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UNIVERSITY OF SOUTHERN PHILIPPINES FOUNDATION

CPA Review
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MANAGEMENT ADVISORY SERVICES

OBJECTIVES, ROLE AND SCOPE OF MANAGEMENT ACCOUNTING

Management Accounting (MA):

IFAC - the process of identification, measurement, accumulation, analysis, preparation, interpretation, and
communication of information (both financial and operating) used by management to plan, evaluate,
and control within an organization and to assure use of and accountability of its resources (IFAC).
CIMA - CIMA added that MA also comprises the preparation of financial reports for non- management groups
such as shareholders, creditors, regulatory agencies and tax authorities.”
IMA - IMA updated its definition, management accounting is a profession that involves partnering in
management decision making, devising planning and performance management systems, and providing
expertise in financial reporting and control to assist management in the formulation and implementation
of an organization’s strategy.”
AICPA - AICPA describes three areas in MA; (1) Strategic Management; (2) Performance Management; and (3)
Risk Management
ICMA- ICMA states that management accountant applies his or her professional knowledge and skill in the
preparation and presentation of financial and other decision-oriented information in such a way as to
assist management in the formulation of policies and in the planning and control of the operation of the
undertaking.
- Also called Managerial Accounting or Internal Accounting, a field of accounting that provides economic
and financial information for internal users, particularly the managers or decision-makers in an
organization.

Strategic Management

Three objectives of management accounting:

1) To provide information for costing services, products and other objects of interest to management.
2) To provide information for planning, controlling, evaluation and continuous improvement.
3) To provide information for decision making.

Three roles of management accountants

1) Problem solving: comparative analysis for decision.
2) Scorekeeping: accumulating data and reporting reliable results.
3) Attention directing: the function of managerial accounting information in pointing out to managers
issues that need their attention, thereby helping managers properly focus their attention.

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Management Accounting Financial Accounting

Targeted user: Internal users managers
Restrictions: No mandatory rules for preparing
reports
Types of information: Financial and nonfinancial
information
Time orientation: Emphasizes the future (planning
and decision making)
Aggregation: Detailed information about
product line, departments, etc.
External users stockholders and
creditors
Must follow GAAP when
preparing financial statements
Financial information
Historical orientation (reports
what has already occurred)
Information about overall firm
performance

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

Historical in nature. Forecasts and estimates.
Uses IFRSs Does not use IFRS
Reports are holistic. Reports are segmented.
Reports are for general-purpose. Reports are for management use only.
With unifying equation, A=L+C No unifying equation.
Focuses on accounting and finance. Multi-disciplinary, also deals with other
areas of knowledge and discipline.
Focuses on the process of preparing the Concerns with the usefulness of financial
financial statements. statements.
Precision. Timeliness.

In general, accounting information needed by internal users differs from that needed by external users in the
following ways:
a. More flexible
b. Does not have to comply with GAAP or other rules
c. Forward looking
d. Timely
e. Emphasizes segments, not necessarily the entire organization

The Work of Management and the Planning and Control Cycle. The work of managers can be usefully
classified into three major categories: planning, directing and motivating, and controlling. All of these activities
involve making decisions.

1. Planning consists of strategic planning and developing more detailed short-term plans. Most of what we
prefer to below is with reference to the more detailed short-term plans.
2. Directing and motivating involves mobilizing people to implement the plan.
3. Control is concerned with ensuring that the plan is followed. Accountants maintain the databases and
prepare the reports that provide feedback to managers. The feedback can be used to reward particularly
successful employees, but more importantly the feedback can be used to identify potential problems and
opportunities that were not anticipated in the plan.
4. Decision-making is an integral part of the other three management activities.

HOW MANAGERIAL ACCOUNTING ADDS VALUE

 Provides managers with information (e.g., product costs, budgets, cash flows). The information includes
financial and nonfinancial data to help managers with strategic planning and decision making.
 Assists in directing and controlling (analyzing and comparing actual performance to budgeted plans;
attention-directing to highlight successful or problem areas).
 Motivates managers to achieve the organization’s goals by communicating the plans, providing a
measurement of how well the plan was achieved, and prompting an explanation of deviations from plans
 Measures performance not only for the entire organization, as in financial accounting, buut also for
many subunits (divisions, departments, managers).
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 Assesses the organization’s competitive position in the rapidly changing business environment. Looks at
how well the firm is doing internally, in the eyes of its customers, from the standpoint of innovation and
continuous improvement, and financially.

