Managerial Accounting

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Managerial Accounting: Basic Framework

Module 001: Managerial Accounting: Basic

Framework

Course Learning Outcomes:

At the end of this module, the student will be able to know and understand:
1. The concept of management and the basic management functions
2. The definition of managerial accounting
3. The difference between managerial accounting and financial accounting
4. The Standards of Ethical Conduct for Management Accountants
5. The controller, the functions of controller and the difference between
controller and treasurer

The Concept of Management

According to Webster, management is “a judicious use of means to accomplish an end”.
Others define management as “a process of accomplishing work through and with people”.
Whichever definition is used management involves achieving something (an end or a goal)
by wisely using strategies (ways or means). Applied to a business organization, management
involves the attainment of certain goals by judiciously utilizing its capabilities and resources.
In managerial accounting, management is defined as the process of planning, organizing, and
controlling tasks to realize the objectives of an organization.

Basic Management Functions

To attain the goals set for the firm, the managers should carry out their functions
effectively and efficiently. These functions are planning, organizing, and controlling.
• Planning involves: (1)setting immediate and long-term objectives; (2) predicting
future conditions that are expected to prevail; (3) considering the different means or
strategies by which the goals set may be achieved; and (4) deciding which
Planning alternative is best suited to attain the set objectives.

• Organizing involves (1) deciding how to utilize available resources as plans are
carried out and (2) tackling activities necessary to achieve objectives such as
Organizing staffing, subordinating, directing and motivating.

• Controlling involves 1)comparing actual performance with set plans or standards

and (2) deciding what corrective actions to take should there be any deviation
Controlling (variance) between actual and planned performance.

Course Module
 Decision-making is an inherent function of management. All management functions
would require certain amount of decision making. In performing the decision-making
function, managers need information. Such information is provided by managerial
accountants.

Definition of Managerial Accounting

Managerial Accounting (also called Management Accounting or Internal Accounting) is a
field of accounting that provides economic and financial information for internal users,
particularly the managers or decision-makers in an organization. It is an application of
appropriate techniques and concepts in processing historical and projected economic data
of an entity to assist management in establishing plan to meet economic objectives and in
making rational decisions with a view toward achieving the objectives. (American
Association of Accountants)
Thus, managerial accounting’s main role is to provide accounting information to managers
who shall use these pieces of information as basis in making sound, objective and rational
business decisions.

Managerial Accounting Versus Financial Accounting

FINANCIAL ACCOUNTING MANAGERIAL

1. User of information
2. Guiding principles
3. Optional / Mandatory
4. Type of information
5. Emphasis of reports
6. Purpose/end result
7. Source of data
8. Amount of detail
9. Focus of information
10. Frequency
11. Time orientation
12. Unifying equation
Primarily for external users
(stockholders, creditors,
concerned government
agencies)
Generally Accepted
Accounting Principle
Mandatory (especially for
public entities)
Primarily monetary
(financial) in nature
Reliability (precision of
data)
Financial reporting and
compliance
From company’s (internal)
information system
Compressed and simplified
Focus mainly on business as
a whole
Periodic (annually,
quarterly)
Mainly historical (past) data
Assets = Liabilities + Equity
ACCOUNTING
Exclusively for internal
users (management)
Management wants and
needs
Discretionary or optional
Monetary and non-
monetary
Relevance (timeliness of
data)
Decision-making
From internal and
external sources
Extensive and detailed
Focus on segments and
business as a whole
As frequent as need
arises
Future-oriented using
current and past data
No unifying model or
equation
 Managerial Accounting
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Managerial Accounting: Basic Framework

Standards of Ethical Conduct for Management Accountants

Management accountants have an obligation to the organizations they serve, their
profession, the public, and themselves to maintain the highest standards of ethical conduct.
In recognition of this obligation, the Institute of Management Accountants, formerly the
National Association of Accountants, has promulgated the following standards of ethical
conduct for management accountants (competence, confidentiality, integrity and
objectivity). Adherence to these standards is integral to achieving the Objectives of
Management Accounting. Management accountants shall not commit acts contrary to these
standards nor shall they condone the commission of such acts by others within their
organizations.

