Chapter 1 : Introduction To Managerial Accounting

1. 1. Chapter 1
2. 2. TABLE OF CONTENTS • Summary • Identify managers’ three primary responsibilities •
Distinguish financial accounting from managerial accounting • Describe the roles and skills
required of management accountants within the organization • Describe the role of the
Institute of Management Accountants (IMA) and apply its ethical standards • Discuss the
business trends and regulations affecting management accounting
3. 3. SUMMARY
4. 4. SUMMARY • Regardless of your college major or intended career path, most of you will
become managers one day. A manager has responsibility and control of selected parts of a
company’s operations, or in some cases, multiple aspects of a company. • Only those of you
that happen to stay at the ‘bottom’ of a company, preferring never to get promoted, or never
accept any responsibility for some aspect of a business, will miss out on the management
opportunity. • Fortunately, none of you will likely fall into this persona given that you have
taken the initiative to attend college. As you learned in financial accounting, accounting is the
language of business. • As a manager, if you do not understand the language, you will not be
able to use it to make decisions. Understanding managerial accounting will help you move
up the ladder more quickly, regardless of your chosen career path
5. 5. SUMMARY • How Can Managerial Accounting Help You? As an student in a college
class, you likely want to how your performance will be evaluated. Your expectations in a
business environment are similar. You want to know what your boss will expect, i.e., how he
or she measure your performance. While you won’t be earning letter grades in the business
world, your performance will ultimately translate into promotions, bonuses, raises,
reprimands, or perhaps a dreaded termination slip. The more you know about accounting,
the more quickly you will advance in a company. Ultimately, accounting is the language of
business.
6. 6. SUMMARY • Management accounting refers to accounting information developed for
managers within an organization. In other words, management accounting is the process of
identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating
information that helps managers fulfill organizational objectives. This is the phase of
accounting concerned with providing information to managers for use in planning and
controlling operations and in decision making. • Managerial accounting is concerned with
providing information to managers-that is people inside an organization who direct and
control its operations. In contrast, financial accounting is concerned with providing
information to stockholders, creditors, and others who are outside an organization.
Managerial accounting provides the essential data with which organizations are actually run.
Financial accounting provides the scorecard by which a company’s past performance is
judged. • Because it is manager oriented, any study of managerial accounting must be
preceded by some understanding of what managers do, the information managers need, and
the general business environment.
7. 7. INTRODUCTION TO MANAGERIAL ACCOUNTING Section 1
8. 8. WHATISMANAGERIALACCOUNTING? • Managerial accounting is often referred to as
management accounting. The Institute of Management Accountants describes management
accounting as “a profession that 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.” • In short, managerial accounting supports the decision
making process through planning and controlling operations. Planning primarily occurs in the
budgeting process. Controlling occurs when managers compare actual performance with
 budgeted amounts to identify differences and then act upon any differences that appear to
be significant.
9. 9. MANAGERS’ RESPONSIBILITIES Setting goals and objectives Overseeing day-to-day
operations Evaluating results of operations Directing Decision Making Planning Controlling
10. 10. PLANNING From an accounting perspective, planning is the communication of a
company’s goals. Because ultimately a company’s results are translated into dollars,
planning is achieved through the budgeting process as a basis for decisions made by
managers. Budgets are the financial plans of a company. They identify the sources or inflows
of economic resources, and the uses or outflows of economic resources of a company.
Budgets identify the source from which assets will be derived and how they will be used.
