MANAGEMENT ACCOUNTING (also called Managerial Accounting

Internal Accounting) - a field of accounting that provides economy

and financial information for internal users, particularly the
managers or decision-makers in an organization
MANAGEMENT FUNCTIONS AND THE NEED FOR MANAGEMENT
ACCOUNTING INFORMATION
1. PLANNING - involves:
a. setting of immediate, as well as long-range goals for the organization;
predicting future conditions that are expected to prevail;
c. considering the different means or strategies by which the
goals set may be achieved; and
d. deciding which of the strategies should be used to attain such
goals.
2. 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.
3. 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/standard performance.
  All the aforementioned management functions involve
decision-making. In performing the decision-making function,
managers need information. Such information is provided by
management accountants.
ACTIVITIES INVOLVED IN MANAGEMENT ACCOUNTING
1. Determining, accumulating, and explaining costs - both
manufacturing and non-manufacturing costs
2. Computing or determining product cost/ service cost
Chapter 3 — Basic Framework of Management Accounting 85
3. Determining cost behavior
4. Providing assistance to management in profit
planning/ budgeting
5. Accumulating and presenting data which may be used by
managers in decision-making
6. Providing bases for cost control with the use of standard costs
and other planned objectives
7. Assisting managers in developing the company’s prices both
for external and internal transactions
APPLICATION OF MANAGEMENT ACCOUNTING
1. BUSINESS — managerial accounting ' provides the economic
information needed by the businesses’ managers so they can
attain their profit/other economic goals 2. NON-PROFIT ORGANIZATIONS - these
organizations likewise need
the economic information provided by management
accountants in attaining their organization’s objectives
PRINCIPLES GOVERNING THE DESIGN OF MANAGEMENT ACCOUNTING
SYSTEMS
1. The system should help to establish the decision-making
authority over the organization's assets. -
2. The information generated by the system should support
planning and decision-making.
3. The reports should provide a means for performance
monitoring and evaluation.
DISTINCTIONS AMONG MANAGEMENT ACCOUNTING, COST
ACCOUNTING, AND FINANCIAL ACCOUNTING
The accounting system is part of the organization’s management
information system (MIS). |
aE
86 PART 2 —- MANAGEMENT ACcoy
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The cost accounting system, which ace E a data about the Coste
producing goods and services, is part of the organization’s o st
accounting system. It accumulates cost information for bas
management accounting and financial accounting.
MANAGEMENT ACCOUNTING vs. FINANCIAL ACCOUNTING
! ous | MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
pk | SS
:.|
| Internal users: officers External users:
eusersiOn =| and managers stockholders, creditors,
REPORT concerned government
agencies
|
}5
. To provide internal users To provide external users
| with informat.on that with information about the
| may be used Fy managers organization’s financial
*PURPOSE, - iin n ccaarrrrvyii ng out the Pp osition and resul ts of
| functions of pianning, operations.
| controlling, decision-
| making, and performance
| evaluation.
| Different types of reports, Primarily financial ,
_ such as budgets, financial statements and the
TWPESOF\ | projections, ccst analyses, accompanying notes to such
REPORTS, _ etc., depending on the statements. :
| specific needs of
~ | management.
|
| Reports are based ona Reports are based almost
_@BASISOF, | combination cf historical, exclusively on historical
REPORTS | estimated, and projected data.
| data.
_
| In preparing reports, the Reports are prepared in
| | management of a accordance with generally
‘STANDARDS | company can set rules to accepted accounting
* 4 canteen ! produce information principles and other
PRE | most relevant to its pronouncements of
| specific needs authoritative accounting
bodies. ee tee | ts a
ES LS PE
Chapter 3 — Basic Framework of Management Accounting 87.
MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING
Focus of reports is on the Financial reports relate to
Ee ae company’s value chain, the business as a whole.
NS such as a business
segment, product- line,
supplier, or customer.
Reports may cover any Reports usually covera
| time period - year, year, quarter, or month.
PERIOD” quarter, month, week,
COVERED day, etc. Reports may be
required as frequently as
| needed.
STANDARDS OF ETHICAL CONDUCT FOR
MANAGEMENT ACCOUNTANTS _
(From the American Institute of 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.
