MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING – is the process of identifying, measuring, accumulating, analyzing, preparing,

interpreting and communicating information that helps managers fulfill organizational objectives.
MANAGEMENT ACCOUNTANT – a person who provides financial data and advice to company for use in the
organization and development of its business
FUNCTIONS/OBJECTIVES OF MANAGEMENT ACCOUNTING
The basic function of management accounting is to assist management in performing its functions
effectively. The functions of management are planning, organizing, staffing, directing and controlling. It
also provides information that may be used by management for decision-making.
BASIC FUNCTIONS OF MANAGEMENT
1. PLANNING – involves:
a. setting of immediate, as well as long-range goals for the organization;
b. predicting future conditions that are expected to prevail;
c. considering the different means or strategies by which the goals set may be achieved; and
d. deciding which of the strategies should be used to attain such goals
(Top-level planning, business-level strategy, corporate-level strategy and operational strategies)
2. ORGANIZING – is the process of bringing together the physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational goals.
3. STAFFING– it is the function of manning the organizational structure and keeping it manned
4. DIRECTING– it is the part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes

 Supervision- implies overseeing the work of subordinates by their superiors. It is the act
watching & directing work and workers
 Motivation- means inspiring, stimulating or encouraging the subordinates with zeal to work
 Leadership- may be defined as a process by which manager guides and influences the work
of subordinates in desired direction.
 Communication- is the process of passing information, experience, opinion form one person
to another.
5. CONTROLLING– implies measurement of accomplishment against the standards and correction of
deviation if any to ensure achievement of organizational goals.

 All the aforementioned management functions involve decision-making. Management accountants

provide information needed by managers in decision-making.
COMPARISON OF FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

Financial Accounting Management Accounting

provide information for both internal provide data for internal users within the
(management) and external users (e.g. creditors, business organization for carrying out the
owners, government, etc.) about the functions of POSDICon, decision-making and
organization’s financial position and performance evaluation
 Financial statements  Budgets
 Financial projections
 Cost analyses
*depending on the needs of management
summarizes past transactions (historical data) has a strong emphasis on the future (combination
of historical, estimated and projected data)
data should be objective and verifiable data should be relevant
focuses on precision focuses on timeliness of information
concerned with reporting for a company as a focuses on company’s value chain (such as
whole business segment, product-line, supplier or
customer)
must conform to financial accounting reporting is not bound by financial reporting standards
standards (IFRS & PFRS) (management can set rules to produce
information most relevant to its specific needs)
mandatory not mandatory
reports may cover any time period- yearly, reports usually cover a year, quarter or month.
quarterly, monthly, weekly, daily, etc. (reports
may be required as frequently as needed)

Cost Accounting Management Accounting

revolves around cost computation, cost control
and cost reduction
prevents the business form incurring costs
beyond the budget
quantitative
one of the many subsets of management
accounting
historical information
Statutory audit is required for big businesses
not dependent on management accounting to be
successfully implemented
management, shareholders and vendors
helps management make effective decisions
about the business
offers a big picture of how management should
strategize
quantitative and qualitative
vast in itself
historical and predictive information
audit has no statutory requirement
dependent on both cost accounting and financial
accounting for successful implementation
management

ACTIVITIES OF MANAGEMENT ACCOUNTANTS

1. PLANNING – provide quantitative historical and prospective information to facilitate planning.
It also includes participation in developing the planning system, setting obtainable goals and
choosing appropriate means of monitoring the progress towards the goals.
 2. REPORTING– make available to managers timely reports that provide information and
perspective necessary for them to make decisions in goal-congruent manner.
3. CONTROLLING – interpret all forms of internal and external information pertinent to the
various segments of the organization and communicate the implication of the information being
reviewed, including its relevance and reliability. It also includes inducing corrective actions
required to return the activity to its intended course and to achieve desirable performance.
4. RESOURCE MANAGEMENT –establish systems which facilitate planning and control of the
organization’s resources to ensure that their use is consistent with established policies.
5. INFORMATION SYSTEM DEVELOPMENT – ensure that the system meets the needs of all people
who require information to perform their jobs.
6. TECHNOLOGICAL IMPLEMENTATION – should be familiar with current technology relative to
information processing and the accounting techniques appropriate to controlling and using the
information.
7. VERIFICATION –assures the accuracy and reliability of information derived from the
accounting system of related sources that is used throughout the organization and be satisfied
that actions taking place throughout the entity are consistent with policies of the organization.
8. ADMINISTRATION –includes development and maintenance of an effective management
accounting organization.

CODE OF CONDUCT OF MANAGEMENT ACCOUNTANTS

1. COMPETENCE

 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 recommendation after appropriate analysis of
relevant and reliable information.
2. CONFIDENTIALITY

 Refrain from disclosing information acquired in the course of their work except when
authorized, unless legally obliged to do so.
 Inform subordinated 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.
3. INTEGRITY

 Avoid actual or apparent conflicts 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 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 entity.
 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.
4. OBJECTIVITY

 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 CONDUCT

1. Discuss such problems with immediate superior except when it appears that the superior is
involved, in which case the problem should be presented initially to the next higher
management level.
2. 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. Contact with levels above the immediate
superior should be initiated with the superior’s knowledge, assuming the superior is not
involved. Except where legally prescribed, communication of such problems to authorities or
individuals not employed or engaged by the organization is not considered appropriate.
3. Clarify ethical issues by confidential discussion with an objective advisor to obtain a better
understanding of possible courses of action.
4. Consult your own attorney as to legal obligations and rights concerning the ethical conduct.
5. If the ethical conflict 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.

COMPANY CODE OF CONDUCT

“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.”