CHAPTER 1 THE ACCOUNTANT’S ROLE IN THE ORGANIZATION

LEARNING OBJECTIVES
1. Describe how cost accounting supports management accounting and financial accounting

2. Understand how management accountants affect strategic decisions 3. Distinguish between the planning and control decisions of managers

4. Distinguish among the problem-solving, scorekeeping, and attention-directing roles of management accountants 5. Identify four themes managers need to consider for attaining success 6. Describe the set of business functions in the value chain 7. Describe three ways management accountants support managers

8. Understand how management accounting fits into an organization’s structure 9. Understand what professional ethics mean to management accountants

CHAPTER OVERVIEW
Chapter 1 is an important foundation chapter. The theme of the text, Cost Accounting: A Managerial Emphasis, 11/E, is the major role that accounting plays in management decision making. Accounting provides information managers need when making decisions. Financial accounting provides information to external managers while modern cost accounting yields insights into what managers and accountants do within an organization. Management accountants provide financial and nonfinancial information to help managers decide how best to deal with challenges and opportunities. Management accounting is successful when it provides information that improves managers’ strategic, planning, and control decisions. The use of accounting in the planning and control process is introduced and highlighted in the text example. A framework for understanding management accounting systems in providing managers information is developed in the chapter. The goals, roles, activities, and guidelines of management accounting systems are described through understanding what managers do.

An introduction and discussion of professional ethics including standards of ethical conduct for management accountants is presented. 2 Chapter 1 .

Strict adherence to GAAP 3. Accounting systems: processing information from economic events into useful information for managers and others A. Providing users of economic information (managers) useful reports and access to needed information B. Emphasis on financial statements b. Approaches and activities of managers in planning and control b. Integral part of general management strategies and their implementation Do multiple choice 1. Identifying and measuring financial and other information related to the acquisition or consumption of an organization’s resources 2. Learning Objective 2: Understand how management accountants affect strategic decisions II. Concern with development and implementation of strategies and policies 2. Management accounting: focus on internal reporting for decision making of managers in fulfilling organization’s goals a. Financial accounting: focus on external reporting for decision making of those outside the organization a. Strategic decisions and management accounting: key to a company’s success in creating value for customers while differentiating itself from its competitors A. Assign Exercise 1-16. Purpose of cost accounting: to provide information 1. Providing information about the sources of competitive advantage The Accountant’s Role in the Organization 3 . Emphasis on the organization—the future and influencing behavior of managers and employees b. Cost accounting: provides information relating to cost of acquiring and utilizing resources for both management and financial accounting 1. Cost management a.CHAPTER OUTLINE Learning Objective 1: Describe how cost accounting supports management accounting and financial accounting I.

Identifying and building resources and capabilities 1. Selecting organization goals 4 Chapter 1 . Learning Objective 3: Distinguish between the planning and control decisions of managers III. Providing a unique product or service at a higher price than competitors 3.1. Develop network of relationships with customers and suppliers iii. Inventory management b. Management accountant’s role in implementing strategy [Exhibits 1 and 2] A. Role of management accountant: provide managers information in helping formulate strategy B. Two broad strategies used a. Thinking process i. Balance sheet information about assets a. Identify financial and nonfinancial costs and benefits associated with alternative choices c. Cash adequacy ii. Long-term productive assets: important strategic decisions for the right investments i. Implementing strategy: managers taking action by using planning and control systems to help the collective decisions of an organization 1. Strategic analysis: matching knowledge of marketplace opportunities and threats with company’s resources and capabilities 2. Analyze trends and measure efficiencies ii. Current resources i. Intangible assets Do multiple choice 2. Providing a quality product or service at a lower price than competitors b. Assign Exercise 1-16 (if not previously assigned). Planning a. Strategy: how an organization uses what it has to get what it wants within the marketplace 2.