Adherence to these standards is integral to achieving the Objectives of
Management Accountirig. 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 expertise by
continually developing knowledge and skills.
  perform their professional duties in accordance with relevant
laws, regulations, and technical standards.
YZ
os
88 PART 2- MANAGEMENT ACCOUyr),
G
  provide decision support information and recommendations that
are accurate, clear, concise, and timely.
* recognize and communicate professional limitations OF othe,
constraints that would preclude responsible judgment Or
successful performance of an activity.
CONFIDENTIALITY
Management accountants have the responsibility to:
  keep information confidential except when disclosure j,
authorized or legally required.
e inform all relevant parties regarding appropriate use of
confidential informaticn. Monitor subordinates’ activities
ensure compliance.
  refrain from using confidential information for unethical oy
illegal advantage.
INTEGRITY
Management accountants have the responsibility to:
e@ mitigate actual conflicts of interest. Regularly communicate with
business associates to avoid apparent conflicts of interest. Advise
all parties of any potental conflicts.
e refrain from engaging in any conduct that would prejudice
. carrying out duties ethically.
e abstain from engaging in or supporting any activity that might
discredit the profession.
CREDIBILITY
Management accountants have the responsibility to:
  communicate information fairly and objectively.
e disclose all relevant information that could reasonably be
expected to influence an intended user’s understanding of the
reports, or recommendations.
Chapter 3 — Basic Framework of Manag2ment Accounting 89
e 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 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:
e 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
superiors knowledge, assuming the superior 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.
e Clarify celevant ethical issues by confidential discussion with an
impartial advisor to obtain a’ better understanding of possible
courses of action.
90 | PART 2- MANAGEMENT ACCOUN,
  consult your own attorney as to legal obligations ang tight
concerning the ethical conflict.
CONTROLLER: The Chief Management
: Accountant
CONTROLLER — the chief management accounting executive of an
organization who is mainly responsible for the accounting aspect, of
management planning and control
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 thet!
effect upon the business.
al
Chapter 3 — Basic Framework of Management Accounting ? 1
DISTINCTIONS BETWEEN CONTROLLERSHIP AND TREASURERSHIP
CONTROLLERSHIP TREASURERSHIP
1. Planning and control 1. Provision of capital
2. Reporting and 2. Investor relations
interpreting 3. Short-term financing
3. Evaluating and| 4. Banking and custody
consulting 5. Credit and collections
4. Tax administration 6. Investments
5. Government reporting | 7. Insurance
6. Protection of assets
7. Economic appraisal
CERTIFICATION AVAILABLE TO MANAGEMENT ACCOUNTANTS
THE CMA PROGRAM OR CERTIFICATE IN MANAGEMENT
ACCOUNTING
;f
The CMA Program or Certificate in Management Accounting Is a
program for management accountants designed to recognize their unique
qualifications, high standards, and professional expertise in the field of
management accounting.
Qualified management accountants earn the designation Certified
Management Accountant (CMA), the internal accountant’s counterpart to
the Certified Public Accountants (CPA).
THE ORGANIZATION INVOLVED
In the United States, the CMA Program is conducted by the Institute of
Management Accountants (IMA), the largest US Professional organization
of accountants.
In ‘the Philippines, the Philippine Association of Management
Accountants (PAMA) conducts the Certificate in Management
oe
92 PART 2 — MANAGEMENT ACCOU,
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Accounting (CMA) program through its continuing education ;
Philippine Institute of Management Accountants (PIMA). > the
The PAMA is affiliated with the Institute of Management Account,
or IMA. :
The PAMA was founded primarily to provide its Members With
professional and educational activities that enhance their knowledge of
management accounting principles and methods.