Objectives of Management Accounting and Management Accounting Information

1. Profit measurement
2. Guide for planning
3. Standards for controlling
4. Basis for decision making

Attributes and Principles of Management Accounting Information

1. Completeness 6. Volume
2. Accuracy 7. Timing
3. Clarity 8. Channel of Communication
4. Confidence 9. Cost
5. Communication

Other Attributes of Management Accounting Information

1. It may be quantitative or qualitative
2. It should be free from bias
3. It is generally forward looking
4. It should have the inherent attributes of an accounting process

CONTROLLERSHIP AND TREASURERSHIP

Controller - the chief management accounting executive of an organization who is mainly responsible for the
accounting aspects of planning and control. In practice, also called as, VP for Finance, CFO,
Accounting Manager, Chief Information Office or Financial Systems Administrator who
deals with records, system and processes to attain the objectives of internal controls and good
managing. The chief financial officer (CFO) or controller is the chief accountant responsible
for:
 The supervision of the accounting department
 Preparation of reports
 The interpretation of information to line managers

Treasurer - deals with the management of the wealth of the organization. It includes mastering the sources of
money (i.e. financing, operating and investing) and the exercise of prudence in using the money of
an organization.

The treasurer is responsible for:

 raising capital
 safeguarding assets
 managing investments
 insurance coverage
 Credit policy of an organization.

CONTROLLERSHIP
Planning and control
Reporting and Interpreting
Evaluating and consulting
Tax administration
Government reporting
Protection of assets
Economic appraisal
TREASURERSHIP
Provision of Capital
Investor Relations
Short-term financing
Banking and custody
Credit and collections
Investments
Insurance

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Line personnel are directly involved in carrying out the mission of the organization (e.g., assembly workers in a
factory, doctors in a hospital, teachers in a school).

Staff personnel (accountants, lawyers, personnel directors, and other administrative positions) provide support
for the organization’s mission.

Internal Certifications for Management Accountants

1. Certified Public Accountant (CPA)
2. Certified Financial Manager (CFM)
3. Certified Management Accountant (CMA)
4. Chartered Financial Analyst (CFA)
5. Certified Internal Auditor (CIA)
6. Certified Treasury Professional (CTP)
7. Certified Information System Auditor (CISA)

IMA Standards of Ethical Conduct for Management Accountants

1. 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 analyses of
relevant and reliable information.

2. 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 disadvantage either personally or through third parties.

3. 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 actively 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 judgments or
opinions.

4. Objectivity
 Communicate information fairly and objectively.
 Disclose full 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 Conflict

In applying the standards of ethical conduct, management accountants may encounter problems in
identifying unethical behavior or in resolving an ethical conflict. When faced with significant ethical
issues, management accountants should follow the established policies of the organization bearing on
the resolution of such conflict. If these policies do not resolve the ethical conflict, management
accountants should consider the following courses of action:

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 Discuss such problems with the immediate superior except when it appears that the superior is
involved, in which case the problem should be presented initially to the next higher
management level. If satisfactory resolution cannot be achieved when the problem is initially
presented, submit the issues to the next higher managerial level.
 If the immediate superior is the chief executive officer, or the equivalent, the acceptable
reviewing authority may be a group such as the audit committee, board of directors, board of
trustees or owners. Contact with levels above the immediate superior should be initiated only
with the superior’s knowledge, assuming the superior is not involved.
 Clarify relevant concepts by confidential discussion with an objective advisor to obtain an
understanding of possible courses of action.
 If the ethical conflict still exists after exhausting all levels of internal review, the management
accountant may have no other recourse on significant matters that to resign from the
organization and to submit an informative memorandum to an appropriate reperesentative of the
organization.

Except where legally prescribed, communication of such problems to authorities or individuals not
employed or engaged by the organization is not considered appropriate.

