Introduction:

CHAPTER
The Role,
History, and
Direction of
Management
Accounting
 Objectives
Objectives
1. Discuss the need for management accounting
After
After studying
studying this
this
information.
chapter,
chapter, you
you should
should
2. Differentiate between management accounting
be
be able
able to:
to:
and financial accounting.
3. Provide a brief historical description of
management accounting.
4. Identify the current focus of management
accounting.

Continued
Continued
 Objectives
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.
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.
 Management
Management Accounting
Accounting
Information
Information System
System

Special Reports
Collecting Product Costs
Measuring Customer Costs
Storing Budgets
Analyzing Performance Reports
Economic Reporting Personal Communication
Events Managing

Inputs Processes Outputs

Users
 Management
Management Process
Process

The Management Process is defined by the

following activities: Planning requires setting
objectives and identifying
Planning methods to achieve those
objectives.

Controlling
Decision Making
 Management
Management Process
Process

The Management Process is defined by the

following activities: Controlling is the
managerial activity of
monitoring a plan’s
Planning implementation and
taking corrective action
Controlling as needed.

Decision Making
 Management
Management Process
Process

 The Management Process is defined by the

following activities:
Planning Control is usually achieved
with the use of feedback.
Controlling
Decision Making
Management
Management Process
Process

Feedback
Feedbackisisinformation
informationthat
thatcan
canbe
beused
usedtoto
evaluate
evaluateor
orcorrect
correctthe
thesteps
stepsbeing
beingtaken
takentoto
implement
implementaaplan.
plan.
 Management
Management Process
Process

The Management Process is defined by the

following activities:
Planning Decision making is
the process of
Controlling choosing among
competing
Decision Making alternatives.
Differentiate Between
Management Accounting and
Financial Accounting
Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

 Targeted
Targeted Users
Users

Management
accounting
focuses on
providing
information for
internal users.
Targeted
Targeted Users
Users
Financial
Financialaccounting
accountingfocuses
focuses
on
onprovided
providedinformation
informationfor
for
external
externalusers.
users.

ABC
Company
Annual
Report
Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
Restrictions
Restrictions on
on Inputs
Inputs and
and Processes
Processes

Financial
Financialaccounting
accounting reporting
reporting must
must follow
follow the
the of
Management
Management accounting
accountingisisnot
notsubject
subjectto
tothe
the requirements
requirements of
accounting
accounting procedures
procedures set
set by
bythe
the SEC
SEC and
and the
the
generally
generallyaccepted
acceptedaccounting
accountingprinciples.
principles.
FASB.
FASB.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
 Types of Information

For
The
The management
Forrestrictions
management
restrictions accounting,
imposed on
accounting,
imposed the
onfinancialthe
financial financial
accounting
accounting or
tend
financial or
tend
nonfinancial
to produce
nonfinancial
to information
produceobjective
objectiveand may
andverifiable
information be
bemuch
muchmore
mayfinancial
verifiable financial more
information.
subjective
subjectivein
information. innature.
nature.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
Time
Time Orientation
Orientation

Management
accounting strongly
emphasizes providing
information about
future events.
Time
Time Orientation
Orientation

Financial
accounting records
and reports events
that have already
happened.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation and 5. Information about the
decisions based on very firm as a whole
detail information
 Degree
Degree of
of Aggregation
Aggregation

Management
accounting provides
measures and internal
reports used the
evaluate performance
of entities, product
lines, departments,
and managers.
 Degree
Degree of
of Aggregation
Aggregation

Financial
accounting focuses
on overall firm
performance.
 Management
ManagementAccounting
Accounting Financial
FinancialAccounting
Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules
3. Financial and
nonfinancial informa-
tion; subjective
information possible
4. Emphasis on the future
5. Internal evaluation and
decisions based on very
detail information
6. Broad, multidisciplinary
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
5. Information about the
firm as a whole
6. More self-contained
 Breadth
Breadth

ItItincludes
includesaspects
Management
Management aspectsof
accounting
accountingmanagerial
ofis
ismuch economics,
muchbroader
managerial than
thanfinancial
economics,
broader financial
accounting.
industrial
industrialengineering,
accounting. engineering,andandmanagement
managementscience.
science.
Historical Description of
Management 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
Current
Current Focus
Focus of
of Management
ManagementAccounting
Accounting

Activity-Based
Activity-BasedManagement
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.
Current
Current Focus
Focus of
of Management
ManagementAccounting
Accounting

Customer
CustomerOrientation
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.
Current
Current Focus
Focus of
of Management
ManagementAccounting
Accounting

Strategic
StrategicPositioning
Positioning

Strategic cost management is the use of cost

data to develop and identify superior strategies
that will produce a sustainable competitive
advantage.
Strategies:
1) Cost leadership
2) Superior products through differentiation
 Current
Current Focus
Focus of
of Management
ManagementAccounting
Accounting

Value-Chain
Value-ChainFramework
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.
 Value Chain: Apple Planting and
Industry Cultivating
Firm B
Harvesting

Distribution of
Apples
Firm A
Applesauce
Production Firm C

Product Disposal Applesauce

Distribution

End-Use Customer
Supermarkets
Managing
Managingthethevalue
valuechain
chainmeans
meansthat
that
aamanagement
managementaccountant
accountantmust
must
understand
understandmany
manyfunctions
functionsof
ofthe
the
business,
business,from
frommanufacturing
manufacturingto to
marketing.
marketing.
This
Thisemphasis
emphasison onquality
qualityhas hascreated
createdaa
demand
demand for
for management
management accounting
accounting
The philosophy
The philosophy of total quality
qualitymanagement
of totalfinancialmanagementisistoto
systems
systems that provide
that provide
manufacture perfect and
financial and
manufacture perfectproducts.
products.
nonfinancial
nonfinancialinformation
informationabout aboutquality.
quality.
The
The role
role of
of
management
management
accountants
accountants in
in anan
organization
organization isis one
one
of
of support.
support.
 Partial Organization Chart, Manufacturing
Company
President
Line Function Staff Function

Production Vice Financial Vice

President President

Production Supervisor Controller Treasurer

Machining Assembly Internal

Cost Financial Systems Tax
Foreman Foreman Audit
 Ethical
Ethical
Behavior
Behavior
Michael Josephson’s* Ten Ethical Values:
Honesty Caring for others
Integrity Respect for others
Promise keeping Responsible
Fidelity citizenship

Fairness Pursuit of excellence

Accountability
*Michael Josephson, “Teaching Ethical Decision Making and Principled
Reasoning”
 Professional
Professional Certifications
Certifications

 CMA: One of the main purposes of the CMA was to

establish management accounting as a recognized,
professional discipline, separate from the profession of
public accounting.
 CPA: The responsibility of a CPA is to provide assurance
concerning the reliability of financial statements.
 CIA: The focus of the CIA is to recognize competency in
internal auditing rather than external auditing as with the
CPA.
 The
The CMA
CMA

Four areas emphasized on the exam:

1) Economics, finance, and management
2) Financial accounting and reporting
3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems
Any Questions?

Chapter
The
The End
End One

The first step to success is the

feeling of success