Competence
Management accountants have the responsibility to:
 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.

Confidentiality
Management accountants have the responsibility to:
 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.

Integrity
Management accountants have the responsibility to:
 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.
Course Module
  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.

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 Conflict

In applying the standards of ethical conduct, management accountants may encounter
problems in identifying unethical behavior or in resolving an ethical conduct. 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:
 Discuss such problems with the immediate superior except when it appears
that the superior is involved, in which case, the problem should be presented
to the next higher managerial 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 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 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
than to resign from the organization and to submit an informative
memorandum to an appropriate representative 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.

CONTROLLER: The Chief Management Accountant

Controller refers to the chief management accounting executive of an organization who is
mainly responsible for the accounting aspects of management planning and control.
 Managerial Accounting
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Managerial Accounting: Basic Framework

Functions of the Controller

1. Planning for control – to establish, coordinate, and administer, as an integral
part of management, an adequate plan for the control of operations.
2. Reporting and interpreting – to compare performance with operating plans and
standards and to report and interpret results of operations to the concerned
users of such reports.
3. Evaluating and consulting – to consult with all levels of management
responsible for policy or action concerning any phase of the operation of the
business as it relates to the attainment of objectives and effectiveness of
policies, organizational structures, and procedures.
4. Tax administration – to establish and administer tax policies and procedures.
5. Government reporting – to supervise or coordinate the preparation of reports
to government agencies.
6. Protection of assets – to assure protection for the assets of business through
internal control, internal auditing, and assuring proper insurance coverage.
7. Economic appraisal – to continuously appraise economic and social forces and
government influences and to interpret their effect upon the business.

Line Function Versus Staff Function

Line function is the authority to give command or orders to subordinates. It exercises
direct downward authority over line departments (e.g., Vice President for Operations
over Operations Manager).
Staff function is the authority to advise but not to command others. It is the function
of providing line and staff managers with specialized service and technical advice for
support. It is exercised laterally or upward.
The controller primarily exercises a staff function as the controller’s office gives advice
and service to other departments and to entire organization as a whole. However, in
an accounting department headed by the controller, the controller has a line authority
over subordinates within the department.

Differences Between Controller and Treasurer

To avoid incompatible duties being assigned to a single officer, a controller (recording
function) must not hold at the same time the position of a treasurer (custody function).
Consider the following:
CONTROLLER TREASURER
1. Planning and control 1. Provision of capital
2. Reporting and 2. Investor
interpreting relations
3. Evaluating and consulting 3. Short-term financing
4. Tax administration 4. Banking and custody
5. Government reporting 5. Credit and collections
6. Protection of assets 6. Investments
7. Economic Appraisal 7. Insurance

Course Module
References and Supplementary Materials
Books and Journals
1. Rodelio S. Roque (2016). Management Advisory Services. CM Recto, Manila. GIC
Enterprises and Co., Inc.
2. Leonardo E. Aliling, Ma. Flordeliza L. Anastacio (2015). Management Accounting 1. 856
Nicanor Reyes, Sr. St., CM Recto Avenue, Manila. Rex Book Store, Inc.
3. Franklin T. Agamata (2019). Management Services. Certs Publications. Agdao, Davao
City, Philippines
4. Ray H. Garrison, Eric W. Noreen, Peter C. Brewer, 16th ed. Managerial Accounting. The
McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York

Online Supplementary Reading Materials

1. IMA Statement of Ethical Professional Practice; https://www.imanet.org/-
/media/b6fbeeb74d964e6c9fe654c48456e61f.ashx; August 9, 2019
2. http://www.managerialaccounting.org/; August 9, 2019