Module 1: Introduction to Management Accounting

This module compares financial and management accounting, stresses the importance
of professional ethics, and introduces the organizational setting and environment in
which the management accountant must operate.

Lesson 1
What are the differences between financial and management accounting?

Accounting information addresses three different functions like (1) providing

information to external parties for investment and credit decisions (2) estimating the cost
of products produced and services provided by the organization; and (3) providing
information useful to internal managers who are responsible for planning, controlling,
decision making, and evaluating performance.

Financial accounting is designed to meet external information needs and to

comply with generally accepted accounting principles. Financial accounting information
is typically historical, quantitative, monetary, and verifiable and usually reflects the
activities of the whole organization.

Management accounting attempts to satisfy internal information needs and to

provide product costing information for external financial statements. It comprises the
financial and nonfinancial information needed by internal users. Management
accounting information is not required to adhere to GAAP and thus can provide both
historical and forward-looking information to managers. This information commonly
addresses individual or divisional concerns rather than those of the firm as a whole.

Lesson 2
What are the sources of ethical standards for management accountants?

Certified Management Accountants (CMA) must adhere to the standards of ethical

conduct published in the Statement of Ethical Professional Practice issued by the
Institute of Management Accountants (IMA). The IMA’s Code of Ethics has four
standards: Competence, Confidentiality, Integrity and Credibility.

Lesson 3
What are the basic management functions and concepts?

Basic Management Function

1. Planning requires management to look ahead and to establish objectives and

strategies to meet the mission and vision of the company.
2. Organizing involves the determination of activities that need to be done in order
to reach the company goals, assigning these activities to the proper personnel,
 and delegating the necessary authority to carry out these activities in a
coordinated and cohesive manner.
3. Staffing involves the process of recruiting, training, developing, compensating
and evaluating employees and maintaining this workforce with proper incentives
and motivations.
4. Directing involves articulating a vision, energizing employees, inspiring and
motivating people using vision, influence, persuasion, and effective
communication skills.
5. Controlling is the process of keeping the activities on track. It means comparing
the actual results to the budget and making corrective actions to the when goals
are not met.

Lesson 4
What are the basic management concepts and what the roles and activities of controller
and treasurer?

The organizational mission and strategy are important to management accountants

because such statements help to:

● indicate appropriate measures of accomplishment.

● define the development, implementation, and monitoring
● processes for the organizational information systems.

Organizational strategy may be constrained by

● monetary capital, intellectual capital, and/or technology.

● external cultural, fiscal, legal/regulatory, or political situations.
● competitive market structures.

An organization is composed of people, resources other than people, and commitments

that are acquired and arranged to achieve organizational strategy and goals.
Organizational structure reflects the way in which authority and responsibility for making
decisions are distributed in an organization. Authority refers to the right (usually by
virtue of position or rank) to use resources to accomplish a task or achieve an objective.
Responsibility is the obligation to accomplish a task or achieve an objective.

Work in organizations is directed by line personnel who work directly toward attaining
organizational goals, and staff personnel who give assistance and advice to line
managers.

a. The treasurer is generally responsible for achieving short- and long-term

financing, investing, and cash management goals.

b. The controller is responsible for delivering to management financial reports in

conformity with GAAP.
 Management style, the way managers interact with the entity’s stakeholders,
especially employees, impacts the organization’s decision-making processes, risk
taking, willingness to encourage change, and employee development.

Organizational culture refers to the basic manner in which the organization

interacts with its business environment, the way in which employees interact with each
other and with management, and the underlying beliefs and attitudes held by employees
about the organization.

The value chain is a set of value-adding functions or processes that convert

inputs into products and services for the organization’s customers. It includes Research
and Development, Design, Supply, Production, Marketing, Distribution, Customer
Service

The balanced scorecard (BSC) is a framework that restates an organization’s

strategy into clear and objective performance measures focused on customers, internal
business processes, employees, and shareholders. The BSC includes long-term and
short-term, internal and external, financial and nonfinancial measures to balance
management’s view and execution of strategy. The balanced scorecard has four
perspectives: learning and growth, internal business perspective, customer value
perspective, financial perspective.