Supporting managers by providing information to improve strategic. Predicting results under various alternatives of achieving those goals iii. Taking actions to implement the planning decisions b. and attention-directing roles of management accountants B. 1992. Individuals as well as groups of all types and sizes employ common elements in making decisions.” pages 102–108. Assign Problems 1-26 and Exercise 1-17 or 1-18. The key for the use of accounting in the process is usually in “determining relevant information” but may be used in each stage. Problem solving: comparative analysis for decision making b. “How Public Opinion Really Works. The Accountant’s Role in the Organization 5 . Scorekeeping: accumulating data and reporting reliable results c. Three roles of management accountants for success a. Assign Problem 1-25. Deciding on performance evaluation 3. Goals to assist managers in making better decisions [Survey of Company Practice] a. October 5. Communicating goals and how to attain them to entire organization 2. written by Daniel Yankelovich. planning.ii. several more problems are created. Chapter 11 expands upon this process. scorekeeping. Feedback: linking planning and control to help future decision making TEACHING TIP: The decision-making process is akin to the thinking process. Control a. Do multiple choice 3. Interaction among types of decisions means activity/roles done simultaneously c. Control emphasizes scorekeeping and attention directing b. One can give numerous examples to prove the adage that in solving one problem. Learning Objective 4: Distinguish among the problem-solving. Strategy and planning emphasize problem solving ii. Different decisions emphasize roles differently i. Information must be relevant and timely to be useful Do multiple choice 4 and 5. and control decisions 1. Attention directing: helping managers properly focus their attention 2. Feedback is an interesting aspect to explore as it highlights the ongoing nature of decision making. An interesting reading on group decision making is from Fortune. Deciding how to attain desired goals b.

Innovation 4. Customer focus [Exhibit 1-3] Learning Objective 6: Describe the set of business functions in the value chain 2. Learning Objective 7: Describe three ways management accountants support managers 6 Chapter 1 . Assign Exercises 1-19 or 1-20 and 1-22. Production iv. Companies add value through— i. Quality c. Distribution vi. Managers in all business functions are customers of management accounting information 3. Continuous improvement and benchmarking Do multiple choice 6 and 7. Research and development ii. Time d. Cost and efficiency b. Marketing v. Value-chain and supply-chain analysis [Exhibits 1-4 and 1-5] a.Learning Objective 5: Identify four themes managers need to consider for attaining success C. Enhancing the value of management accounting systems by guiding managers to focus on challenges [Concepts in Action] 1. services. Key success factors a. Design of products. Customer service b. or processes iii.

CHAPTER QUIZ SOLUTIONS: 1. d 8.D. Professional ethics A. c 5. c 3. c 10. a 6. Integrity d. Assign Problem 1-27. b 2. Assign Exercise 1-23 and Problems 1-28 and 1-29. Employ cost-benefit approach 2. Line and staff relationships [Exhibit 1-6] 2. Assign Problem 1-24. Working within the organization 1. Confidentiality c. Providing the most value through three key management accounting guidelines 1. Recognize behavioral and technical considerations 3. d 9. b 7. IMA certification programs 2. Identify different costs for different purposes Do multiple choice 8. a The Accountant’s Role in the Organization 7 . Learning Objective 9: Understand what professional ethics mean to management accountants IV. The chief financial officer and the controller Do multiple choice 9. Typical challenges: Guidance as to “Resolution of Ethical Conduct” [Exhibit 1-8] Do multiple choice 10. d 4. IMA Standards of Ethical Conduct for Management Accountants [Exhibit 1-7] a. Guidelines 1. Learning Objective 8: Understand how management accounting fits into an organization’s structure E. Objectivity B. Competence b.

GAAP is required by law for publicly held companies. Why do most companies adhere to GAAP for their basic internal financial statements? a. managers use cost accounting for providing financial information but look elsewhere for nonfinancial information. performance. 8 Chapter 1 . accountants are focused on decision support. c. performance report. improving customer focus and customer satisfaction. The critical theme for all of these is a. strategic analysis report. requirements for financial reporting. differentiating itself from its competitors. preferences of the organization’s financial officer. b. d. b. managers must take courses in cost accounting. c. managers within the organization. budget. c. accountants are the watchdogs that make sure managers adhere strictly to strategic plans. A managerial emphasis for cost accounting means a. increasing the market value of its stock. b. financial statement. reducing costs and improving efficiencies. d. developing relationships with suppliers. customers of the organization. c. benchmarking and continuous improvement. b. d. b.CHAPTER QUIZ 1. downstream components to the total value chain. challenges facing managers. Accountants are required by their code of ethics to use GAAP accounting. d. d. 4. The design of a management accounting system should be guided by the a. 6. c. standards developed for cost accounting by the Cost Accounting Standards Board. reducing costs to the least amount necessary. b. The primary users of information provided by a management accountant are a. 5. 7. b. 3. d. 2. To use GAAP and another system of reporting would be too costly for most companies. employing the best managers and cost accountants available. Accrual accounting provides a uniform way to measure an organization’s financial The key to a company’s success is creating value for customers while a. upstream components to the total value chain. Four themes are common to many managers. c. d. A quantitative expression of a plan of action is called a(n) a. c.

