INTRODUCTION TO MANAGERIAL ACCOUNTING

MANAGERIAL ACCOUNTING
Managerial accounting is concerned with providing information to managers-
that is, people inside an organization who direct and control its
operation.

MANAGEMENT – the process of planning, organizing, and controlling tasks to

realize the objectives of the organization.

BASIC MANAGEMENT FUNCTIONS

PLANNING
• Involves selecting a course of action and specifying how the action
will be implemented.
o (1) setting of goals and objectives,
o (2) identifying the alternative courses of action necessary to reach
the desired goals and objectives.
The plans of management are often expressed formally in budgets,
and the term budgeting is applied to generally describe the
planning process.

ORGANIZING
• involves o (1) tackling of activities and
o (2) utilization of available resources necessary to reach the
desired goals and objectives of the company. In plain language,
organizing refers to simply putting plans into action.

CONTROLLING
• Simply mean keeping the company’s activities on track.
• Can be done by making sure that the company’s activities are geared
towards achieving those goals and objectives set.
• If in case discrepancies arise, the company should be ready to make
adjustments or redirection.

Decision-making is an inherent function of management; all management

functions would require certain amount of decision-making.

MANAGEMENT BY OBJECTIVES (MBO) vs. MANAGEMENT BY EXCEPTION (MBE)

Management by Objectives
• The procedure in which a subordinate and a supervisor agree on goals
and the methods of achieving them and develop a plan in accordance
with that agreement.
• The subordinate is then evaluated with reference to the agreed plan
at the end of the period.

Management by Exception
• Refers to the technique of highlighting those which vary significantly
from plans and standards in line with the management principle that
executive time should be spent on items that are non-routine and are
identified as top priority.

MANAGERIAL VERSUS FINANCIAL ACCOUNTING

SIMILARITIES
1. Both deal with economic events.
2. Both require quantifying the results of economic activity.
3. Both are concerned with revenues and expenses, assets, liabilities
and cash flows.
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 4. Both involve financial statements.
DIFFERENCES
Financial Accounting Managerial Accounting
1. User of Primarily for external Exclusively for internal
information users users (management)
2. Guiding GAAP Management wants and
principles needs
3. Optional/ Mandatory (especially Discretionary or
Mandatory for public entities) optional
4. Type of Primarily monetary Monetary or non-monetary
information (financial in nature)
5. Emphasis of Reliability (precision Relevance (timeliness of
reports of data) data)
6. Purpose/ End Financial reporting Decision making
result and compliance
7. Source of From company’s From internal and
data internal info system external sources
8. Amount of Compressed and Extensive and detailed
detail simplified
9. Focus of Focus mainly on Focus on segments and
information business as a whole business as a whole
10. Frequency Periodic (annually, As frequent as the need
quarterly) arises
11. Time Mainly historical Future-oriented using
orientation (past) data current and past data
12. Unifying Assets = Liabilities + No unifying model or
model Equity equation

ORGANIZATIONAL STRUCTURE
Organizational structure refers to the way that an organization arranges
people and jobs so that its work can be performed and its goals can be
met.

An organizational structure tells:

1. Employees
a. What they do
b. Who they report to
2. Managers
a. What they do
b. Who reports to them

ORGANIZATIONAL LINES OF CONTROL

Line functions - are those management systems that have direct
accountability for sales or production target achievement. They have the
authority to give command or orders to subordinates; it exercises direct
downward authority over line departments (ex. VP for Operations over
operations manager).

Staff functions - are management structures that assist the line managers
to achieve their targets by extending support. They have the authority to
advise but not to command others. It is exercised laterally or upward.

STAFF VERSUS LINE FUNCTION

Line Function Staff Function
Target Line managers are The staff function
Accountability directly responsible for governs advisory services
achievement of target that impact the efficacy

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 oriented jobs that form of the line function but
the core of the do not
business's
existence, such as sales directly take part in the
or production. production planning and
marketing.
Reporting Line managers have the The directions given by
Authority authority to overrule staff managers are
the suggestions given by expected to be followed
the staff manager. by line managers.
Line function can give Staff function cannot give
direct orders to direct orders to
subordinates. subordinates.