OBJECTIVES OF THE PROGRAM
The CMA has four objectives, consistent with the mission of the
Philippine Association of Management Accountants (PAMA)
"promote management accounting, enhance the capability of its members
and foster high standards of professionalism."
e To establish Management Accounting as a recognized profession
in the field of business
e To encourage stricter and high quality educational standards in
Management Accounting
e To provide objective means for measuring the Management
Accountant's knowledge and competence
e To encourage continued professional growth
REQUIREMENTS TO BECOME A CMA
To qualify for a Certificate in Management Accounting the interested
applicant must fulfill the following requirements:
a. File an application for admission with the Institute of Certified
Management Accountants thru PAMA and register for the CMA
examinations
b. Baamember of the IMA thru PAMA
c. Pass all four (4) parts of the CMA examinations:
Part | — economics, finance, management
2 — financial accounting and reporting 3 — management reporting, analysis, and behavioral at
feces 15S"
dl
Chapter 3 — Basic Framework of Management Accounting 93
4 — decision analysis and information systems
4. Management accounting experience requirements
e Two continuous years of professional experience in
management accounting and/or financial management
e This requirement may be completed prior to or within seven
years of passing she examination
@ Teachers can meet this requirement if majority of their
course load is in accounting and corporate financial
management courses above the principles level.
e Professional experience can be gained in full-time
employment. However, continuous part-time positions of 20
hours per week meeting the definition of qualified
experience will count toward. this requirement at a rate of
one year of one year of experience for every two years of
part-time employ ment.
Qualifying Experience Consists of the Following:
> Positions requiring judgments regularly made employing
the principles of management accounting and financial
management
  Such employment includes financial analysis, budget
preparation, management information systems analysis,
financial management, management accounting, and
auditing ir government, finance or industry;
management consulting; auditing in public accounting;
research, teaching or consulting related to management
accounting or financial management.
Non-Qualifying Experience Consists of the Following:
> Employment requiring the occasional application of
management accounting principles such as in computer
94 PART 2 - MANAGEMENT ACcoy
NTINg
and marketing, Manufacty,
In
operations, sales
general management will g,
Not
engineering, personnel, and
satisfy this requirement
> Internships and trainee, clerical, or NON-technig
positions do not provide appropriate experience to Ful
this requirement.
5. Comply with the Standards of Ethical Conduct for Managemen,
Accountants
Upon receiving the certificate, the successful CMA professional jg
expected to maintain high standards of professionalism and excellence in
the field by meeting the following:
e Satisfaction of the Continuing Education Requirement
e Complying with the Standards of Ethical Conduct
@ Maintaining membership with IMA through PAMA
While the CMA requirements are stiff, these are demanded by the high
regard for CMA professionals uniformity accorded in Europe. the United
States, and throughout the world. This same level of professional
excellence is sought to be developed by the CMA program in the
Philippines. }
Chapter 3 — Basic Framework of Management Accounting 9 5
MULTIPLE CHOICE:
1. It is a field of accounting that provides financial information and
nonfinancial information to an organization’s managers and other
internai decision makers.
a. Cost accounting “ce, Managerial accounting
b. Bookkeeping d. Financial accounting
2. Which of the following statements is/are correct?
a. Managers carry out their planning function by mobilizing the
organization’s resources and overseeing day-to-day operations.
b. Managers carry out their decision-making function by obtaining
feedback to ensure that the plans are being followed.
c. The planning, directing and motivating, and controlling
functions of a manager are kept separate from such
manager's decision-making activities.
d  The manager's planning function involves setting of the
organization's goals and identifying alternatives and selecting
the alternative that best furthers such goals set for the
organization.
3. Which of the following is/are false?
a. Managerial accounting is as concerned with providing
information to stockholders. as it is with providing information to
managers.
b. Managerial accounting focuses more on the segments of an
organization rather than on the organization as'a whole.
“ c. Managerial accounting need not follow the Generally
Accepted Accounting Principles (GAAP).
“Yd. Managerial accounting is not mandatory, i.e., not required
~ by any external law or regulation.
4. In which of the following aspects is managerial accounting similar
to financial accounting?
a. users of reports
b. emphasis between the past and future
c. type of data provided to users ~
cd: reliance on the accounting database
96 pART 2 - MANAGEMENT ACCOUN,
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Which of the following describes management *—COUNtng
information?
a. It is prepared for eee
b. Itis reliable and verifiable.
c. Itis prepared in accordance with Sede
d. It provides reasonable and timely es ;
Following are the principles governing the design of Managemen,
accounting system, except ; he
a. the system “Should help to establish the decision-ma,
authority over the organization’s assets.
b. the information generated by the system should suppoy
planning and decision-making.
the reports should provide a means for performance monitoring
ing
CG
and evaluation.
d.. None of the above
The American Institute of Management Accountants came up with
the Standards of Ethical Conduct for Management Accountants
which have four sections, namely
competence, confidentiality, integrity, and objectivity.
