Financial Accounting

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Historical Description ofHistorical Description ofManagement AccountingManagement Accounting

1880 - 1925 Most of the product-costing and internal accounting procedures used in this century were developed

1925 Emphasis changes to inventory costing for external reporting

1950s/60s Some effort to improve the managerial usefulness of traditional cost systems

1980s/90s Significant efforts have been made to develop a new management accounting system

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Recent Developments Affecting Recent Developments Affecting Management AccountingManagement Accounting

Activity-Based Management Customer Orientation–Strategic Positioning

–Value Chain Framework

Cross-Functional Perspective

Global Perspective

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Current Focus ofCurrent Focus ofManagement Accounting IIManagement Accounting II

Environmental Perspective Total Quality Management Time as a Competitive

Element Efficiency E-business

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Partial Organization Chart - Partial Organization Chart - Manufacturing CompanyManufacturing Company

ProductionSupervisor

President

ProductionVice-president

FinancialVice-president

Controller Treasurer

Machining Assembly Treasurer'sFunctions

Controller’sFunctions

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Role of Role of Controller and Controller and

TreasurerTreasurer

Controller Treasurer

1. Raises Cash

2. Manages Cash

3. Manages Investments

4. Credit and Collections

5. Insurance

1. Financial reports

2. Securities commission reporting

3. Tax planning and reporting

4. Performance reporting

5. Internal auditing

6. Budgeting

7. Accounting systems and

internal controls

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Management Accounting andManagement Accounting andEthical ConductEthical Conduct

Honesty Integrity Promise Keeping Fidelity Fairness

Attributes of Ethical Behaviour

Caring for Others Respect for Others Responsible Citizen Pursuit of Excellence Accountability

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Standards of Ethical Conduct Standards of Ethical Conduct for Management Accountantsfor Management Accountants

Competence

Confidentiality

Integrity

Objectivity

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CMA-The distinguishing characteristic of the profession is to establish management accounting as a recognized professional discipline, separate from the profession of public accounting.

CA- The distinguishing characteristic of the profession is its focus on providing assurance concerning the reliability of financial statements to external parties.

CGA- These accountants may specialize in several specialty fields, including management accounting.

Professional DesignationsProfessional Designations