They ultimately create benchmarks of profits, cash flows, and the financial position that the
company expects to achieve. Setting goals and objectives and how to achieve them
Examples - Generate more sales via opening new stores. Reduce labor costs by reducing
store hours Budgets – the financial plan for inflows and outflow
11. 11. DIRECTING • While planning for the future, managers have to oversee and supervise
day-to- day business undertakings. • They have to delegate roles and responsibilities, guide
the employees on how to accomplish their chores, motivate and inspire them until the
fulfillment of the tasks, and respond to employees’ queries on how to pull off their tasks. •
Using a computerized accounting system, managerial accountants take into account and list
all the assignments and undertakings that must be realized. • Some of these include running
trial balances and wrapping up accounting processes every end of the month. Overseeing
company’s day-to-day operations Example: Using daily/weekly sales reports to adjust
marketing strategies Example: Using product cost reports to adjust raw material usage
12. 12. CONTROLLING • Controlling keeps all business activities on track and identifies if the
company’s objectives are met. • According to University of North Florida, this can be
achieved by measuring performance, comparing actual performance with budgets, and
taking action when needed. • In evaluating and assessing the performance, managers have
different gauges Evaluating results of operations against plans and making adjustments as
needed Example: Comparing budgeted sales with actual sales to take corrective actions
Example: Comparing budgeted product costs against actual product costs to take corrective
actions
13. 13. DECISION MAKING • Good decisions are derived from tireless accession and
assessment of information. With good decisions comes business value. • Managerial
accounting supplies the information necessary to incite decision-making processes. • Also,
the management team determines which among the other possible choices or courses of
action will support the company in effectively achieving its objectives. Management is
continually making decisions while it plans, directs, and controls operations Price setting or
product offerings Renovation of facilities Operation openings or closings
14. 14. DISTINGUISH FINANCIAL ACCOUNTING FROM MANAGERIAL ACCOUNTING
Section 2
15. 15. MANAGERIAL 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.
16. 16. MANAGERIAL VS. FINANCIAL ACCOUNTING Issue Managerial Financial Primary
users Internal External Purpose of information Plan, direct, control, decide Users make
investing and lending decisions Primary accounting product Internal reports useful to
management General purpose financial statements What is included? Defined by
management Determined by GAAP Underlying basis of information Internal & external
transactions, focus on future Based on historical transactions with external parties 16
17. 17. Issue Managerial Financial Emphasis Data must be relevant Data must be reliable and
objective Business Unit Segments of the business Company as a whole Preparation
Depends on management needs Annually & quarterly Verification Internal audit External
audit Information requirements No requirements SEC requires publicly traded cos. to issue
audited fin. sts. Impact on employee behavior Careful consideration Adequacy of disclosure
MANAGERIAL VS. FINANCIAL ACCOUNTING 17
18. 18. DESCRIBE ORGANIZATIONAL STRUCTURE AND THE ROLES AND SKILLS
REQUIRED OF MANAGEMENT ACCOUNTANTS WITHIN THE ORGANIZATION Section 3
19. 19. ORGANIZATIONAL STRUCTURE Board of Directors Chief Executive Officer Chief
Operating Officer Chief Financial Officer Vice Presidents of various operations Treasurer
Controller Internal Audit Audit Committee 19
20. 20. ORGANIZATIONAL STRUCTURE • A typical organizational structure for publicly held
companies starts with the board of directors, elected by the stockholders (owners) of the
company to oversee the company. Because the board meets only periodically, they hire a
chief executive officer (CEO) to manage the day to day operations. • The CEO hires other
executives to run various aspects of the organization, including the chief operating officer
(COO) and the chief financial officer (CFO). The COO is responsible for the company’s
operations, and the CFO is responsible for all of the company’s financial concerns.
21. 21. ORGANIZATIONAL STRUCTURE • The internal audit department reports to the CFO or
CEO for day-to-day administrative matters. This internal audit department also reports to a
subcommittee of the board of directors called the audit committee. • The audit committee
oversees the internal audit function as well as the annual financial statement audit by
independent CPAs. • Both the internal audit department and the independent CPAS report to
the audit committee for one reason: to ensure management will not intimidate them or bias
their work.
22. 22. CHANGING ROLES OF MANAGEMENT ACCOUNTANTS • Technology has changed
the roles of management accountants. • They are still involved with the traditional tasks of
ensuring accurate financial records, however, computers have taken over the task of
performing routine mechanical accounting tasks. • Freed from the routine mechanical work,
management accountants spend more time planning, analyzing and interpreting accounting
data to provide decision support. Impact of technology Ensuring accurate financial records
Planning, analyzing, and interpreting accounting data Providing decision support
23. 23. REQUIRED SKILLS OF MANAGERIAL ACCOUNTANTS • Today’s management
accountant requires solid knowledge of both financial and managerial accounting, analytical
skills, knowledge of how a business functions, the ability to work on a team, and oral and
written communications skills. Knowledge of financial and managerial accounting Analytical
skills (critical thinking) Knowledge of how a business functions Ability to work on a team Oral
and written communications skills
24. 24. THE ROLES AND SKILLS REQUIRED OF MANAGEMENT ACCOUNTANTS WITHIN
THE ORGANIZATION VideoTime–“WhyMarketsandClientsNeedCreativeAccountants”  “Dr.