Exercise 1. Indicate whether each of the following pertains to financial accounting or managerial accounting.
1. An internal report used by management
2. An external report used by investors
3. A report prepared according to GAAP
4. A report prepared periodically (monthly, quarterly, annually)
5. Information is subjective, relevant, future-oriented
6. Reports are prepared as needed
7. Information is reported at the decision making level
8. Information is reported for the company as a whole
9. Information is objective, reliable and historical
10. The report is verifiable and reliable
11. It is driven by rules
12. It is prepared for shareholders
13. It provides reasonable and timely estimates
14. Information focused on the long term
15. There are no regulations governing the reports
16. The reports are generally delayed and historical
17. The audience tends to be stockholders, creditors, and tax authorities
18. The scope tends to be highly aggregate
19. Preparation of reports whenever needed
20. Reliance on the criterion of usefulness rather than formal guidelines or restrictions for gathering and
reporting information
21. A focus on a segment of the business entity
22. Reporting of historical information
23. Contribution approach income statement
24. External users of financial report

Exercise 2. Classify each of the following as either line manager or staff manager.
1. Chief financial officer (CFO)
2. Vice-president for government relations
3. Controller
4. Manager of food and beverage services
5. Company treasurer
6. Ticket agent of an airline entity
7. Store manager
8. In-house attorney
9. HR manager

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Exercise 3. Multiple Choice Questions.

1. The primary purpose of management advisory services is
a. To achieve the objectives of the MAS firm.
b. To help the client maximize its resources.
c. To help the client’s use of its capabilities and resources to achieve the objectives of such client’s
organization.
d. To help the client identify its problems.

2. Which of the following is a characteristic of management advisory services?

a. Services rendered are for third parties.
b. Engagements are usually recurring.
c. Human relations do not play a vital role in each engagement.
d. It involves problem solving.

3. Management accounting:
a. Focuses on estimating future revenues, costs, and other measures to forecast activities and their
results.
b. Provides information about the company as a whole
c. Reports information that has occurred in the past that is verifiable and reliable
d. Provides information that is generally available only on a quarterly or annual basis

4. Which of the following is not an objective of managerial accounting?

a. Providing information for decision making and planning.
b. Assisting in directing and controlling operations.
c. Maximizing profits and minimizing costs.
d. Measuring the performance of managers and subunits.

5. Management accounting is considered successful when it:

a. Helps creditors evaluate the company’s performance
b. Helps managers improve their decisions
c. Is accurate
d. Is relevant and reported annually

6. Managerial accountants:
a. Often work on cross-functional teams.
b. Are located throughout an organization.
c. Are found throughout an organization and work on cross-functional teams.
d. Are found primarily at lower levels of the organizational hierarchy.

7. Modern cost accounting plays a role in:

a. Planning new products
b. Evaluating operational processes
c. Controlling costs
d. All of these

8. The approaches and activities of managers in short-run and long-run planning and control decisions
that increase value for customers and lower costs of products and services are known as: HG
a. Value chain management
b. Enterprise resource planning
c. Cost management
d. Customer value management

9. A managerial emphasis for cost accounting means

a. Accountants are focused on decision support.
b. Accountants are the watchdogs that make sure managers adhere strictly to strategic plans.
c. Managers use cost accounting for providing financial information but look elsewhere
nonfinancial information.
d. Managers must take courses in cost accounting.

10. The function of management that compares planned results to actual results is known as: GN
a. Planning.
b. Directing and motivating.
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c. Controlling.
d. Decision making.

11. The process of establishing objectives or goals for the firm and determining the means by which they
will be met is:
a. Controlling.
b. Analyzing profitability.
c. Planning.
d. Assigning responsibility.

12. Which of the following functions is best described as choosing among available alternatives?
a. Decision making.
b. Planning.
c. Directing operational activities.
d. Controlling.

13. Which of the following managerial functions involves a detailed financial and operational
description of anticipated operations?
a. Decision making.
b. Planning.
c. Directing operational activities.
d. Controlling.

14. Trio Company has set various goals, and management is now taking appropriate action to ensure that
the firm achieves these goals. One such action is to reduce outlays for overhead, which have
exceeded budgeted amounts. Which of the following functions best describes this process?
a. Decision making.
b. Planning.
c. Coordinating.
d. Controlling.

15. Controlling is the process of monitoring the company’s operations to determine whether the
company’s objectives are being achieved. Effective control is achieved through all of the following
except:
a. Periodically measuring and comparing company results.
b. Assigning responsibility for costs to employees responsible for those costs.
c. Constantly monitoring employees to ensure they do exactly as they are told.
d. Taking necessary corrective action when variances warrant doing so.

16. Which of the following statements represents a similarity between financial and managerial
accounting?
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both draw upon data from an organization’s accounting system.
d. Both rely heavily on published financial statements.

