Week 002

Management Accounting
Week 002: Management Accounting

The evolving landscape of management processes

• It has been a challenge for the managers to more than satisfying the customer’s
wants that resulted to creative and innovative approaches in delivering goods and
services to customers.
• This phenomenon led to new business philosophies and practices compelling
professionals in the information business, including management accountants, to
provide more accurate and precise information.
• This has paved the shift from traditional management accounting services to
strategic management accounting services.
Week 002: Management Accounting

Management Accounting Evolution

Timeline Focus Techniques
Before 1950 Cost determination and Budgeting and cost accounting
financial control techniques
1950 - 1965 Information for planning and Responsibility accounting and
control decision analysis
1965 - 1985 Reduction of waste in business Process analysis and cost
processes management techniques
1985 - 1995 Creation of value through Driver analysis of customer
effective resource use value, shareholder value and
organizational innovation
2005 Sustainability and growth Balanced scorecard and
onwards environmental accounting
Week 002: Management Accounting

Information and management

• Accounting is information and management accounting is providing businesses

information to managers.
• The business of accounting is information. And the business of management
accounting is to provide information to management.
Week 002: Management Accounting

Information and management

• Information is essential in decision making. Information is defined as the processed

data that are captures and is reported to serve as a basis in making decision in a
business. Thus, wrongful information provided to managers may result to a decision
that is harmful to the business.
Week 002: Management Accounting

Objectives of management accounting and management accounting

information

• Management accounting provides the information needs by the management.

• This information is more detailed, forward-looking, and presented and analyzed
differently to suit the unique informational needs of management.
Week 002: Management Accounting

Objectives of management accounting and management accounting

information

• To meet these requirements, management accounting information should have the

following purposes:
1. Profit measurement.
• Business performance should be measured. In the short-run, business
performance is normally expressed in terms of profitability.
Week 002: Management Accounting

Objectives of management accounting and management accounting

information

• To meet these requirements, management accounting information should have the

following purposes:
2. Guide for planning.
• Managers plan to ensure that organizational resources and systems is geared
towards with what is needed in the future to deliver profitability and
sustained growth.
Week 002: Management Accounting

Objectives of management accounting and management accounting

information

• To meet these requirements, management accounting information should have the

following purposes:
3. Standards for controlling.
• Actions are to be made in accordance with the plan and errors should be
prevented from the very start. Deviations or planning gap that are
encountered while things are put into action should be immediately
remedied or corrected to execute plans as intended.
Week 002: Management Accounting

Objectives of management accounting and management accounting

information

• To meet these requirements, management accounting information should have the

following purposes:
4. Basis for decision making
• Actions are to be made in accordance with the plan and errors should be
prevented from the very start. Deviations or planning gap that are
encountered while things are put into action should be immediately
remedied or corrected to execute plans as intended.
Week 002: Management Accounting

Attributes and principles of management accounting information

Completeness
• A manager should be informed of all the available information on hand to avoid
unnecessary errors which may lead to increase in costs or damaged reputation.
• A collection manager may have erroneously sent a strongly worded demand letter to
a customer without being informed of the existence of a special credit term
agreement with such customer.
Week 002: Management Accounting

Attributes and principles of management accounting information

Accuracy
• Information should be accurate enough for its purpose and there is no need to go
into unnecessary detail for pointless accuracy.
Week 002: Management Accounting

Attributes and principles of management accounting information

Clarity
• Lack of clarity, or "noise" in information system theory, is a cause of
miscommunication or breakdown in communication.
• The choice of the right channel of communication, of presentation medium would be
of utmost importance in the information business.
Week 002: Management Accounting

Attributes and principles of management accounting information

Confidence
• Users should have confidence on the information provided to them. One ingredient
of developing confidence on the information is the existence of an error-free
information processing systems involving past events.
• Strategic information, such as long-term forecasts, involves a lot of uncertainty as to
timing and amount because of the time span involved.
Week 002: Management Accounting

Attributes and principles of management accounting information

Communication
• Sending right information to the wrong person may make the information useless,
even how potent and powerful such information if correctly sent to the right person.
• Managers should be given the right information at the right lime to act precisely for
better and expected results.
Week 002: Management Accounting

Attributes and principles of management accounting information

Volume
• Precise and concise information do not only lessen the cost of absorbing the right
message of the information but could also immediately direct users to the
occurrence of exceptional eases where actions are needed right away.
Week 002: Management Accounting

Attributes and principles of management accounting information

Timing
• The frequency of giving information depends on the need of the manager using it.
• Information that arrives after the decision is already made may find no usefulness
but only to the limits of comparative analysis and long-term control.
Week 002: Management Accounting

Attributes and principles of management accounting information

Channel of communication
• Written communication is not always the best channel of sending information. It may
be effectively channeled through email, telephone conversations, work-of-mouth,
face-to-face talk, formal talk, or informal talk.
• Written communication could be done through inter-office memorandum,
publication in an in-house journal, professional and other magazines, local or
national newspapers, or other posting centers.
Week 002: Management Accounting

Attributes and principles of management accounting information

Cost
• The information should be cost effective, where the benefits derived from that
information exceeds the costs used in getting and processing it.
Week 002: Management Accounting

Management Processes

1. set the organizational vision and mission

2. develop organizational strategy
3. design the organizational structure
4. set the standards
5. formulate and execute systems
6. gather reports
7. make performance evaluation and give rewards
8. itemize, analyze and validate the learning points
Week 002: Management Accounting

Controllership

Functions of controllership
Planning & controlling
Reporting
Evaluation
Government relations & reporting
Protection of assets
Economical appraisal
Tax administration

• A controller is in charge of the company’s accountants.