Stone explains how to be a creative accountant while also being ethical”.  Dr. Dan Stone is
Gatton Endowed Chair at the University of Kentucky, C.P.A., where he holds a joint
appointment in the Von Allmen School of Accountancy and the School of Management. Dr.
Stone is Director of Graduate Studies and Director of the PhD program for the Von Allmen
School of Accountancy. He has published over 40 academic works, including articles,
essays, and poetry. His recent research investigates online deception, dual-process models
of the effects of financial reward, and knowledge sharing and motivation quality among
professionals.  https://www.youtube.com/watch?v=Fsq kwS88Rhg
25. 25. DESCRIBE THE ROLE OF THE INSTITUTE OF MANAGEMENT ACCOUNTANTS
(IMA) AND USE ITS ETHICAL STANDARDS TO MAKE REASONABLE ETHICAL
JUDGMENTS Section 4
26. 26. InstituteOfManagementAccountants(IMA) www.imanet.org • The Institute of Management
Accountants (IMA) is the professional association for management accountants. • The goal
 of the IMA is to advance the management accounting profession primarily through
certification, practice development, education and networking. • The IMA issues two different
professional certifications: the Certified Management Accountant (CMA) and the Certified
Financial Manager (CFM). Certification (CMA) Practice Development Education Networking
Ethical Standards Public Education
27. 27. SUMMARYOFIMA ETHICALSTANDARDS • The IMA Statement of Ethical Professional
Practice requires compliance with 4 ethical standards: Competence, Confidentiality, Integrity
and Credibility. • Failure to comply with the standards may result in disciplinary action.
Maintain professional competence Preserve confidentiality of information Uphold integrity
Perform duties with credibility
28. 28. ETHICALBEHAVIOR • Why should we do anything, let alone the right thing, if what we
are being asked to do (or what we are observing others doing) is legal and unobservable? •
The simple answer to this question is: values. An ethical dilemma occurs when we find
ourselves in a situation or circumstance that conflicts with our personal values. • These
values, which are cross-cultural and universal include: honesty, respect, responsibility,
fairness, and compassion. • Examples of unethical behavior:- allowing reimbursement of
false expense reports, manipulating income, performing tasks not qualified to perform.
29. 29. ETHICALBEHAVIOR Steps to resolveethicaldilemmas • To resolve ethical dilemmas, the
IMA suggests that management accountants • first follow their company’s established
policies for reporting unethical behavior. • If not resolved in this way, discuss the situation
with the immediate supervisor unless the supervisor is involved in the unethical situation. • If
the immediate supervisor is involved and is the CEO, notify the audit committee or board of
directors. • Discuss the unethical situation with an objective advisor such as an IMA ethics
counselor for clarification. • Consulting an attorney regarding legal obligations and rights is
also advisable. Follow company’s policies for reporting unethical behavior Discuss with
immediate supervisor Discuss with objective advisor Consult an attorney
30. 30. DISCUSS TRENDS IN THE BUSINESS ENVIRONMENT
VideoTime–“WhydoweHateWhistle-Blowers?”  “Why do we hate whistle-blowers?” she
touches on the lessons learned from whistle-blowers in some of the nation’s most high-
profile cases and make the argument for why we need more whistle-blowers”  Kelly
Richmond Pope, Associate Professor in the School of Accountancy and MIS at DePaul
University in Chicago, IL. My passion is white-collar crime. My research has been published
in such journals as Behavioral Research in Accounting, Auditing: A Journal of Practice and
Theory, Journal of Business Ethics, The CPA Journal and Journal of Accountancy. 
