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Introduction to Management Accounting

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Management Accounting

Definition of Accounting ? Definition of Financial Accounting ? Definition of Management Accounting ?

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Definition of accounting

.t he process of identifying, measuring andcommunicating economic information to

permit informed judgements and decisions by users of the information.

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Management versus Financial

AccountingAccounting System

(accumulates financial andmanagerial accounting data)

Managerial Accounting Information for decision

making, and control

of an organizations operations.

Financial Accounting Published financial

statements and other

financial reports.

InternalUsers

ExternalUsers

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Comparison of Financial and

Managerial Accounting#1 Financial Accounting Management Accounting

Users External persons whomake financialdecisions

Managers who plan forand control anorganisation

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Comparison of Financial and

Managerial Accounting#2 Financial Accounting Management Accounting

Timefocus

Historical perspective Future emphasis

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Comparison of Financial and

Managerial Accounting#3 Financial

AccountingManagementAccounting

Verifiability vs.Relevance

Emphasis onverifiability

Emphasis onrelevance for

planning &control

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Comparison of Financial and

Managerial Accounting#4 Financial

AccountingManagementAccounting

Precision vs.Timeliness

Emphasis on precision

Emphasis ontimeliness

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Comparison of Financial and

Managerial Accounting#5 Financial Accounting Management Accounting

Subject Primary focus is inthe wholeorganisation

Focuses on segments ofan organisation

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Comparison of Financial and

Managerial Accounting#6 Financial Accounting Management Accounting

GAAP Must follow GAAPand prescribedformats

Need not follow GAAPor any prescribed format

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Comparison of Financial and

Managerial Accounting#7 Financial

AccountingManagementAccounting

Requirement Mandatory forexternal reports

Not mandatory

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Do you know whenaccounting for

managerial decisionmaking began?

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MANAGERIAL ACCOUNTINGHISTORY

Beginnings between 1880 and 1925 Pre-1915, management accounting focused on

product costing, that is, what products provided best profit

1925 to 1950, emphasis on inventory costingsystems

Improvements to inventory costing in 1950s and1960s

1980s recognized need for improvements inmanagement accounting

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Do you know what thecurrent focus for

managerial accountingis?

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CURRENT FOCUS: The changing business environment

Organizations have faced dramatic changes intheir business environment.

Move from protected markets to highlycompetitive global markets

Deregulation

Declining product life-cycles

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CURRENT FOCUS: The changing

business environment To compete successfully in todays environment

companies are:

Making customer satisfaction an overriding priority. Adopting new management approaches. Changing their manufacturing systems. Investing in AMT s.

Above changes are having a significant impact on theMAS.

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Focus on Customer Satisfaction

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Key success factors

Cost efficiency increased emphasis on accurate product costs and cost management.

Quality TQM, quality measures. Time reduced cycle time, reduced focus on non-

value-added activities. Innovation responsiveness in meeting customer

requirements. Product comparisons. Feedback oncustomer satisfaction.

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Continuous improvement

Static historical standards no longerappropriate.

Benchmarking

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Employee empowerment

Delegate more responsibility to peopleclosest to operating processes and

customers.

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Value chain analysis

The term value chain refers to thesequence of business functions in which

usefulness is added to the products orservices of an organization.

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Value chain

R & D Design Production

Marketing Distribution Service

Management Accounting

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What are managementaccounting roles?

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Management Accounting Roles

Problem Solver

Scorekeeper Attention Director

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Problem Solving

This involves comparative analysis

for decision making.This role asks: Of the several alternatives

available, which is the best?

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Scorekeeping

This involves accumulating data and

reporting reliable results toall levels of management.

This role asks: How is the business doing?

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Attention Directing

This involves helping managers

properly focus their attention.This role asks: Which opportunities and problems should be emphasized first.

Attention directing should focus on allopportunities to add value to an organization,

not just cost-reduction opportunities.

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MANAGEMENT ACCOUNTING:Designed for Profit Maximization

The objective of profitmaximization should be

constrained by the requirementthat profits be achieved through

legal and ethical means.1

1Hansen & Mowen, 2007, p. 17

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Code of Conduct for

Management AccountantsThe Institute of Management Accountants (IMA)

Standards of Ethical Conduct for Practitioners

of Management Accounting and FinancialManagement have two major parts offeringguidelines for:

Ethical behavior.

Resolution for an ethical conflict.

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IMA Guidelines for Ethical Behavior

Competence

Follow applicable laws,regulations and

standards.

Maintainprofessionalcompetence.

Prepare complete and clearreports after appropriate

analysis.

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IMA Guidelines for Ethical Behavior

Confidentiality

Do not disclose confidentialinformation unless legally

obligated to do so.

Ensure that subordinates donot disclose confidential

information.

Do not useconfidential

information forpersonal

advantage.

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IMA Guidelines for Ethical BehaviorAvoid conflicts of interest

and advise others ofpotential conflicts.

Recognize andcommunicate personal and

professional limitations.

Do not subvertorganizations

legitimateobjectives.

Integrity

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IMA Guidelines for Ethical BehaviorAvoid activities that could

affect your ability toperform duties.

Communicateunfavorable as well asfavorable information.

Refrain fromactivities

that coulddiscredit the

profession.

Refuse giftsor favors

that mightinfluence

behavior.

Integrity

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IMA Guidelines for Ethical Behavior

Communicate informationfairly and objectively.

Disclose all informationthat might be useful to

management.

Objectivity

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TH E END

ADVISE & REMINDER : Now,your reading time.its your

responsibility to read Chapter1 in the main text and relatedchapters in the additionalrecommended references !