MANAGEMENT ACCOUNTING

AGUS SISWANDI 01153056

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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 Accounting Information Systems

Economic Events Collecting Measuring Storing Analyzing Reporting Managing Special Reports Product Costs Customer Costs Budgets Performance Reports Personal Communication

Inputs

Processes

Outputs

Users
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Objectives of Management Accounting 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 plans 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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Comparison of Management and Financial Accounting

Management Accounting
1. Internally focus 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible 4. Emphasis on the future 5. Internal evaluation and decisions based on very detailed information 6. Broad, multidisciplinary

Financial Accounting
1. Externally focus 2. Must follow externally imposed rules 3. Objective financial information 4. Historical orientation 5. Information about the firm as a whole 6. More self-contained

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Historical Description of Management 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 12 Chapter 1 the nature and practice of

Emerging Themes of Management 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. Chapter 1 14

Partial Organization Chart, Manufacturing Company

President Line Function Production Vice-President Staff Function Financial Vice-President

Production Supervisor

Controller

Treasurer

Machining Foreman

Assembly Foreman

Controllers Functions
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Treasurer's Functions
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Role of Controller and Treasurer

Controller
1. 2. 3. 4. 5. 6. 7. Financial reports SEC reporting Tax planning and reporting Performance reporting Internal Auditing Budgeting Accounting systems and internal controls

Treasurer
1. Collection of cash 2. Monitoring of cash payments 3. Monitors cash availability 4. Short-term investments 5. Short and long-term borrowing 6. Issuing of capital stock
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Management Accounting and Ethical Conduct

Some Types of Unethical Conduct

Abuse of accounting information Acceptance of bribes or gifts Conflict of interest Disclosure of confidential information
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Standards of Ethical Conduct for Management Accountants

Competence Confidentiality Integrity Objectivity

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Competence
Management Accountants have a responsibility to

Maintain professional competence. Perform professional duties in accordance with relevant laws, regulations, and technical standards. Prepare complete and clear reports and recommendations.

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Confidentiality
Management Accountants have a responsibility to

Refrain from disclosing confidential information. Inform subordinates as to how to handle confidential information. Refrain from using confidential information for unethical or illegal advantage.
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Integrity
Management Accountants have a responsibility to

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 organizations legitimate and ethical objectives.
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Integrity (continued)
Management Accountants have a responsibility to

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.
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Objectivity
Management Accountants have a responsibility to

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.

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Resolution of Ethical Conflict

Courses 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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Courses of actions

Resolution of Ethical Conflict (continued)

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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Professional Certifications
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 Chapter 1 external auditing as with the- CPA.

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End of Chapter 1

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