Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

MANAGEMENT ACCOUNTING CONCEPTS

Accounting 142

THE CONCEPTS AND FUNCTIONS OF MANAGEMENT
The work of managers can be usefully classified as planning, directing
and motivating and controlling. All of these activities involve making
decisions.
A. Planning – involves carrying out the following activities:
 Setting of immediate, as well as long-range goals for
the organization.
 Predicting future conditions that are expected to prevail.
 Considering the different means or strategies by which
the goals set may be achieved.
 Deciding which of the strategies should be used to
attain such goals.
Goals – are outcome statements that define what an
organization is trying to accomplish both programmatically
and organizationally. They are meant to provide a sense of
direction and are normally expressed in general, abstract
statements.
Objectives – are precise, time-based and measurable actions
that support the completion of a goal. They are more specific
expressions of actions and things to be done. When objectives
are set, specific plans are made.
 Strategic objectives and plans – are company-wide
plans with a long planning horizon.
 Tactical objectives and plans – these plans translate
overall strategy into shorter range specifics for each
division or department. They contain more details and
are more action oriented.
 Operational objectives and plans – these plans are very
detailed implementation of the company’s strategy.
They are annual plans with specific objectives for
individual operating units.
 Contingency plans – also called disaster recovery
plans, these are plans implemented in case of fire,
flood, power outages or other fortuitous events.
To be more useful, objectives should be specific, measurable,
attainable, realistic and time-bounded. Moreover, objectives
need to be communicated and documented.
B. 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. This management function include the
following activities:
 Employee work assignments.
 Routine problem solving.
 Conflict resolution.
 Effective communications.
C. 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 performance. Feedback in the form of
performance reports that compare actual results with the
budget are an essential part of the control function. Controls
employed by management are generally classified into three
as follows:
 Preliminary or feedforward controls – used to control
input resources prior to the organizational transition
process and designed to prevent problems from
occurring.
 Screening or concurrent controls – used to monitor the
ongoing transformation process to ensure that
organizational standards and goals are being met
 Post-action or feedback controls – used after
completion of the transformation process to determine
if and where corrective action needs to be taken.
D. Decision-making – is an integral part of the other three
management activities.
Need for Managerial Accounting Information
Accurate and timely accounting information helps management plan
effectively and to focus attention on deviations from plans. In the
planning stage, managers make decisions concerning which alternatives
should be selected. Financial information is often a vital component of
this decision-making. Once the alternatives have been selected, detailed
planning is possible. These detailed plans are usually stated in the form
of budgets. Further, the control function of management is aided by
performance reports that compare actual performance to the budget.
This feedback mechanism directs attention to activities where
managerial attention is needed.
MANAGEMENT ACCOUNTING AND ITS SCOPE
The field of accounting that provides economic and financial
information for internal users, particularly the managers or decision
makers in an organization is called managerial accounting or
management accounting. This field of accounting aims:
A. To provide information for costing services, products and
other objects of interests.
 Determining, accumulating and explaining costs, both
manufacturing and non-manufacturing.
 Computing or determining product cost or service cost.
 Determining cost behavior.
B. To provide information for planning, controlling, evaluation
and continuous improvement.
 Providing assistance to management in profit planning
and budgeting.
 Providing bases for cost control with the use of
standards costs and other planned objectives.
C. To provide information for decision making.
 Accumulating and presenting data which may be used
by managers in decision making.
 Assisting managers in developing the company’s prices
both for external and internal transactions.
Management accounting concepts apply to both profit-oriented
organizations and not for profit organizations. It covers a much broader
scope as it goes beyond the boundaries of traditional accounting.
Management Accounting and Financial Accounting
Typically, accounting can be divided into financial accounting and
managerial accounting. This division is made primarily on the grounds
of orientation of the reports.
Financial accounting Managerial accounting
Historical in nature Deals about the future
Uses or is bound by the PFRSs Does not use PFRSs
Reports are holistic Reports are segmentized
Reports are for management use
Reports are for general purpose
only
With the unifying equation: A =
No unifying equation
L+C
Focuses on accounting and
Multi-disciplinary
finance
Focuses on the process of
Concerns with usefulness of the
preparing the financial
financial statements
statement
Focus is on precise information Focus is on timely information
Reports cover a year, a quarter Reports are prepared as needed
or a month and tend to be and tend to be more extensive
compressed and simplified and detailed

