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9/11/02 Prof. Bentz 1 Session 2 AGENDA Answer questions Compare and contrast financial and managerial accounting
9/11/02 Prof. Bentz 1
Session 2
AGENDA Answer questions Compare and contrast financial
and managerial accounting
9/11/02 Prof. Bentz 2
Financial Vs. Managerial
Who uses the information? What entities are involved? What time periods are used? What basic information is used? What are the guiding standards? What are the more important
methods?
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Financial Vs. Managerial
What makes information useful?
◈Relevance
◈Reliability
◈Comparability
◈Consistency
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Users of the Information
Financial –
• Current and potential owners
• Directors
• Regulators
• Lenders
Managerial – • Directors• Managers &
Associates• Customers
(e.g., Federal Gov’t)
• “Partners”
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Users of the Information (2)
Financial –
• Suppliers
• Customers
• Managers & Associates
Managerial –
• Regulators
• Litigants
• Economists
• Investigators
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Accounting Entities
Financial –
• Entities that are recognized in law for both business and non-business purposes
Managerial –
• Any identifiable unit for which costs, revenues, cash flows, or assets can be associated meaningfully
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Examples of Entities (1)
Financial –
• Corporations
• Partnerships
• Trusts
• Sole proprietors
• Individuals
Managerial –
• Cost centers
• Revenue centers
• Profit centers
• Activities
• Divisions
• Departments
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Examples of Entities (2)
Financial –
• Wendy’s
• OSU
• City of Columbus
• State of Ohio
Managerial –
• Tim Horton’s
• Dept. of A&MIS
• Water Dept.
• Dept. of Education
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Accounting Periods
Financial – • Past months,
quarters, or years
• Indefinite (e.g., bankruptcy trust)
Managerial –
• Any period consistent with the information need at hand.
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Examples of Periods
Financial -• Quarterly
financial statements
• Periodic reports to a bankruptcy judge
Managerial - • Monthly division
statements
• 20-year capital expenditure analysis
• Hourly spoilage reports
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Basic Information Utilized
Financial – • Transactions,
accruals, deferrals, estimates, allocations, and market values
Managerial –• Transactions,
accruals, deferrals, estimates, allocations, market values, forecasts, plans, and hypothetical scenarios
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Guiding Standards
Financial – • SEC
• FASB
• AICPA
• EITF
• Other GAAP
Managerial –• Cost Accounting
Standards Bd.
• Company Stds.
• Contracts
• GAAP
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Role of the Standards
Financial – • Standards protect
the investing public and the functioning of markets.
Managerial –• Standards
enhance the quality of the information available to managers and representatives of stakeholders.
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Accounting Methods
Financial – • accounting equation• double-entry system• chart of accounts• data dictionaries• Documentation
standards are nearly universal.
Managerial –• Fin. acct. methods
• ERP and other software systems
• Statistical methods
• Mathematical programming
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Usefulness: Relevance
Financial – • Timeliness of
reporting & analysis is constrained by audits, SEC review, etc.
Managerial –• Timeliness is un-
constrained by out-side forces, so management decides the trade-off among timeliness, cost, and quality.
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Usefulness: Relevance (2)
Financial –
• Feedback value is relatively high and improving due to GAAP & standardization
Managerial –
• Feedback value should be higher because the decision-makers can request needed information
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Usefulness: Relevance (3)
Financial –
• Predictive value is limited without other economic forecasts
Managerial –
• Predictive value high because the perspective, volume, and variety of info. is geared for these purposes
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Usefulness: Reliability
Financial –
• Neutrality is supposed to be high but abuses abound
Managerial –
• Neutrality in the sense of an absence of “spin” and efforts to please bosses is important
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Usefulness: Reliability (2)
Financial –
• Verifiability—objective bases that can be confirmed by other professionals
Managerial –
• Verifiability—objective bases that can be confirmed by other professionals
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Usefulness: Reliability (3)
Financial – • Representational
validity - communicates a “valid” perspective of what is happening in the underlying system
Managerial –• Representational
validity – communicates a “valid” perspective of what is happening in the underlying system
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Usefulness: Reliability (4)
Is neutrality redundant?The idea is that an accountant should be neutral in developing and presenting information rather than taking sides on an issue and attempting to put a more favorable light on one side or another.
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Usefulness: Comparability
Financial –
• Comparability across entities for investment and lending decision purposes
Managerial –
• Comparability – report results in a manner comparable with profit plans or analyses
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Usefulness: Comparability (2)
Enhancing comparability in mgt. acct. Flexible budgets Plans modified to reflect the actual
operating environment (adaptive plans)
Seasonal adjustment of data
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Usefulness: Comparability (3)
Enhancing comparability in mgt. acct. The most important comparability
issue in MA is the reporting results in a manner consistent with the development of plans.
Comparability across business units is an important challenge in MA
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Usefulness: Consistency
Financial – • Reporting
standards are observed over time by reporting entities within a firm
Managerial –
• Consistency of reporting and analysis methodologies over time.
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Some Implications
1. Generally accepted accounting principles inform and support--but not constrain--what we do in managerial accounting.
2. If we are to better support internal users of information, we need to know how information is to be used. Increasingly, this implies interacting with other members of a team.
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Some Implications
3. Being knowledgeable about financial reporting standards and transactions processing systems does not make one a good managerial accountant. Some would go so far as to argue that different skills and abilities are needed for managerial accounting, particularly when it comes to planning activities.
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Where are YOU?
Comments?Observations?Questions?
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Homework
http://fisher.osu.edu/~bentz_1/525/problems/H11C1E18.ppt
http://fisher.osu.edu/~bentz_1/525/problems/H11C1E21.ppt