_ competence, security, integrity, and objectivity.
competence, confidentiality, integrity, and maturity.
competition, confidentiality, integrity, and objectivity.
aoog
Financial and managerial accounting differ in a number of ways.
In contrast to financial accounting, managerial accounting
a. focuses on providing data for external users.
b;. emphasizes relevance and flexibility rather than precision.
c. is mandatory.
d. is governed by Generally Accepted Accounting Principles.
Provisions in this section of Ethical Standards for Management
Accountants require management accountants to develop thei”
knowledge and skills and to do their tasks in accordance wit
relevant laws, regulations, and standards
' a  Competence Cx ere . Inte
b. Confidentiality d. OB ahe
Chapter 3 — Basic Framework of Management Accounting 97
10.
dh
12:
133
Provisions in this section of Ethical Standards for Management
Accountants forbid management accountants to act on, or even
appear to act on, confidential information they acquire in doing
their work, except when authorized or when legally obligated to do
SO. '
a. Competence c. Integrity
b. Confidentiality d. Objectivity
Provisions in this Ethical Standards for Management Accountants
cover avoidance of coriflicts of interest, improprieties of accepting
gifts or favors, and other matters generally associated with
professional behavior.
a. Competence  €. Integrity
b. Confidentiality d. Objectivity
Per the Standards of Ethical Conduct, the management
accountants have a responsibility to communicate information
fairly and objectively, and disclose fully all relevant information
that could reasonably be expected to influence an intended user’s
understanding of the reports, comments, and recommendations
presented. These provisions are contained in the standards on
a. integrity. c. confidentiality.
bh, objectivity. d. competence.
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
98
14.
15:
16%
T7e
18.
19,
20.
os
PART 2— MANAGEMENT ACCOUy
Tig
nfluence an intended user's understang; expected to i p mments, and recommendations Presentey
OF ‘the reports, co
Management accounting is used by a company’s managemen, f
a multitude of purposes which are as follows, except '
a. evaluation. Ci marketing.
b. planning. d. reporting.
Management accounting includes the following processes, except
/a. measurement. c. interpretation.
b. communication. d. delegation.
Managerial accounting differs from financial accounting in that
financial accounting is
a. involved more heavily in decision analysis.
b. future oriented.
 ; concerned primarily with external financial reporting.
d. concerned with qualitative information.
Controllers are ordinarily concerned with
a. investor relations.
b. credit extension and collection of bad debts.
c. short-term financing.
d.. preparation of tax returns,
The treasury function includes
a. preparation of tax returns. c. reporting to government.
b.. cash custody and banking. d._ financial reporting.
If a management accountant has a problem in resolving an ethical
conflict, the first action that should normally be taken is to
a. resign from the company.
b. notify the police.
 - discuss the problem with his/her immediate superior.
d. remain silent.
eas ; t
Integrity Is an _ ethical. requirement for all manageme"
accountants. One aspect of integrity requires
fs
Chapter 3 — Basic Framework of Management Accounting 7 ?
a1.
22.
a. maintenance of an appropriate levei of professional competence.
b. performance of professional duties in accordance with
applicable !aws.
c. refraining from improper use of confidential information.
d., avoidance of actual or apparent conflicts of interest and
advise all appropriate parties of any potential conflict.
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.
Statement 1 Statement 2
a true true
b. false false
Cc true false
d false true
The basic accounting records that are used to provide data for
external financial reports are also employed in management
accounting. In combining and reporting these data _ to
management, however, the accountant can relax the verifiability
constraint necessary tn public financial reporting and instead
prepare data which, although not adequately verifiable for external
reporting, are more useful to management. This principle of
management accounting considers the following factors are more
important than others.
a. Verifiability, objectivity, and accuracy
b. Conservatism
_e. Relevance, flexibility, and timeliness
d. Consistency and disclosure
23. Which of the following statements is false?
“a. Cost accounting is a tool of both financial and managerial
accounting.
100
24.
