Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City
MANAGEMENT ACCOUNTING CONCEPTS
Accounting 142
THE CONCEPTS AND FUNCTIONS OF MANAGEMENT
The work of managers can be usefully classified as
planning, directing and motivating and controlling. All of
these activities involve making decisions.
A. PLANNING – involves carrying out the following
activities:
 Setting of immediate, as well as long-range
goals for the organization.
 Predicting future conditions that are expected
to prevail.
 Considering the different means or strategies
by which the goals set may be achieved.
 Deciding which of the strategies should be
used to attain such goals.
Goals – are outcome statements that define what
an organization is trying to accomplish both
programmatically and organizationally. They are
meant to provide a sense of direction and are
normally expressed in general, abstract statements.
Objectives – are precise, time-based and
measurable actions that support the completion of
a goal. They are more specific expressions of
actions and things to be done. When objectives
are set, specific plans are made.
 Strategic objectives and plans – are
company-wide plans with a long planning
horizon.
 Tactical objectives and plans – these plans
translate overall strategy into shorter range
specifics for each division or department. They
contain more details and are more action
oriented.
 Operational objectives and plans – these
plans are very detailed implementation of the
company’s strategy. They are annual plans
with specific objectives for individual
operating units.
 Contingency plans – also called disaster
recovery plans, these are plans implemented
in case of fire, flood, power outages or other
fortuitous events.
To be more useful, objectives should be specific,
measurable, attainable, realistic and time-
bounded. Moreover, objectives need to be
communicated and documented.
B. DIRECTING AND MOTIVATING – involves overseeing
the day to day activities, seeing to it that the
organization is functioning smoothly and the
members of the organization are mobilized to carry
out plans. This management function include the
following activities:
 Employee work assignments.
 Routine problem solving.
 Conflict resolution.
 Effective communications.
C. CONTROLLING – involves checking the performance
of activities against the plan or standards set and
deciding what corrective actions to take should
there be any deviation between the actual and
planned performance. Feedback in the form of
performance reports that compare actual results
with the budget are an essential part of the control
function.
 Preliminary or feedforward controls – used to
control input resources prior to the
organizational transition process and designed
to prevent problems from occurring.
 Screening or concurrent controls – used to
monitor the ongoing transformation process to
ensure that organizational standards and
goals are being met
 Post-action or feedback controls – used after
completion of the transformation process to
determine if and where corrective action
needs to be taken.
D. DECISION-MAKING – is an integral part of the other
three management activities.
Need for Managerial Accounting Information
Accurate and timely accounting information helps
management plan effectively and to focus attention on
deviations from plans. In the planning stage, managers
make decisions concerning which alternatives should be
selected. Financial information is often a vital component
of this decision-making. Once the alternatives have been
selected, detailed planning is possible. These detailed plans
are usually stated in the form of budgets.
Further, the control function of management is aided by
performance reports that compare actual performance to
the budget. This feedback mechanism directs attention to
activities where managerial attention is needed.
MANAGEMENT ACCOUNTING AND ITS SCOPE
The field of accounting that provides economic and
financial information for internal users, particularly the
managers or decision makers in an organization is called
managerial accounting or management accounting. This
field of accounting aims:
A. To provide information for costing services,
products and other objects of interests.
 Determining, accumulating and explaining
costs, both manufacturing and non-
manufacturing.
 Computing or determining product cost or
service cost.
 Determining cost behavior.
B. To provide information for planning, controlling,
evaluation and continuous improvement.
 Providing assistance to management in profit
planning and budgeting.
 Providing bases for cost control with the use of
standards costs and other planned objectives.
C. To provide information for decision making.
 Accumulating and presenting data which
may be used by managers in decision
making.
 Assisting managers in developing the
company’s prices both for external and
internal transactions.
Management accounting concepts apply to both profit-
oriented organizations and not for profit organizations. It
covers a much broader scope as it goes beyond the
boundaries of traditional accounting.
Management Accounting and Financial Accounting C. Evaluating and consulting – to consult with all levels
Typically, accounting can be divided into financial of management responsible for policy or action
accounting and managerial accounting. This division is concerning any phase of the operation of the
made primarily on the grounds of orientation of the reports. business as it relates to the attainment of objectives
and effectiveness of policies, organizational
Financial accounting Managerial accounting structures and procedures.
D. Tax administration – to establish or coordinate the
Historical in nature Deals about the future preparation of reports to government agencies.
Uses or is bound by the E. Government reporting – to supervise or coordinate
Does not use PFRSs the preparation of reports to government agencies.