https://www.youtube.com/watch?v=J1O oFvcTess
31. 31. DISCUSS TRENDS IN THE BUSINESS ENVIRONMENT Section 5
32. 32. CURRENT TREND • In the last century, North American economies have shifted away
from manufacturing toward service companies, with the latter comprising the largest sector of
the US economy and employing 55% of the workforce. • The costs of international trade
have plummeted over the past decade, allowing foreign companies to compete with
domestic firms. To compete in this global market, manufacturers have moved operations to
other countries to be closer to new markets and less expensive labor. Competing in global
marketplace Time-based competition Advanced Information Systems E-Commerce
33. 33. CURRENT TREND • Large companies are turning to more advanced information
systems: enterprise resource planning (ERP) systems integrate all of a company’s worldwide
functions, departments and data. Companies use the Internet in everyday operations, such
as budgeting, planning, selling and customer service. This new “sales clerk” can sell to
thousands of customers at once, 24 hours a day, 365 days a year without a break or
vacation. Just-in-Time Management Total Quality Management ISO Certification Cost
Benefit Analysis
34. 34. CURRENT TREND • Just-in-Time Management reduces the cost of holding inventory by
only beginning production when there is an order from a customer. This means that raw
materials are not stored before production, and finished units are shipped directly to the
customer when they are completed. • In Total Quality Management (TQM) each business
function examines its own activities and works to improve performance by continually setting
higher goals. • The International Organization for Standardization (ISO) has developed
international quality management standards and guidelines. Earning this certification
provides competitive advantage in the global marketplace. • Cost Benefit Analysis weighs
costs against benefits of undertaking improvement initiatives. Just-in-Time Management
Total Quality Management ISO Certification Cost Benefit Analysis

1. Introduction: The Role, History, and Direction of Management Accounting

CHAPTER
2. Objectives • Discuss the need for management accounting information. • Differentiate
between management accounting and financial accounting. • Provide a brief historical
description of management accounting. • Identify the current focus of management
accounting. Continued
3. Objectives 5. Describe the role of management accountants in an organization. 6.
Explain the importance of ethical behavior for managers and management
accountants. 7. List three forms of certification available to management accountants.
4. The managerial accounting system has three broad objectives: 1. To provide
information for costing out services, products, and other objects of interest to
management. 2. To provide information for planning, controlling, evaluating, and
continuous improvement. 3. To provide information for decision making.
5. Processes Outputs Inputs Users Management Accounting Information System
Collecting Measuring Storing Analyzing Reporting Managing Special Reports Product
Costs Customer Costs Budgets Performance Reports Personal Communication
Economic Events

6. Planning requires setting objectives and identifying methods to achieve those

objectives. Management Process The Management Process is defined by the
following activities: • Planning • Controlling • Decision Making
7. Management Process The Management Process is defined by the following
activities: Controlling is the managerial activity of monitoring a plan’s implementation
and taking corrective action as needed. • Planning • Controlling • Decision Making
8. Control is usually achieved with the use of feedback. Management Process • The
Management Process is defined by the following activities: • Planning • Controlling •
Decision Making
9. Management Process Feedback is information that can be used to evaluate or
correct the steps being taken to implement a plan.
10. Decision making is the process of choosing among competing alternatives.
Management Process The Management Process is defined by the following activities:
• Planning • Controlling • Decision Making
11. Differentiate Between Management Accounting and Financial  Accounting
12. Management Accounting Financial Accounting 1. Internally focused 1. Externally
focused
13. Targeted Users Management accounting focuses on providing information for internal
users.
14. ABC Company Annual Report Targeted Users Financial accounting focuses on
provided information for external users.
15. Management Accounting Financial Accounting 1. Internally focused 1. Externally
focused 2. No mandatory rules 2. Must follow externally imposed rules
16. Restrictions on Inputs and Processes Management accounting is not subject to the
requirements of generally accepted accounting principles. Financial accounting
reporting must follow the accounting procedures set by the SEC and the FASB.