Which of the following is not a key guideline used by management accountants? a. d. c. d. ________ management exists to provide advice and assistance to those responsible for attaining the objectives of the organization. Line Functional Staff Risk 10. b. Different costs for different purposes Cost-benefit approach Behavioral consideration Technical supremacy 9. b. c. d. c. b.8. Which of the following is not one of the ethical responsibilities of a management accountant? a. Compliance Confidentiality Integrity Objectivity The Accountant’s Role in the Organization 9 . a.

The definition given for accounting by the 1941 Committee on Terminology of the American Institute of Accountants is “. and analyzing.” Some basic characteristics define accounting. decision usefulness. Students may be given a situation or asked to use a recent decision they have made. 4. and attention-directing roles of 10 Chapter 1 . Evaluating the results of time spent and grades earned are an example of feedback. structure of bonus calculations. and interpreting the results thereof. the art of recording. categorizing. From FASB Statement of Financial Accounting Concepts No. financial or managerial. classifying. Distinguish among the problem-solving. scorekeeping.” The additional quality of comparability. Managers must be careful in designing measures of performance to insure the measures work to attain the company’s strategic goals. including consistency. the behavior or performance of people is noted in response to goals set. Comparing the log of how the time was spent to the planned usage of time comprises control. Goal congruence as a concept is introduced at a later point but has pertinence here. and events which are in part. choice of financial reporting (absorption versus variable costing and the build up of inventory). and timeliness. . and summarizing in a significant manner and in terms of money.” Reliability is characterized by “verifiability. Perhaps the student selects the goal of making good grades for the semester to gain a “good student discount” for car insurance purposes. etc. The Concepts describe the users of accounting information as “decision makers” with the constraints of cost/benefit and materiality. summarizing. Exhibit 1-1 can be used as an example. The characteristics deemed important for financial accounting are the same as those described throughout the text as those of managerial accounting. The information provided will be acted upon based upon the user’s understanding and individual goals. in processing any economic transaction that have occurred into information useful for making decisions. Any goalsetting situation can be an example. People will work to achieve their own goals within the company’s structure. 1980) 2. of a financial character.WRITING/DISCUSSION EXERCISES 1. designation as cost center versus profit or investment center. 2 (Stamford. but note the statement from the current text about accounting systems—“Processing any economic transactions entails collecting. neutrality. transactions. at least. Describe how cost accounting supports management accounting and financial accounting What are some basic characteristics of accounting that all accountants use whether in financial or managerial accounting? The Financial Accounting Standards Board (FASB) describes a hierarchy of accounting qualities in its second Statement of Financial Accounting Concepts. 3. Throughout the text. and representational faithfulness. These qualities apply to all accounting information. and reliability. CT: FASB. feedback value.” Relevance is further described by the terms “predictive value.” This definition was before the study of cost accounting as an academic subject. relevance. Keeping a log of how time was spent would measure action taken. The qualities of accounting information are given as “understandability. . Knowing what is expected for the discount and for earning specific grades in each class assists in predicting results under various alternative ways of achieving the goal. Understand how management accountants affect strategic decisions Explain how routine reports to managers not only provide information but also influence behavior regarding the planning and controlling of operations. belongs to the descriptors of decision usefulness. They will look to the measurement being used to further their own goals. Distinguish between the planning and control decisions of managers Describe the steps in a decision-making or thinking process.

The interplay between society and company can have a different meaning of cost-benefit: the company must bear the cost of additional processing or information for the benefit of society to have a cleaner environment. Explain why “bean counters” would have “behavioral considerations” as a key guideline in performing their management accounting functions. Comparing the log of how the time was actually spent to the planned usage of time spent would be an example of attention directing. The section in the text describing the value chain notes that usefulness added to the products or services of a company result in value to the customer. “Enhancing the Value of Management Accounting Systems. scorekeeping. 5. for example. “management control is primarily a human activity that should focus on how to help individuals do their jobs better. or attending seminars sponsored by professional organizations are all helpful. Evaluating or analyzing the results of time spent and grades earned is an example of problem solving because of the characteristic of relevance in providing feedback and predictive value as to how time should be spent and for what it should be spent doing. Active membership in professional organizations is one way to keep current. Describe three ways management accountants support managers Explain the cost-benefit approach guideline (a) when considered within the confines of an individual company and (b) when considered as interplay between society and the individual company. 8. 7. listening to programs on current business practices.” The role that management accounting systems play in helping managers make better decisions demands that accountants understand the importance of people in each step of the decision-making process and operations of the company.” (Competence section) Keeping up on the news by reading current periodicals. or to make better decisions about investing or lending. and attention directing. the keeping of a study log would be an example of scorekeeping. a definition of success for management accounting. Identify four themes managers need to consider for attaining success List some activities a management accountant could do to keep up to date with or ahead of changes in the field of management. especially in the area of sports. Students could provide other examples of the use of problem solving. Throughout the section. This is a focus of modern cost accounting–decision support. 6. Include a definition of “value” as it applies to the “value” chain along with the meaning of “success” for management accounting. The explanation given in the section of the text “Cost-Benefit Approach” is useful for using within the company situation. One of the points made in the IMA Standards of Ethical Conduct for Management Accountants is to “maintain an appropriate level of professional competence by ongoing development of their knowledge and skills.” runs the theme of integration of functions and information for improved decision making by managers. As pointed out in the “Behavioral Consideration” section in the text. Using the example given in Learning Objective 3 above. Understand how management accounting fits into an organization’s structure The Accountant’s Role in the Organization 11 .management accountants Describe the steps in making a decision in terms of the roles of management accountants. a typical financial accounting function. Describe the set of business functions in the value chain Describe how managers in all areas of the value chain are customers of accounting information.