17. That kind of accounting concerned with providing information to management in making decisions
about the operations of the business
a. Responsibility accounting c. Management accounting
b. Cost accounting d. Correct answer no given

18. Management accounting

a. Is governed by generally accepted accounting principles.
b. Draws from disciplines other than accounting.
c. Is geared primarily to the past rather than the future.
d. Places more emphasis on precision of data compared with financial accounting which does
snot.

19. A type of managerial accounting which refers to the determination of the operating cost regardless of
cost behavior is
a. Differential accounting c. Responsibility accounting
b. Full cost accounting d. Profitability accounting
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20. Which of the following characteristics does not relate to management accounting?
a. Accounting reports may include non-monetary information
b. It is subject to restrictions imposed by GAAP.
c. Reports are often based on estimates and are seldom useful for anything other than the
purpose for which they are prepared.
d. It provides data for internal users within the business organization.

21. Management accounting is an integral part of the management process. As such, it provides
essential information for the following objectives except
a. Maintaining the current level of resource utilization as well as internal and external
communication.
b. Measuring and evaluating performance.
c. Planning strategies and controlling current activities of the organization.
d. Enhancing objectivity in decision-making.

22. Statement 1 Managerial control and engineering control are synonymous.

Statement 2 Control from the viewpoint of management accounting is defined as the process
of setting maximum limits on financial expenditures.

a. b. c. d.
Statement 1 True False True False
Statement 2 True False False True

23. Which type of authority do management accountants generally exercise?

a. Functional b. Company c. Line d. Staff

24. Which of the following is not a characteristic of a “Staff” authority?

a. It gives support, advise, and service to line managers.
b. It is exercised laterally or upward.
c. It has the authority to command action or give orders to subordinates.
d. None of the above

25. In financial accounting, certain rules and regulations must be followed on how financial statements
must be presented to the reader. In managerial accounting, no such restrictions generally apply
because it is:
a. An entirely different field that need not observe the broad guidelines in financial accounting.
b. Designed to provide management with non-financial information for decision-making.
c. Designed to provide accounting and other financial data to assist management in making
business decisions.
d. A discipline that does not require preparation of other financial statements.

26. Which of the following characteristics relate to Financial Accounting?

a. Reports are promptly prepared and submitted to preserve its usefulness.
b. Data may be both historical and estimates.
c. It must adhere to the generally accepted accounting principles.
d. It provides information needed by management in making decisions.

27. The following characteristics refer to Financial Accounting except

a. Provides information to external users
b. Emphasizes on objective data
c. Has no externally imposed standards
d. Generates general purpose financial statements

28. To distinguish between management accounting and financial accounting, the following statements
are correct, except
a. Management accounting, in view of its various integrated recipients should have a separate
data recording and retrieval system from financial accounting.
b. Financial accounting is bound by GAAP, and management accounting need not be in
conformity with GAAP.

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c. Financial accounting can be regarded as the process while management accounting can be
regarded as the product of the process.
d. Management accounting output must be released on time so as not to erode its usefulness;
Financial accounting output can still be useful even when delayed.

29. Which of the following is a Controller’s responsibility?

a. Tax planning and accounting c. In charge of credit and collection
b. Custodian of funds d. Arranging short-term financing

30. You were newly appointed as controller of CZX Corporation. Among the jobs your department
would do include the following:
a. Cash receipts, cash disbursements, general accounting, taxation, financial accounting
analysis, and internal auditing.
b. Financial reporting, strategic planning, managerial accounting, taxation, financial statement
analysis, and internal accounting.
c. Financial accounting, managerial accounting, cost accounting, inventory accounting, payroll
accounting, tax accounting and sales forecasting.
d. Tax accounting, managerial accounting, internal auditing, general accounting.

31. Controllership has attained special recognition in corporate management as business expands in
complexity and reach, and as the controller exerts influence for management to take organization’s
goals. Controllership and treasurership constitute corporate finance. These are among the
controller’s traditional functions:
1. Tax management.
2. Financial reporting and interpretation.
3. Credit management.
4. Sourcing and investing of funds.
5. Reporting to government regulatory agencies.
6. Risk management.
7. Economic appraisal.
8. Planning for control.

a. All eight items. c. Items 1, 2, 3, 4, 5, 7, and 8 only.

b. Items 1, 2, 5, 7, and 8 only. d. 2, 3, 5, and 7, and 8 only.

32. The chief management accountant called “controller” traditionally performs these functions except:
a. The establishment and implementation of the financial planning process.
b. Financial and management reporting and interpretation.
c. Protection of company resources and economic evaluation.
d. Preparation of proposals for product promotions.

