Chapter 1

The Changing Role of

Managerial
Accounting in a
Dynamic Business
Environment

McGraw-Hill/Irwin Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Learning Objective 1

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Define Managerial Accounting

Managerial accounting is the process of

 Identifying
 Measuring
 Analyzing
 Interpreting
 Communicating information
to mngrs in pursuit of orgamization goals

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Man Accounting
Part of man infrn sys that provide infrn
to managers for planning, DOA,
decision making , and controlling
purposes
Learning Objective 2

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Managing Resources, Activities, and People
An organization . . .

Directing

Acquires Resources Decision

Organized
Organized setset Making
of
of activities
activities

Controlling Planning
Hires People
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Learning Objective 3

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How Managerial Accounting Adds Value to
the Organization

Providing
Providing information
information for
for decision
decision making
making and
and
planning.
planning.

Assisting
Assisting managers
managers in
in directing
directing and
and controlling
controlling
activities.
activities.

Motivating
Motivating managers
managers and
and other
other employees
employees towards
towards
organization’s
organization’s goals.
goals.

Measuring
Measuring performance
performance ofof subunits,
subunits, activities,
activities,
managers,
managers, and
and other
other employees.
employees.

Assessing
Assessing the
the organization’s
organization’s competitive
competitive position.
position.

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The Balanced Scorecard
How do we Financial Perspective
look to Goals Measures
In which
owners? activities
must we
excel?
Customer Perspective Operations Perspective
Goals Measures Goals Measures
How do
customers
see us?
How can we
Innovation Perspective continue to
Goals Measures improve?
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Learning Objective 4

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Managerial versus Financial Accounting
Accounting
Accounting System
System
(accumulates
(accumulates financial
financial and
and
managerial
managerial accounting
accounting data
data in
in the
the
cost
cost accounting
accounting system)
system)

Managerial
Managerial Accounting
Accounting Financial
Financial Accounting
Accounting
Information
Information for
for decision
decision Published
Published financial
financial
making,
making, planning,
planning, and
and statements
statements andand other
other
controlling
controlling an
an financial
financial reports.
reports.
organization’s
organization’s
operations.
operations.
Internal External
Users Users
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Managerial versus Financial Accounting
Managerial Accounting Financial Accounting
Users of Interested parties, outside the
Information Managers, within the organization. organization.
Regulation Not required and unregulated, since it Required and must conform to
is intended only for management. generally accepted accounting
principles. Regulated by the Financial
Accounting Standards Board, and, to
a lesser degree, the Securities and
Exchange Commission.
Source of The organization's basic accounting Almost exclusively drawn from the
Data system, plus various other sources, organization's basic accounting
such as rates of effective products system, which accumulates financial
manufactured, physical quantities of
information.
material and labor used in production,
occupancy rates in hotels and
hospitals, and average take-off delays
Nature of Reports often focus on subunits within Reports focus on the enterprise in its
Reports and the organization, such as departments, entirety. Based almost exclusively on
Procedures divisions, geographical regions, or historical transaction data.
product lines. Based on a combination
of historical data, estimates, and
projections of future events.
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Learning Objective 5

1-13
Line and Staff Positions

A 
AAstaff
staff position
position supports
supports and
Aline
line position
position is
is directly
directly and
involved
involved in
in achieving
achieving the
the assists
assists line
line positions.
positions.
basic
basic objectives
objectives of
of an
an Example:
Example: A Acost
cost
organization.
organization. accountant
accountant inin the
the
 manufacturing
manufacturing plant.
plant.
Example:
Example: A
Aproduction
production
supervisor
supervisor in
in aa
manufacturing
manufacturing plant.
plant.

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Learning Objective 6

1-15
Controller
The
The chief
chief managerial
managerial andand financial
financial accountant
accountant is
is
responsible
responsible for:
for:
Supervising
Supervising accounting
accounting personnel.
personnel.
Preparation
Preparation ofof information
information and
and reports,
reports, managerial
managerial and
and
financial.
financial.
Analysis
Analysis ofof accounting
accounting information.
information.
Planning
Planning and
and decision
decision making.
making.

