CABUHAT, RHEA ROYCE O.

LECTURE
Managerial accounting is the branch of accounting that deals with providing accounting
information that is useful to managers in decision-making. Unlike financial accounting, it
does not focus on following reporting standards. Rather, it makes use of principles from
different fields of business to cater to management needs.
Managerial accounting involves budgeting and forecasting, performance evaluation,
financial analysis, product costing and pricing, evaluation of business decisions,
governance, corporate finance, and other areas.

Managerial accounting, or management accounting, is the branch of accounting that

focuses on providing information for use by internal users.
Internal users pertain to those working within the company, specifically the management.
As defined by the American Accounting Association,
"Managerial accounting involves the application of appropriate techniques and concepts in
processing information to assist management in establishing plans and making rational
decisions towards the achievement of the organization's objectives."
Line and Staff Function
There are two broad functions in an organization: line and staff. Line function is the one that
is directly involved in the core operations of the company such as sales and production.
Staff function, on the other hand, provides advisory and support to the organization.
Generally, management accountants exercise staff functions. They support the company
by providing information to enable decisions which are vital for the company's performance
and continuity.
The Chief Management Accountant (or controller) exercises line function over his or her
subordinates, and performs staff functions to the other members of the management.
The Management
1. Top management - The top management or administrative level consists of the
Chief Executive Officer (CEO) and the board of directors (BOD). The CEO is also called
the managing director or president, and is selected by the board of directors from among
themselves. The BOD is selected by the shareholders to represent them in managing
the company. The top level management is in-charge with the overall direction of the
company. They set company goals, policies and long-term plans.
2. Middle management - Also known as executory management, the middle-level
management consists of departmental heads and branch managers. They implement
and execute the plans and policies set by the top managements. The middle
management is the intermediary between the top and low level management. They
CABUHAT, RHEA ROYCE O.

report to the top management as well as communicate the plans of the top level to the
lower levels.
3. Low level management - The low level management or front-line management is
responsible in directing and controlling the day-to-day operations of the company. They
report directly to the middle management. The lower level management consists of
supervisors, foremen, and officers who are in-charge of directing workers and
employees.
Chief Management Accountant (Controller)
The Chief Management Accountant or Controller, sometimes "Comptroller" especially in
government agencies, is mainly responsible for the accounting aspects of management
planning and control. The controllership department carries out the following functions:
1. Planning and control - such as making budgets and determining expectations
regarding future outcomes of alternative courses of action
2. Internal reporting and interpreting - accumulating and summarizing financial data
and disclosing its implications to different levels of management
3. Evaluation and consulting - assessing different alternatives giving advice to the
management to come up with appropriate decisions
4. Tax administration - supervising the formulation and implementation of tax policies
and procedures of the organization and evaluating implications of tax-related decisions
5. External reporting - preparation of financial statements in accordance with
appropriate accounting standards to meet the information needs of external users,
especially the government
6. Protection of assets - implementing internal controls, insurance and performing
internal audits to protect the company from losing its assets because fraud, theft, natural
disasters, etc.
7. Economic appraisal - assessing the value the economic and social and
government influences, and interpret their effects or impact on the business
Often compared to the controllership function is the treasurership function. Both the
controller and the treasurer report directly to the company's head of finance. While the
controller's functions involve internal finance and accounting, the treasurer's responsibilities
involve external finance and cash functions.
The functions of the treasurer include: (1) provision of capital, (2) investor relations, (3)
short-term financing, (4) banking and custody, (5) credit and collections, (6) investments,
and (7) insurance.
Conclusion
Managerial accounting processes economic information to aid the management in making
decisions. It is not manadatory yet very important. Without managerial accounting, a
business would suffer in information deficiency leading to uninformed decisions that are
detrimental to the entity's performance and even to its existence.
CABUHAT, RHEA ROYCE O.

Managerial Accounting vs. Financial Accounting

Managerial accounting and financial accounting are two of the most prominent branches of
accounting. They both deal with processing information which is useful in decision-making;
however, they have notable differences that distinguish them from each other.
Managerial accounting processes economic information to be used by management in
making decisions.
Financial accounting involves the preparation of general-purpose financial statements
used by various users in making informed decisions.
The differences between managerial accounting and financial accounting can be
summarized according to the following bases of comparison:
Difference between Managerial and Financial Accounting
Basis Financial Accounting Management Accounting
1. Users Internal and external Internal

General-purpose financial statements can The reports prepared in managerial

be used by external and internal users. accounting are strictly for use by
However, they are prepared primarily for internal users, i.e. the management.
external users, such as the investors,
lenders and creditors, and the government.

2. Compliance Required Not required

with accounting
Financial accounting requires strict Management accounting is not
standards
compliance with established accounting required to follow accounting
standards. standards since the only users are
the members of the management.
3. Time Historical Current and future
orientation
Financial accounting processes historical Management accounting deals with
information and summarizes them in the current problems of the company.
preparation of financial statements. Also, management accounting
involves the preparation of budgets
and forecasts.