• A financial controller is in charge of supervising the preparation of financial reports
and presenting them to management.
Week 002: Management Accounting

Controllership

• A controller reports to the chief financial officer, formulates policies for the company
and oversees the audit, budget and accounting departments in their company.
• The primary responsibility of the financial controller is producing and presenting
timely reports.
• These reports form the basis of the management’s decisions and economic
predictions.
Week 002: Management Accounting

Controllership

• They are also tasked with explaining to the management what the various items of
the financial statements mean and, in some ways, offering advice following the
reports that they present
• Controllers are also responsible for the company’s compliance with the law
regarding taxes and other financial matters. They will be the ones who are directly
presenting compliance documents and filing tax returns.
Week 002: Management Accounting

The planning and controlling cycle

• The planning and controlling cycle sums up the operating concerns of management
accounting.
• When objectives are set, specific "plans” are made.
• Plans must be SMART (specific, measurable, attainable, realistic, and time-
bounded).
• Plans must be expressed in monetary terms, to be objective and understandable.
Plans that are expressed in terms of money are called "budgets".
Week 002: Management Accounting

The planning and controlling cycle

• Plans must be put into action to achieve results and results should be compared with
standards for control purposes.
• Standards are developed because budgets are revised to conform with actual results.
• Budgets are estimated costs based on estimated units produced and sold, standards,
in management accounting, are estimated costs based on actual units produced and
sold.
Week 002: Management Accounting

The planning and controlling cycle

• Data on actual and standard costs always have differences.

• This difference is meanly called a "planning gap" or technically referred to as the
"variance". A variance may be normal or exceptional.
• Normal variances are expected and are within the range of defined expectations.
Such variances are monitored and explained by lower managers.
Week 002: Management Accounting

The planning and controlling cycle

• Exceptional variances are material, unusual, abnormal and are beyond normal
expectations. Such are to be directly handled by top management.
• This process conforms to the doctrine of "management by exception."
• These material, exceptional, variances need quick and precise actions to plug
problems and avoid their recurrence.
Week 002: Management Accounting

Internal controls and controllership

• One of the major elements of controllership is internal controls. They are the
predefined values and skills of the organization.
• Internal controls comprise the plan of an organization and all its coordinate methods
and measures in order to protect the assets, check the accuracy and reliability of
accounting data, promote operational efficiency, and encourage adherence to
prescribed managerial policies.
Week 002: Management Accounting

Internal controls and controllership

• Eleven (11) cardinal principles of internal controls that should be followed for good
managing.
General organizational controls:
1. Responsibilities must be fixed.
2. Functional responsibilities must be segregated.
3. No one person must be in complete charge of business transactions.
4. All available proof of accuracy must be utilized.
Week 002: Management Accounting

Internal controls and controllership

• Eleven (11) cardinal principles of internal controls that should be followed for good
managing.
Personnel controls
5. Personnel must be carefully selected and trained.
6. Personnel should be bonded, especially those in a position of trust.
7. Personnel should be rotated
Week 002: Management Accounting

Internal controls and controllership

• Eleven (11) cardinal principles of internal controls that should be followed for good
managing.
Management controls
8. Operating instructions must be reduced into writing.
9. Do not exaggerate double entry accounting.
10. Use of controlling accounts.
11. Use of mechanical or electronic equipment, if feasible
Week 002: Management Accounting

Internal controls and controllership

General controls
• General controls are organizational controls. These are developed during the
formulation of the organizational design and are meant to prevent or reduce errors,
inefficiencies, irregularities, and illegal acts.
Application controls
• Application controls relate to the details of forms, rules, regulations, standards,
schedules, reports, accountabilities, commitments, and other operating policies to
complement the general controls of an enterprise.
Week 002: Management Accounting

Treasurership

• Treasurership deals with the management of the wealth of organizations.

• It includes mastering the sources of money and the exercise of prudence in using the
money of an organization. There are basically three (3) sources of cash - financing,
operating, and investing.
Week 002: Management Accounting

Treasurership
• Financing money comes from owners and creditors.
• Operating money comes from customers.
• Investing money comes from the disposal of non-current assets.
• The functions of a treasurer are listed below:
Functions of Treasurership Area of concern
Provision for capital Financing
Investor relations Financing
Short-term borrowings Financing
Banking and custodianship Financing
Credit and collection Financing
Investment Strategic investing
Insurance Risk management