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Treasurer
Responsible
Responsible forfor raising
raising capital
capital and
and safeguarding
safeguarding thethe
organization’s
organization’s assets.
assets.
Supervises
Supervises relationships
relationships with
with financial
financial institutions.
institutions.
Work
Work with
with investors
investors and
and potential
potential
investors.
investors.
Manages
Manages investments.
investments.
Establishes
Establishes credit
credit policies.
policies.
Manages
Manages insurance
insurance coverage.
coverage.

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Internal Auditor
Responsible
Responsible for
for reviewing
reviewing accounting
accounting procedures,
procedures, records,
records, and
and
reports
reports in
in both
both the
the controller’s
controller’s and
and the
the treasurer’s
treasurer’s area
area of
of
responsibility.
responsibility.
Expresses
Expresses anan opinion
opinion to
to top
top
management
management regarding
regarding the
the
effectiveness
effectiveness ofof the
the
organization’s
organization’s accounting
accounting
system.
system.

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Learning Objective7

1-19
Strategic Cost Management and the Value
Chain

Product
Product
Design
Design
Production
Production
Research
Research
and
and
Development
Development Marketing
Marketing
Securing
Securing raw
raw
materials
materials and
and Distribution
Distribution
other
other resources
resources
Customer
Customer
Start Service
Service

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Learning Objective 8

1-21
Capacity
Theoretical Capacity is the upper limit on the amount
of goods or services if everything works perfectly.

Practical capacity allows for normal occurrences such

as cash register downtime and cashier fatigue or illness.

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Cost Management Systems
Objectives
Objectives

Measure
Measure the
the cost
cost of
of
resources
resources consumed.
consumed.

Identify
Identify and
and eliminate
eliminate
non-value-added
non-value-added costs.
costs. Cost
Management
System

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Cost Management Systems
Objectives
Objectives

Determine
Determine efficiency
efficiency
and
and effectiveness
effectiveness of of
major
major activities.
activities.

Identify
Identify and
and evaluate
evaluate
new
new activities
activities that
that can
can Cost
improve
improve performance.
performance. Management
System

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Learning Objective 9

1-25
Managerial Accounting as a Career
Professional Organizations

Institute of Management Accountants (IMA)

Develops
Develops
Publishes
Publishes Administers
Administers Standards
Standards ofof
Management
Management Certified
Certified Ethical
Ethical
Accounting
Accounting Management
Management Conduct
Conduct for
for
and
and research
research Accountant
Accountant Management
Management
studies.
studies. program
program Accountants
Accountants
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Certified Management Accountant
A
A management
management accountant
accountant
who
who has
has the
the necessary
necessary qualifications
qualifications
and
and who
who passes
passes aa rigorous
rigorous professional
professional
exam
exam earns
earns the
the right
right to
to be
be known
known asas aa
Certified
Certified Management
Management Accountant
Accountant
(CMA).
(CMA).
 CMA Exam
Part 1 Financial Planning, Performance and Control
Planning, budgeting, and forecasting
Performance management
Cost management
Internal controls
Professional ethics

Part 2 Financial Decision Making

Financial statement analysis
Corporate finance
Decision analysis and risk management
Investment decisions
Professional ethics

Information
Information about
about becoming
becoming aa CMA
CMA and
and the
the CMA
CMA program
program can
can be
be accessed
accessed
on
on the
the IMA’s
IMA’s website
website at
at www.imanet.org
www.imanet.org or
or by
by calling
calling 1-800-638-4427.
1-800-638-4427.
Learning Objective 10

1-29
Ethical Climate of Business
The
The corporate
corporate scandals
scandals experienced
experienced over
over the
the last
last few
few
years
years have
have shown
shown usus that
that unethical
unethical behavior
behavior inin business
business
is
is wrong
wrong in
in aa moral
moral sense
sense and
and can
can be
be disastrous
disastrous in
in the
the
economy.
economy. In In addition
addition to
to Sarbanes-Oxley,
Sarbanes-Oxley, there
there will
will
likely
likely be
be more
more reforms
reforms inin corporate
corporate governance
governance and and
accounting.
accounting.