17. Management Accounting Financial Accounting 1. Internally focused 1. Externally
focused 2. No mandatory rules 2. Must follow externally imposed rules 3. Financial
and nonfinancial informa-tion; subjective information possible 3. Objective financial
information
18. Types of Information The restrictions imposed on financial accounting tend to
produce objective and verifiable financial information. For management accounting,
the financial or nonfinancial information may be much more subjective in nature.
19. Management Accounting Financial Accounting 1. Internally focused 1. Externally
focused 2. No mandatory rules 2. Must follow externally imposed rules 3. Financial
and nonfinancial informa-tion; subjective information possible 3. Objective financial
information 4. Historical orientation 4. Emphasis on the future
20. TimeOrientation Management accounting strongly emphasizes providing information
about future events.
21. TimeOrientation Financial accounting records and reports events that have already
happened.
22. Management Accounting Financial Accounting 1. Internally focused 1. Externally
focused 2. No mandatory rules 2. Must follow externally imposed rules 3. Financial
and nonfinancial informa-tion; subjective information possible 3. Objective financial
information 4. Historical orientation 4. Emphasis on the future 5. Internal evaluation
and decisions based on very detail information 5. Information about the firm as a
whole
23. Degree of Aggregation Management accounting provides measures and internal
reports used the evaluate performance of entities, product lines, departments, and
managers.
24. Degree of Aggregation Financial accounting focuses on overall firm performance.
25. Management Accounting Financial Accounting 1. Internally focused 1. Externally
focused 2. No mandatory rules 2. Must follow externally imposed rules 3. Financial
and nonfinancial informa-tion; subjective information possible 3. Objective financial
information 4. Historical orientation 4. Emphasis on the future 5. Internal evaluation
and decisions based on very detail information 5. Information about the firm as a
whole 6. More self-contained 6. Broad, multidisciplinary
26. Breadth It includes aspects of managerial economics, industrial engineering, and
management science. Management accounting is much broader than financial
accounting.
27. Historical Description ofManagement Accounting  1880 - 1925 Most of the product-
costing and internal accounting procedures used in this century were developed 1925
Emphasis of inventory costing for external reporting 1950s/60s Effort to improve the
managerial usefulness of traditional cost systems 1980s/90s Significant efforts have
been made to radically change the nature and practice of management accounting
28. Current Focus of Management Accounting Activity-Based Management Activity-
based management is a system wide, integrated approach that focuses
 management’s attention on activities with the objective of improving customer value
and the resulting profit.
29. Current Focus of Management Accounting Customer Orientation Customer value
is the difference between what the customer receives (customer satisfaction) and what
the customer gives up (customer sacrifice). What is received is called the total
product.
30. Current Focus of Management Accounting Strategic Positioning Strategic cost
management is the use of cost data to develop and identify superior strategies that will
produce a sustainable competitive advantage. Strategies: • Cost leadership • Superior
products through differentiation
31. Current Focus of Management Accounting Value-Chain Framework The internal
value chain is the set of activities required to design, develop, produce, market, and
deliver products and services to customers. The industrial value chain is the linked set
of value-creating activities from basic raw materials to the disposal to the final
products by end-use customers.
32. Planting and Cultivating Harvesting Firm B Distribution of Apples Firm A Applesauce
Production Firm C Product Disposal Applesauce Distribution End-Use Customer
Supermarkets Value Chain: Apple Industry
33. Managing the value chain means that a management accountant must
understand many functions of the business, from manufacturing to marketing.
34. This emphasis on quality has created a demand for management  accounting
systems that provide financial and nonfinancial information about quality. The
philosophy of total quality management is to manufacture perfect products.
35. The role of management accountants in an organization is one of support.
36. Partial Organization Chart, Manufacturing Company Line Function Staff Function
Production Vice President Financial Vice President Production Supervisor Controller
Treasurer Machining Foreman Assembly Foreman Internal Audit Cost Financial
Systems Tax President

Ethics in accounting
1. 1. In the name of God, the most beneficent, the eternally merciful
2. 2. ETHICS IN ACCOUNTING ACCOUNTING ETHICS: SOME RESEARCH NOTE BY
CARMEN BONACI
3. 3. Content Layout What is “accounting” and what are the “works of accountants”? What
are “Ethics” in accounting?  Fraud in Accounting Statements . Threats to Ethical
Environment.  Harms of Unethical Environment.  How to make ethical Environment? 