The IMA has also published the results of a survey on the KSAs (knowledge. 9. Accountants consider themselves to be professionals. abilities) needed for management accounting.Describe the knowledge. skills.imanet. (c) an employee other than a manager. A code of ethics is usually regarded as a necessary aspect of a professional class. skills. The characteristics can be obtained through the AICPA Web site (http://www.org) for additional information. (b) a company manager. In the explanation of management accounting functions. The American Institute of Certified Public Accountants (AICPA) in its “Vision Project” has identified characteristics of leaders or persons who stand out among their peers. the function of scorekeeping receives particular attention as one in which accountants are responsible for the reliability of the reported information and act as watchdogs for top management.” can be helpful in addressing this exercise as well as the section on professional ethics. The section in the text. the measures employed. Understand what professional ethics mean to management accountants From the perspective of (a) a stockholder. and (d) a customer.” can be helpful for this exercise. The term “pathfinders” has been applied to those who display the traits necessary. Consider the functions performed. The section in the text. explain why a code of ethics is important for the accountants within a company. and abilities required of a management accountant following the different costs for different purposes theme. 12 Chapter 1 . Check the Web site of IMA (http://www. “Surveys of Company Practices—A Day in the Life. “Surveys of Company Practice—Common Ethical Dilemmas. and the concept of professional status.org ).cpavision.

H. Business and Professional Ethics for Accountants (2000) South-Western College Publishing. Cisco. J. G. & Stevenson.121 [9p]... J.” Strategic Finance (February 2001) p. “High-Performing. Weber.. C.” Behavioral Research in Accounting (Vol. “An International Comparison of Strategic Management Accounting Practices. Cravens.” Management Accounting Quarterly (Fall 2000) p. & Tayles. Guilding.139 [31p].. “Genuine Assets: Building Blocks of Strategy and Sustainable Competitive Advantage. The Accountant’s Role in the Organization 13 . J.79 [33p].. “The Value Added Information Chain. Frost. “Looking at What Influences Ethical Perception and Judgment. J. “The Development of Two Measures to Assess Accountants’ Prescriptive and Deliberate Moral Reasoning.” Business and Society (March 2001) p.. K. “The Achilles Heel of Firm Strategy: Resource Weaknesses and Distinctive Inadequacies. “Corporate Community: A Theory of the Firm Uniting Profitability and Responsibility...28 [6p]. and Ziegenfuss. “Why Be Honest if Honesty Doesn’t Pay?” Harvard Business Review (September-October 1990) p. & DeCastro. K. A. D. W.” Strategy and Leadership (January 2000) p. and Upton... “Data Warehousing 101. D. S. R.” Management Accounting Research (March 2000) p. Litman. “Values Make the Company: An Interview with Robert Haas..4 [9p]. Halal...134 [11p]. M. Moye.37 [6p]. Moriarity.113 [23p].41 [7p]. Cincinnati OH. S. 12—2000) p.SUGGESTED READINGS Bhide.P.” Strategy and Leadership (January 2000) p. J. O.. “Trends in Ethical Sanctions within the Accounting Profession. 10 [7p]. “Why Compassion Counts!” Journal of Management Inquiry (June 1999) p.” Information Management Journal (January 1999) p. Brooks.” Accounting Horizons (December 2000) p. Michlitsch. D. L.34 [5p].” Journal of Management Studies (May 2001)..127 [7p]. Howard.427 [13p].” Harvard Business Review (September-October 1990) p.. & Wasieleski. West III. Thorne. Martinson. L. “Investigating Influences on Managers’ Moral Reasoning. & Strong. Loyal Employees: The Real Way to Implement Strategy. P.” Strategic Finance (November 2000) p.

Sign up to vote on this title
UsefulNot useful