4. Emphasis Reliability, verifiability, objectivity of Relevance and timeliness, to provide

financial information the maximum aid in management
decisions
5. Necessity Mandatory Optional

Financial accounting is required by law. Management accounting is not

CABUHAT, RHEA ROYCE O.

Companies are mandated to furnish mandatory. However, a company

financial statements periodically. that does not use it will suffer great
consequences.

6. Purpose of General-purpose Special-purpose

reports
Financial statements provide general The financial reports in managerial
information, addressing the common accounting address a specific issue
needs of its users. or concern.
7. Details of Concise More detailed
reports
Financial statements present data in an Financial reports carefully detail all
summarized and concise way. information that the management
should consider in making specific
decisions.

8. Sources of Sources within the company, i.e. the Any source, both internal and
data accounting records of the company external such as interest rates,
political environment, economic and
industry concerns, etc.
9. Frequency of Financial statements are usually furnished Financial reports in management
reports monthly, quarterly, annually. accounting are prepared as the need
arises.

There have been arguments as to which between financial accounting and managerial accounting is
more important. However, it is somewhat pointless to argue on which is more important. Each has its
own purpose in the business environment.

Cost Accounting vs. Managerial Accounting

Cost accounting is often associated with managerial accounting. Management accountants
need to understand cost and its concepts. Cost concepts are useful in many areas of
managerial accounting, such as in cost-benefit analysis, investing and financing decisions,
performance evaluation, and many others.
Despite the presence of overlapping topics, cost accounting and managerial accounting are
two different branches having different study focus.
Cost Accounting
Cost accounting is defined as "a systematic set of procedures for recording and reporting
measurements of the cost of manufacturing goods and performing services in the aggregate
and in detail. It includes methods for recognizing, classifying, allocating, aggregating and
reporting such costs and comparing them with standard costs." (IMA)
 CABUHAT, RHEA ROYCE O.

Cost accounting focuses on the accumulation of costs incurred and allocating or assigning
such costs to products or departments.
Managerial Accounting
Managerial accounting (or management accounting) "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." (IMA)
It is the process of identification, measurement, accumulation, analysis, preparation,
interpretation, and communication of financial information, which is used by management to
plan, evaluate, and control within an organization.
Difference between Cost Accounting and Managerial Accounting
Based from the definitions given above, the difference between the two lies in their
functions. The main function of cost accounting is cost accumulation and allocation to
determine cost values. Managerial accounting, on the other hand, provides information
(including cost information) to the members of the management for decision-making
purposes.
Financial accounting, another distinct branch of accounting, also utilizes cost accounting
concepts. Cost accounting provides the needed values to be reported in the financial
statements, especially in the computation and presentation of cost of sales.

Standards of Ethical Conduct for Management

Accountants
Management accountants should behave ethically. They have an obligation to follow the
highest standards of ethical responsibility and maintain good professional image.
The Institute of Management Accountants (IMA) has developed four standards of ethical
professional conduct.
The IMA Statement of Ethical Professional Practice has been revered as the central code of
ethics for management accountants.
1. Competence
 Maintain an appropriate level of professional expertise by continually developing
knowledge and skills.
 Perform professional duties in accordance with relevant laws, regulations, and
technical standards.
 Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
 CABUHAT, RHEA ROYCE O.

 Recognize and communicate professional limitations or other constraints that would

preclude responsible judgment or successful performance of an activity.
2. Confidentiality
 Keep information confidential except when disclosure is authorized or legally
required.
 Inform all relevant parties regarding appropriate use of confidential information.
Monitor subordinates' activities to ensure compliance.
 Refrain from using confidential information for unethical or illegal advantage.
3. Integrity
 Mitigate actual conflicts of interest; regularly communicate with business associates
to avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
 Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
 Abstain from engaging in or supporting any activity that might discredit the
profession.
4. Credibility
 Communicate information fairly and objectively.
 Disclose all relevant information that could reasonably be expected to influence an
intended user's understanding of the reports, analyses, or recommendations.
 Disclose delays or deficiencies in information, timeliness, processing, or internal
controls in conformance with organization policy and/or applicable law
Resolution of Ethical Conflict
In applying the Standards of Ethical Professional Practice, you may encounter problems
identifying unethical behavior or resolving an ethical conflict. When faced with ethical
issues, you should follow your organization's established policies on the resolution of such
conflict. If these policies do not resolve the ethical conflict, you should consider the following
courses of action:
 Discuss the issue with your immediate supervisor except when it appears that the
supervisor is involved. In that case, present the issue to the next level.
 If you cannot achieve a satisfactory resolution, submit the issue to the next
management level. If your 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 levels
above the immediate superior should be initiated only with your superior's knowledge,
assuming he or she is not involved. Communication of such problems to authorities or
individuals not employed or engaged by the organization is not considered appropriate,
unless you believe there is a clear violation of the law.
 Clarify relevant ethical issues by initiating a confidential discussion with an IMA
Ethics Counselor or other impartial advisor to obtain a better understanding of possible
courses of action.
 CABUHAT, RHEA ROYCE O.

 Consult your own attorney as to legal obligations and rights concerning the ethical
conflict.