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Professional Ethics

Competence
Confidentiality
Integrity
Credibility

1-31
 Code of Conduct for Management
Accountants

The Institute of Management Accountant’s (IMA)

Statement of Ethical Professional Practice
consists of two parts that offer guidelines for:
 Ethical behavior.
 Resolution for an ethical conflict.
 IMA Guidelines for Ethical Behavior
Recognize
Recognize and
and
communicate
communicate professional
professional
limitations
limitations that
that preclude
preclude
responsible
responsible judgment.
judgment.

Maintain
Maintain Follow
Follow applicable
applicable
professional
professional Competence laws,
laws, regulations
regulations
competence.
competence. and
and standards.
standards.

Provide
Provide accurate,
accurate, clear,
clear,
concise,
concise, and
and timely
timely decision
decision
support
support information.
information.
 IMA Guidelines for Ethical Behavior
Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.

Do
Do not
not use
use
confidential
confidential
information
information forfor Confidentiality
Confidentiality
unethical
unethical or
or illegal
illegal
advantage.
advantage.

Ensure
Ensure that
that subordinates
subordinates do
do
not
not disclose
disclose confidential
confidential
information.
information.
IMA Guidelines for Ethical Behavior
Mitigate
Mitigate conflicts
conflicts of
of
interest
interest and
and advise
advise others
others
of
of potential
potential conflicts.
conflicts.
Refrain
Refrain from
from
conduct
conduct that
that
would
would prejudice
prejudice Integrity
carrying
carrying out
out
duties
duties ethically.
ethically.
Abstain
Abstain from
from activities
activities that
that
might
might discredit
discredit the
the
profession.
profession.
 IMA Guidelines for Ethical Behavior
Communicate
Communicate information
information
fairly
fairly and
and objectively.
objectively.

Disclose
Disclose delays
delays or
or
deficiencies
deficiencies inin information
information
Credibility
Credibility timeliness,
timeliness, processing,
processing, or or
internal
internal controls.
controls.

Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa user’s
user’s
understanding
understanding of of reports
reports
and
and recommendations.
recommendations.
IMA Guidelines for Resolution of an
Ethical Conflict
Follow
Follow employer’s
employer’s established
established policies.
policies.
For
For an
an unresolved
unresolved ethical
ethical conflict:
conflict:

Discuss
Discuss the
the conflict
conflict with
with immediate
immediate supervisor
supervisor or
or
next
next highest
highest uninvolved
uninvolved managerial
managerial level.
level.

IfIf immediate
immediate supervisor
supervisor is is the
the CEO,
CEO, consider
consider thethe
board
board ofof directors
directors oror the
the audit
audit committee.
committee.

Contact
Contact with
with levels
levels above
above thethe immediate
immediate supervisor
supervisor
should
should only
only be
be initiated
initiated with
with the
the supervisor’s
supervisor’s
knowledge,
knowledge, assuming
assuming the the supervisor
supervisor isis not
not involved.
involved.
IMA Guidelines for Resolution of an
Ethical Conflict
Follow
Follow employer’s
employer’s established
established policies.
policies.
For
For an
an unresolved
unresolved ethical
ethical conflict:
conflict:

Except
Except where
where legally
legally prescribed,
prescribed, maintain
maintain
confidentiality.
confidentiality.

Clarify
Clarify issues
issues in
in aa confidential
confidential discussion
discussion with
with an
an
objective
objective advisor.
advisor.

Consult
Consult an an attorney
attorney asas to
to legal
legal obligations.
obligations.
Why Have Ethical Standards?
Ethical
Ethical standards
standards in
in business
business are
are essential
essential for
for aa
smooth
smooth functioning
functioning economy.
economy.

Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer.

Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods and services at higher prices.
End of Chapter 1

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