CONTROLLERSHIP – the practice of the established science of control, which

is the process by which management assures itself that company resources
are obtained and utilized according to plans that are in line with the
company’s set objectives.

THE TREASURER
• responsible for managing corporate assets and liabilities, planning
the finances, budgeting capital, financing the business, formulating
credit policy, and managing the investment portfolio.
• He serves as front liners because they are the ones who face
customers, banks, suppliers, creditors and investors.
• He reports to the vice president for finance.

THE CONTROLLER
• is in charge of the accounting department, generally known as the
“chief accountant”.
• His authority is basically staff authority in that his office gives
advice and service to other departments.
• at the same time, he has line authority over members of his or her
department such as internal auditors, bookkeepers, budget analysts,
etc.
• He is basically concerned with internal matters, namely, financial
and cost accounting, taxes, budgeting, and control functions.
• He serves as processors because he is the one who processes
information for the management, BIR, SEC, government agencies and the
like.
• He reports to the vice president for finance.

CONTROLLER VERSUS TREASURER

1. The Controller is primarily concerned with the accounting
function.
2. The Treasurer is primarily concerned with custody of funds.

Controller (PREGPET) Treasurer (PIBISCI)

Planning and control
Reporting and interpreting
Evaluation and consulting
Government reporting
Protection of assets
Economic appraisal
Tax administration
Provision of Capital
Investor relations
Banking and custody
Investments
Short-term financing
Credit and collections
Insurance

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STANDARDS OF ETHICAL CONDUCT (CICO)
COMPETENCE
• Maintain an appropriate level of professional competence by ongoing
development of their knowledge and skills.
• Perform their professional duties in accordance with relevant laws,
regulations and technical standards.
• Prepare complete and clear reports and recommendations after
appropriate analysis of relevant and reliable information

INTEGRITY
• Avoid actual or apparent conflicts of interest and advise all
appropriate parties of any potential conflict.
• Refrain from engaging in any activity that would prejudice their
ability to carry out their duties ethically.
• Refuse any gift, favor, or hospitality that would influence or would
appear to influence their actions.
• Refrain from either activity or passively subverting the attainment
of the organization's legitimate and ethical objectives.
• Recognize and communicate professional limitations or other
constraints that would preclude responsible judgment or successful
performance of an activity.
• Communicate unfavorable as well as favorable information and
professional judgment or opinion.
• Refrain from engaging or supporting any activity that would discredit
the profession.

CONFIDENTIALITY
• Refrain from disclosing confidential information acquired in the
course of their work except when authorized, unless legally obligated
to do so.
• Inform subordinates as appropriate regarding the confidentiality of
information acquired in the course of their work and monitor their
activities to assure the maintenance of that confidentiality
• Refrain from using or appearing to use confidential information
acquired in the course of their work for unethical or illegal
advantage either personally or through third parties.

OBJECTIVITY
• Communicate information fairly and objectively
• Disclose fully all relevant information that could reasonably be
expected to influence an intended user's understanding of the reports,
comments, and recommendations presented.

RESOLUTION OF ETHICAL CONFLICTS

• Discuss such problems with immediate superior except when it appears
that superior is involved, in which case the problem should be
presented to the next higher managerial level. If a satisfactory
resolution cannot be achieved when the problem is initially presented,
submit the issue to the next higher managerial level.
• If the immediate superior is the chief executive officer or
equivalent, the acceptable reviewing authority may be a group such as
the audit committee, executive committee, board of directors, board
of trustees, or owners. Contact with a level above the immediate
superior should be initiated only with the superior's knowledge.
Assuming the superior is not involved. Except where legally
prescribed, communication of such problems to authorities or
individuals not employed or engaged by the organization is not
considered appropriate.

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• Clarify relevant ethical issues by confidential discussion with an
objective adviser to obtain a better understanding of possible course
of action
• Consult your own attorney as to legal obligations and rights
concerning the ethical conflict.
• If the ethical conflict still exists after exhausting all levels of
internal review, there may be no other recourse on significant matters
than to resign from the organization and to submit an informative
memorandum to an appropriate representative of the organization.
After resignation, depending on the nature of the ethical conflict,
it may also be appropriate to notify other parties.

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