AE 27

MANAGEMENT ACCOUNTING
LESSON 1.2
Management Accounting:
An Overview
Organization Structure and the
Management Accountant
 A major function of Management Accountant is that of
tailoring application of the process to the organization
so that the organization’s objectives, short-term or long-
term, are effectively achieved.
 Management Accounting is intended to include persons
involved in such functions as Controllership, Treasury,
Financial Analysis, Planning and Budgeting, Cost
Accounting, Internal Audit, Systems, and the General
Accounting.
 Management Accountants may have titles as Controller,
Treasurer, Budget Analyst, Cost Analyst and Accountant.
 Staff – is usually the accounting function with the
responsibility of providing line managers and other
staff managers with the required specialized services.
 Line Authority – is the authority to command action or
give orders to subordinates.
 Line Managers – are directly responsible for attaining
the objectives of the business firm as efficiently as
possible.
 Staff Authority is the authority to advise but not
command others, it is exercised laterally or upward
 Functional Authority is the right to command action,
laterally or downward with regards to a specific
function or specialty.
The Chief Financial Officer and The
Controller
 The Chief Financial Officer (CFO), also called as the
Finance Director in many countries, is the executive
responsible for overseeing the financial operations
of an organization.
 The responsibilities of the CFO vary among
organizations, but usually include the following:
 Controllership – includes providing financial information
for reports to managers and reports to shareholders
and overseeing the overall operations of the accounting
system
  Treasury – includes banking and short and long term
financing, investments and management of cash.
 Risk Management – includes managing the financial risk
of interest-rate and exchange rate changes and
derivatives management.
 Taxation – includes income taxes, sales taxes and
international tax planning
 Internal Audit – includes reviewing and analyzing
financial and other records to attest to the integrity of
the organization’s financial reports and to adherence to
its policies and procedures.
 The Controller (also called Chief Accounting Officer)
is financial executive responsible for Management
Accounting and Financial Accounting.
Illustrative organizational chart of the CFO and
the corporate controller in an Apparel Company
The Controller as the Top Management
Accountant
 Controllership is the practice of the established science of control
which is the process by which management assures that the
resources are procured and utilized according to plans in order to
achieve the company’s objectives.
 The Controller provides reports for planning and evaluating
company activities and provides the information needed to make
management decisions.
 The Controller also has responsibility for all financial accounting
reports and tax filings with the BIR and other taxing agencies, as
well as coordinating the activities of the firm’s external auditors.
 The Controller’s authority is basically staff authority, wherein the
controller’s office gives advice and service to other departments,
but in his own department he has line authority.
A typical Organization Chart Showing the
Functions of the Controller
Basic Functions of Controllership
The Principal functional responsibilities and activities of
controllership may be categorized as follows:
1. Planning
 Establish and maintain an integrated plan of operation,
consistent with the company’s goals and objectives.
2. Control
 Develop and revise standards against which to measure
performance and provide guidance and assistance to their
members of management in ensuring conformance of actual
results to standards.
3. Reporting
 Prepare, analyze and interpret financial results for utilization by
management in the decision- making process.
4. Accounting
 Design, establish and maintain general and cost accounting
systems at all company levels, including corporate,
divisional, plant and unit to properly record all financial
transactions in the books of accounts in accordance with
sound accounting principles with adequate internal control.
5. Other Primary Responsibilities
 Manage and supervise other functions such as taxes
preparation and filing, so as interface with the respective
taxing authorities and agents. Maintain appropriate
relationships with internal and external auditors.
Supervise Treasury and others.
Qualification of the Controller

 The qualifications of an effective Controller include

the following:
1. An excellent foundation in accounting and finance with
an understanding and thorough knowledge of
accounting principles.
2. An understanding of the principles of planning,
organizing and control.
3. A general understanding of the industry in which the
company competes and the social economic and
political forces involved.
4. A thorough understanding of the company, including its
technologies, products, policies, objectives, history,
organization and environment.
5. The ability to communicate with all levels of
management and a basic understanding of the other
functional problems related to engineering,
production, procurement, industrial relations and
marketing.
6. The ability to express ideas clearly in writing or in
making informative presentations.
7. The ability to motivate others to achieve positive
action and results
The Chief Financial Officer and the
Treasurer
 Although organizational structures vary from firm to
firm, the role of finance is assigned to the Chief
Financial Officer (CFO) or the Vice President for
Finance who reports to the president.
 The financial vice-president’s key subordinates are
the Treasurer and the Controller.
Treasurership
 Treasurership is concerned with the acquisition, financing and
management of assets of a business concern to maximize the
wealth of the forms for its owners.
 Common responsibilities of the Treasurer:
1. Funds Procurement
2. Banking and Custody of Funds
3. Investment of Funds
4. Operating Responsibilities related to
a) Credit and Collection
b) Inventory management
c) Corporate Pension and retirement fund
d) Investor Relation
e) Insurance
f) Compliance with legal regulatory boards in relation to funds
procurement, use and distribution
Ethical Standards for Management
Accountants
 The Institute of Management Accountants (IMA) of the
United States has developed and issued a very useful
ethical code called the Standards of Ethical Conducts for
Practitioners of Management Accounting and Financial
Management.
 These Ethical Standards have two parts:
 The First Part provides general guidelines for Ethical
Behavior.
 The Second Part gives specific guidance concerning what
should be done if an individual finds evidence of ethical
misconduct within an organization.
STANDARDS OF ETHICAL CONDUCT FOR PRACTITIONERS
OF MANAGEMENT ACCOUNTING AND FINANCIAL
MANAGEMENT