25:
26;
PART 2 — MANAGEMENT ACCOuN
TIN
draws heavily on economics, Statigy
Cs
b. Managerial accounting i ig
d other disciplines as Necessary -
In
operations research, an ae :
providing accounting and financial information.
c. In management accounting, emphasis Is given to identj
or matching costs with functions, projects, or r “SPONSibilitigg
rather than with time periods. :
d. Financial accounting provides information to individuals Within
the business organization, while management accoun;,
provides information to parties outside the business entity, :
That type of accounting which deals with how accounting anq
other financial data can be used for decision-making in controlling
monitoring, and directing business activity is called
a; management accounting. c. financial accounting.
b. responsibility accounting. d. general accounting.
In financial accounting, certain rules and regulations must be
followed on how financial statements must be presented to
readers. 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.
_€; designed to provide accounting and other financial data to
assist management in making business decisions.
d. a discipline that does not require preparation of financial
statements.
In comparing management and financial accounting, which of the
following more accurately describes management accounting
information?
a. comparable, verifiable, monetary
b.- budgeted, informative, adaptable
c. required, estimated, internal
d. historical, precise, useful
Chapter 3 — Basic Framework of Manag2ment Accounting 1 01
27. Which of the following statements about management or financial
accounting is false?
a.
b.
C;
d.
Management accounting should be flexible.
Financial accounting must follow GAAP.
Management accounting is not subject to regulatory
reporting standards.
Both management and financial accounting are subject to
mandatory record-keeping requirements.
28. One certification available to management accountants is the
Certificate in Management Accounting (CMA). In the Philippines,
the Philippine Association of Management Accountants (PAMA)
conducts the CMA Program, which has the following objectives,
except:
a.
b.
to establish Management Accounting as a_ recognized
profession in the field of business.
to encourage stricter and high quality educational standards
‘in Management Accounting.
to provide objective means for measuring the Management
Accountant’s knowledge and competence.
to supervise or coordinate the Management Accountant’s
preparation of reports to government agencies.
29. Which of the following statements is false?
a.
b.
Management accounting is an integral part of the controller’s
function in an organization. ~
The Standards of Ethical Conduct for Management
Accountants include concepts related to competence,
confidentiality, integrity, and objectivity.
Modern cost accounting plays a role in planning new products,
evaluating operational processes, and controlling costs.
The COO (Chief Operating Officer) is primarily responsible
for management accounting and financial accounting.
30. Management accounting is considered successful when it
a.
b.
is relevant.
is accurate.
e- helps managers improve their decisions.
102
Bi.
34.
pART 2- MANAGEMENT ACCOUNT,
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d. is in accordance with GAAP.
ind 3 nts is false? Which of the following statemem> ™ spac
3. Financial accounting repor's are general-purpose ang
intended for external users. papas
b. Managerial acccunting reports are special-purpose and
ded. issued as frequeritly as nee fae :
c. Top managers must certify that a company maintains ap
l 0 I. te system of internal contro , adequate sy ts have a single role within a‘ d> Management
accountan
organization - collecting and reporting costs to management.
Which of the following is not an objective of management
accounting? one
3 maximization of profit and minimization of costs.
b. measuring the performance of managers of subunits.
c. providing information for planning and decision making.
d. providing assistance in directing and controlling operations,
Management Accountants
a. are found primarily at low
hierarchy.
b often work on cross-functional teams.
c. are found throug out an organization.
d.- are found throughout an organization and work on crossfunctional
teams.:
er levels of the organizational
Management accounting and cost accounting
a. are required for recordkeeping as are financial accounting
and tax accounting.
b; provide cost information about products and services, 45
well as information for internal decision making.
require an entirely separate group of accounts than financial
accounting.
d. focus solely on the determination of costs to produce 3
product or provide a Service,
a
chapter 3 - Basic Framework of Managament Accounting 1 03
35. Which of the following statements is true?
" a. The management information system is part of an
‘ organization's accounting system.
b. The cost accounting system is part of an organization's
overall accounting system.
c. Management accounting accumulates cost information for
both cost accounting and financial accounting.
d. Two primary hallmarks of cost and management accounting
are standardization of procedures and use of generally
accepted accounting principles.