33. As business increase in complexity, the function of controllership has attained top level recognition
in the corporate area. Many areas related to finance and accounting have been identified with
controllership. One area that becomes controversial when included under the controller and viewed
that such inclusion violates basic internal control is
a. Credit and collection.
b. Internal auditing.
c. Long-range financial planning.
d. Taxation and reporting to government agencies.

34. Which of the following is not usually a controller’s function?

a. Planning for control. c. Tax administration.
b. Protection of assets. d. Credit and collection.

35. Which of the following is not a Controller’s function?

a. In charge of planning and control
b. Protection of assets such as adequate insurance coverage. Etc.
c. Interpreting and reporting on effects of external factors on the business
d. Arranging short-term financing

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36. Controllers are generally not concerned with

a. Reporting to government c. Protection of assets
b. Preparation of tax returns d. Investor relations

37. Which of the following is a Controller’s responsibility?

a. Tax planning and accounting c. In charge of credit and collection
b. Custodian of funds d. Arranging short-term financing

38. Which of the following is not a controllership function, as distinguished from a treasury function?
a. Reporting and interpreting c. Protection of assets
b. Credit and collection d. Government reporting

39. Which of the following is best described as choosing among available alternatives?
a. Decision-making
b. Directing operational activities.
c. Planning
d. Controlling

40. EM Company has set various goals, and management is now taking appropriate action to ensure that
the firm achieves these goals. One such action is to reduce outlays for overhead, which have
exceeded budgeted amounts. Which of the following functions best describes this process?
a. Decision-making c. Coordinating
b. Planning d. Controlling

41. Effective control is achieved through all of the following, except

a. Periodically measuring and comparing company results.
b. Assigning responsibility for costs to employees responsible for those costs.
c. Constantly monitoring employees to ensure they do exactly as they are told.
d. Taking necessary corrective action when variances warrant doing so.

42. Which activity is not normally performed by management accountants?

a. Assisting managers to interpret data in managerial accounting reports.
b. Designing systems to provide information for internal and external reports.
c. Gathering data from sources other than the accounting system.
d. Deciding the best level of inventory to be maintained.

43. Which of the following groups would least likely to receive detailed management accounting
reports?
a. Stockholders
b. Production supervisors
c. Sales representative
d. Managers

44. Which of the following statements relating to Standards of Ethical Conduct for Management
Accountants is correct?
a. A management accountant should refuse all gifts and hospitality offered by one of the
company’s suppliers.
b. A management accountant should inform his superiors regarding the confidentiality of
information acquired in the course of their work and monitor their activities to assure the
maintenance of that confidentiality.
c. A management accountant should prepare complete and clear reports and recommendations
before appropriate analyses of relevant and reliable information.
d. Management accountants have a responsibility to disclose fully all relevant information that
could reasonably be expected to influence an intended user’s understanding of the reports,
comments, and recommendations presented.

45. The Standards of Ethical Conduct for Management Accountants developed by the Institute of
Management Accountants states that significant ethical issues should be discussed with an
immediate superior unless the superior is involved. If satisfactory resolution cannot be achieved
when the problem is initially presented, then the issues should be
a. Submitted to the next higher managerial level.
b. Submitted to the chief executive officer.
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c. Submitted to the audit committee, executive committee, board of directors, or owners.

d. Submitted to outside legal counsel.

46. Which of the following is not an element of competency?

a. To develop appropriate knowledge about a particular subject.
b. To perform duties in accordance with relevant laws.
c. To perform duties in accordance with relevant technical standards.
d. To refrain from engaging in an activity that would discredit the accounting profession.

47. The organizational chart

a. Is used only in centralized organization
b. Is applicable only to profit-oriented companies
c. Depicts only line functions
d. Depicts the lines of authority linking various positions

48. Which of the following is not a characteristic of a “staff” authority?

a. It gives support, advise and service to line managers
b. It is exercised laterally and upward
c. It has authority to command action or give orders to subordinates
d. None of the above

49. The management of an organization has stated that two members of the same family may not be
employed in the same department. Identify the component of organization planning that is being
demonstrated by management’s action
a. A strategy
b. A policy
c. An objective
d. A mission statement

50. The concept of “management by exception” refers to management’s

a. Consideration of only those items which vary materially from plans
b. Consideration of only rare events
c. Consideration of items selected at random
d. None of the above

-END OF HANDOUTS-

RM MONTALBAN MAS 2001