PFRSs
F. Protection of assets – to assure protection for the
Reports are holistic Reports are segmentized assets of business through internal control, internal
Reports are for general Reports are for auditing and assuring proper insurance coverage.
purpose management use only G. Economic appraisal – to continuously appraise
economic and social forces and government
With the unifying equation: influences and to interpret their effect upon the
No unifying equation
A=L+C business.
Focuses on accounting Management accountants, regardless of their title, occupy
Multi-disciplinary
and finance a staff position and not a line position. A person in a line
Focuses on the process of position is directly involved in achieving the basic
Concerns with usefulness objectives of the organization. On the other hand, a person
preparing the financial
of the financial statements in a staff position is indirectly involved in achieving those
statement
basic objectives. Staff positions support line positions, but
Focus is on precise Focus is on timely they do not have direct authority over line positions.
information information
ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS
Reports cover a year, a Reports are prepared as Management accountants have an obligation to the
quarter or a month and needed and tend to be organizations they serve, their profession, the public and
tend to be compressed more extensive and themselves to maintain the highest standards of ethical
and simplified detailed conduct. In recognition of this obligation, the Institute of
Management Accountants has promulgated the ethical
Mandatory Optional standards below. Adherence to these standards is integral
in achieving the objectives of management accounting.
Though distinct from each other, financial accounting and
management accounting have some similarities. First, both A. COMPETENCE – management accountants have a
fields draw information from the same accounting system. responsibility to:
Second, both classifications use cost accounting data in  Maintain an appropriate level of professional
the preparation of reports. competence by on-going development of
their knowledge and skills.
CONTROLLERSHIP AND TREASURERSHIP  Perform their professional duties in
The chief management accounting executive of an accordance with relevant laws, regulations
organization is the controller who is mainly responsible for and technical standards.
the accounting aspect of management planning and  Prepare complete and clear reports and
control. In some organizations, the controller is called as the recommendations after appropriate analyses
vice president for finance, chief financial officer, of relevant and reliable information.
accounting manager, budget director or systems director.
B. CONFIDENTIALITY – management accountants
Basically, the controller:
have a responsibility to:
A. Accumulates and reports accounting information
 Refrain from disclosing confidential
to all levels of management.
information acquired in the course of their
B. Directs management’s attention to problems and
work except when authorized or legally
assists them in solving such problems.
obligated to do so.
Thus, the controller is responsible for both internal and  Inform subordinates as appropriate regarding
external accounting requirements and is responsible for the confidentiality of information acquired in
designing and operating a system through which control the course of their work and monitor their
information is collected and reported. activities to assure the maintenance of that
Controllership versus Treasurership confidentiality.
 Refrain from using or appearing to use
Controllership Treasurership confidential information acquired in the
course of their work for unethical or illegal
Planning and control Provision of capital advantage either personally or through third
Reporting and interpreting Investor relations parties.
C. INTEGRITY – management accountants have a
Evaluating and consulting Short-term financing responsibility to:
Government reporting Banking and custody  Avoid actual or apparent conflict of interest
and advise all appropriate parties of any
Protection of assets Credit and collection potential conflict.
 Refrain from engaging in any activity that
Economic appraisal Investments would prejudice their ability to carry out their
duties ethically.
Tax administration Insurance
 Refuse any gift, favor or hospitality that would
A. Planning and control – to establish, coordinate and influence or would appear to influence their
administer, as an integral part of management, an actions.
adequate plan for the control of operations.  Refrain from either actively or passively
B. Reporting and interpreting – to compare subverting attainment of the organization’s
performance with operating plans and standards legitimate and ethical objectives.
and to report and interpret results of operations to  Recognize and communicate professional
the concerned users of such reports. 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.
 Refrain from engaging in or supporting any
activity that would discredit the profession.
D. OBJECTIVITY – management accountants have the
responsibility to:
 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
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 organization’s established
policies for resolving ethical conflict. If this does not work
the following guidelines should be considered:
A. Discuss such problem 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 managerial
level. If a satisfactory resolution cannot be
achieved when the problem is initially presented,
submit the issues to the next higher managerial
level.
B. If the immediate superior is the chief executive
officer or its equivalent, the acceptable reviewing
authority may be a group such as the audit
committee, executive committee, board of
directors, board of trustees or owners.
C. Contact with levels above the immediate supervisor
should be initiated only with the superior’s
knowledge assuming the superior is not involved.
D. Except when legally prescribed, communication of
such problems to authorities or individuals not
employed or engaged by the organization is not
considered appropriate. Thus, maintain
confidentiality except where legally required.
E. Clarify issues in a confidential discussion with an
objective advisor to obtain a better understanding
of possible courses of action.
F. Consult an attorney as to any legal obligations and
rights concerning the ethical conduct.
G. 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.
H. After resignation, depending on the nature of the
ethical conflict, it may also be appropriate to notify
other parties.