 Practitioners of management accounting and financial

management have an obligation to the public, their
profession, the organization they serve, and themselves, to
maintain the highest standards of ethical conduct. In
recognition of this obligation, the Institute of Management
Accountants has promulgated the following standards of
ethical conduct for practitioners of management accounting
and financial management. Adherence to these standards,
both domestically and internationally, is integral to
achieving the Objectives of Management Accounting.
Practitioners of management accounting and financial
management shall not commit acts contrary to these
standards nor shall they condone the commission of such acts
by others within their organizations.
 COMPETENCE.
Practitioners of management accounting and
financial management have a 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
Practitioners of management accounting and
financial management have a 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
Practitioners of management accounting and financial
management have a responsibility to:
 Avoid actual or apparent conflicts of interest and advise
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 responsibility judgement or
successful performance of an activity.
 Communicate unfavorable as well as favorable information of
professional judgements or opinions.
 Refrain from engaging in or supporting any activity that would
discredit the profession.
 Objectivity
Practitioners of management accounting and
financial management have a 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,
practitioners of management accounting and
financial management may encounter problems
underlying unethical behavior or in resolving an
ethical conflict. When faced with significant ethical
issuers, practitioners of management accounting
and financial management should follow the
established policies of the organization bearing on
the resolution of such conflict. If these policies do
not resolve the ethical conflict, such practitioner
should consider the following courses of actions:
 Discuss such problems with the immediate superior except
when it appears that the superior is involved, in which case the
problem should be presented initially to the next higher
managerial level. If a satisfactory resolution cannot be
achieved when the problem is initially presented, submit the
issue 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 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. Except where legally prescribed, communications of
such problems to authorities or individuals not employed or
engaged by the organization is not considered appropriate.
 Clarify relevant ethical issues by confidential discussion with
an objective advisor (e.g. IMA Ethics Counselling Service) to
obtain a better understanding of possible course of action.
 Consult your own attorney as to legal obligations and rights
concerning the ethical conflict.
 If the ethical conflict still exists after exhausting all levels of
internal review, there may be 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. After resignation,
depending on the nature of the ethical conflict, it may also
be appropriate to notify other parties.
* Institute of Management Accountants, formerly National Association of
Accountants, Statements on Management Accounting: Objectives of Management
Accounting, Statement 1B, New York, NY, June 17, 198 as revised in 1987.
Company Code of Conduct

 A former president of CMA emphasizes the

importance of ethics in Business:
“Employees like to work for a company that they can
trust. Customers like to deal with an ethically reliable
business. Suppliers like to sell to firms with which they
can have a real partnership. Communities are more likely
to cooperate with organizations that deal honestly and
fairly with them. If the business community is to function
effectively, all of the players need to act ethically”
 Those who engage in unethical behavior often
justify their actions with one or more of the
following reasons:
1. The organization expects unethical behavior
2. Everyone else is unethical; and/or
3. Behaving unethically is the only way to get ahead
Codes of Conduct on the International
Level
 In July 1990, the International Federation of Accountants
(IFAC) in which PICPA is a member, issued the “Guidelines on
Ethics for Professional Accountants” which governs the
activities of all professional accountants throughout the
world; regardless of whether they are practicing as
independent CPA, employed in government service or
employed as internal accountants.
 In addition to outlining the ethical requirements in matters
dealing with Competence, Objectivity, Independence, and
Confidentiality, the IFAC’s code also outlines the accountant’s
ethical responsibilities in matters relating to taxes, fees and
commissions, advertising and solicitation, the handling of
monies and cross-border activities.
International Certification
 The Three Certifications available to Management Accountants are
as follow:
 Certificate of Management Accounting (CMA)
 A Certified Management Accountant is one who passed the rigorous
qualifying examination, has met an experience requirement and participates
in continuing educations. The CMA is granted by the Institute of Management
Accountants (IMA)
 Certificate in Public Accounting (CPA)
 A Certified Public Accountant is one who has met the pre-qualification
educational requirements, passed the CPA licensure examination given by the
Professional Regulatory Board of Accountancy and has satisfied all other
legal and regulatory requirements of a public accountant.
 Certificate in Internal Auditing (CIA)
 A Certified Internal Auditor is an individual who passed a comprehensive
examination designed to ensure technical competence and have the required
number of years of work experience
 Institute of Management Accountants (IMA)
 The Institute of Management Accountants (IMA) is a
global association for financial professionals and offers
the prestigious Certified Management
Accountant (CMA) designation.
 The IMA's mission is to promote education and
development in management accounting and finance.
 Philippine Association of Management Accountants
(PAMA)
 It was established in 1972 as the National Association
of Accountants (NAA) Philippines Chapter, Inc. It is
affiliated with NAA in New York.