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 Mandatory Optional
Though distinct from each other, financial accounting and management
accounting have some similarities. First, both fields draw information
from the same accounting system. Second, both classifications use cost
accounting data in the preparation of reports.
CONTROLLERSHIP AND TREASURERSHIP
The chief management accounting executive of an organization is the
controller who is mainly responsible for the accounting aspect of
management planning and control. In some organizations, the controller
is called as the vice president for finance, chief financial officer,
accounting manager, budget director or systems director. Basically, the
controller:
A. Accumulates and reports accounting information to all levels
of management.
B. Directs management’s attention to problems and assists them
in solving such problems.
Thus, the controller is responsible for both internal and external
accounting requirements and is responsible for designing and operating
a system through which control information is collected and reported.
Controllership versus Treasurership
Controllership Treasurership
Planning and control Provision of capital
Reporting and interpreting Investor relations
Evaluating and consulting Short-term financing
Government reporting Banking and custody
Protection of assets Credit and collection
Economic appraisal Investments
Tax administration Insurance
A. Planning and control – to establish, coordinate and
administer, as an integral part of management, an adequate
plan for the control of operations.
B. 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.
C. 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.
D. Tax administration – to establish or coordinate the
preparation of reports to government agencies.
E. Government reporting – to supervise or coordinate the
preparation of reports to government agencies.
F. Protection of assets – to assure protection for the assets of
business through internal control, internal auditing and
assuring proper insurance coverage.
G. Economic appraisal – to continuously appraise economic
and social forces and government influences and to interpret
their effect upon the business.
Management accountants, regardless of their title, occupy a staff
position and not a line position. A person in a line position is directly
involved in achieving the basic objectives of the organization. On the
other hand, a person in a staff position is indirectly involved in
achieving those basic objectives. Staff positions support line positions,
but they do not have direct authority over line positions.
ETHICAL STANDARDS FOR 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 has promulgated the ethical
standards below. Adherence to these standards is integral in achieving
the objectives of management accounting.
A. Competence – management accountants have a responsibility
to:
 Maintain an appropriate level of professional
competence by on-going development of their
knowledge and skills.
Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY 2013-2014
 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.
B. Confidentiality – management accountants have a
responsibility to:
 Refrain from disclosing confidential information
acquired in the course of their work except when
authorized or 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.
C. Integrity – management accountants have a responsibility to:
 Avoid actual or apparent conflict of interest and advise
all 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
attainment of the organization’s legitimate and ethical
objectives.
 Recognize and communicate professional limitations or
other constraints that would preclude responsible
judgment or successful performance of an activity.
 Communicate unfavorable, as well as favorable
information and professional judgments or opinions.
 Refrain from engaging in or supporting any activity that
would discredit the profession.
D. Objectivity – management accountants have the
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 CONFLICTS
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 organization’s established
policies for resolving ethical conflict. If this does not work the
following guidelines should be considered:
A. Discuss such problem 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
issues to the next higher managerial level.
B. If the immediate superior is the chief executive officer or its
equivalent, the acceptable reviewing authority may be a group
such as the audit committee, executive committee, board of
directors, board of trustees or owners.
C. Contact with levels above the immediate supervisor should be
initiated only with the superior’s knowledge assuming the
superior is not involved.
D. Except when legally prescribed, communication of such
problems to authorities or individuals not employed or
engaged by the organization is not considered appropriate.
Thus, maintain confidentiality except where legally required.
E. Clarify issues in a confidential discussion with an objective
advisor to obtain a better understanding of possible courses of
action.
F. Consult an attorney as to any legal obligations and rights
concerning the ethical conduct.
G. 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.
H. After resignation, depending on the nature of the ethical
conflict, it may also be appropriate to notify other parties.
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