Conclusion
4. 4. Accounting Practice and body of knowledge concerned primarily with  Methods for
recording transactions,  Keeping financial records,  Performing internal audits,  Reporting
and analyzing financial information to the management, and  Advising on taxation matters.
5. 5. Role of Accountants The traditional external audit function. Tax Corporate finance
advice. Finance, accounting and treasury functions in industry and commerce. Analysis &
decision making for top level management.
6. 6. Ethics • Moral principles that govern a person's behavior or the conducting of an activities.
• An area of study that deals with ideas about what is good and bad behavior . • A branch of
philosophy dealing with what is morally right or wrong.
7. 7. Ethics in Accounting Accounting ethics is primarily a field of applied ethics and is part of
business ethics and human ethics, the study of moral values and judgments as they apply to
accountancy. It is an example of professional ethics. Provides fair and accurate reporting of
the financial position of a business.
8. 8. Ethical issues Reporting False Income Falsifying Documents Allowing orTaking
Questionable Deductions  Illegally Evading IncomeTaxes Engaging in Frauds Pressure
on Employs
9. 9. Fraud in financial statement can be committed in 5 ways Fictitious revenue-revenues not
actually earned FraudulentTiming differences Concealed liabilities and expenses
Fraudulent disclosures or Omissions Fraudulent asset valuation-false statement of the
inventory available
10. 10. Threats Self-interest threats Self-review threats Advocacy threats Familiarity threats
Intimidation threats
11. 11. Self-interest threat • The threat that a financial or other interest will inappropriately
influence the professional accountant’s judgment or behavior
12. 12. Self-Review Threats • The threat that a professional accountant will not appropriately
evaluate the results of a previous judgment made or service performed by the professional
accountant, or by another individual within the professional accountant’s firm or employing
organization, on which the accountant will rely when forming a judgment as part of providing
a current service
13. 13. Advocacy Threat • The threat that a professional accountant will promote a client’s or
employer’s position to the point that the professional accountant’s objectivity is compromised
14. 14. Familiarity Threat • FamiliarityThreat occurs when, by virtue of a close relationship with a
client, its directors, officers or employees, an auditor becomes too sympathetic to the client’s
interests.
15. 15. Intimidation Threat • The threat that a professional accountant will be deterred from
acting objectively because of actual or perceived pressures, including attempts to exercise
undue influence over the professional accountant
16. 16. Harms of Unethical Environment • Loss of Repute • Loss of Company in monetary terms.
• Loss of Country • Restrictions in International Markets • Pressure on Organizational
Stakeholders
17. 17. Example On July 21, 2015,Toshiba (OTCBB:TOSBF) CEO HisaoTanaka announced his
resignation in the face of an accounting scandal tied to about $1.2 billion in overstated
operating profits.
18. 18. How to make ethical Environment? • Safeguards created by the profession, legislation or
regulation • Educational, training and experience requirements for entry into the profession •
Continuing professional development requirements • Corporate governance regulations •
Professional or regulatory monitoring and disciplinary procedures • External review by a third
party of the reports, returns, communications or information produced by a professional
accountant
19. 19. How to make ethical Environment? • Leadership that stresses the importance of
independence and the expectation that members of the teams will act in the public interest •
Policies and procedures to implement and monitor quality control of the engagements • A
regular monitoring of the accounting firms • Reasonable trade-off between the degrees of
responsibility and the audit cost to society
20. 20. How to make ethical Environment? • Making sure that the funds are allocated to different
activities on the basis of their importance • Frame rules that have a positive effect on
business activities • To identify the training necessary for the employees • Establishing
ethical conduct of business to attract valuable investments • Establish code of conduct •
Helps the shareholders to evaluate the performance of the directors and vice vers
21. 21. Conclusion • It is in the profession's self-interest to maintain public trust in the competent
performance of the accounting profession • Ethics, in general, is made up of smaller parts
that all work together to build the moral fabric of society.