CHAPTER 1

The Accountant’s Role in the Organization

Accounting Disciplines
 Financial Accounting – focus on external

users and GAAP rules  Managerial Accounting – focus on internal users and is not necessarily GAAP-driven. Also provides data for financial accounting. This includes:
 

Cost Accounting Cost Management

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.

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by Horngren/Datar/Foster.Some Major Differences between Financial and Managerial Accounting Managerial Purpose Help Managers Help Managers Make Decisions Make Decisions Financial Communicate Financial Position Internal Managers Primary Users Internal Managers Focus Rules Time Span Future Oriented Cost-benefit Varies External Stakeholders Past Oriented GAAP Annual/Quarter 1-3 To accompany Cost Accounting 12e. . All rights reserved. Copyright © 2006 by Pearson Education.

by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved. inform local decisions and actions Objective.…contd Managerial Type of Information Financial Financial. technologies. report on entire organization To accompany Cost Accounting 12e. accurate Disaggregate. and competitors Nature Of Information Scope More subjective and judgmental. valid. customers. consistent. plus operational and Financial measurements physical measurements on only processes. reliable. auditable. suppliers. precise Highly aggregate. 1-4 . relevant.

Strategy and Management Accounting  Strategy – specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives  Strategic Cost Management – focuses specifically on the cost dimension within the overall strategy To accompany Cost Accounting 12e. All rights reserved. 1-5 . Copyright © 2006 by Pearson Education. by Horngren/Datar/Foster.

1-6 . Copyright © 2006 by Pearson Education.Strategy and Management Accounting  Management accounting helps answer questions such as:     Who are our most important customers? What substitute products exist? What is our critical resource? Will we have enough cash to support our strategy? To accompany Cost Accounting 12e. All rights reserved. by Horngren/Datar/Foster.

Management Accounting and Value  Creating value is an important part of planning and implementing strategy  Value is the usefulness a customer gains from a company’s product or service  Value Chain is the sequence of business functions in which customer usefulness is added to products or services To accompany Cost Accounting 12e. by Horngren/Datar/Foster. 1-7 . All rights reserved. Copyright © 2006 by Pearson Education.

Management Accounting and Value  The Value Chain consists of all activities associated with providing a product or service. by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. 1-8 . All rights reserved. its include:  Research and Development  Design  Production  Marketing  Distribution  Customer Service  Management accounting can provide information in each of these areas  Analysis can also include the supply chain  Supply chain consists of all activities from receipt of an order to product or service delivery To accompany Cost Accounting 12e.

by Horngren/Datar/Foster. 1-9 . lowering inventory costs To accompany Cost Accounting 12e. All rights reserved.Value Chain and Supply Management Managing the value chain and supply chain requires: • • Technological changes such as enterprise resource planning (ERP) to centralize and integrate information Just-in-time inventory methods to deliver goods just in time for use. Copyright © 2006 by Pearson Education.

and to then scrutinize and control those costs To accompany Cost Accounting 12e.Value Chain and Supply Management Managing the value chain and supply chain requires (continued): • • Total Quality Management (TQM) to reduce defects in finished products Activity Based Costing (ABC) to focus on activities that produce costs. 1-10 . by Horngren/Datar/Foster. All rights reserved. Copyright © 2006 by Pearson Education.

Copyright © 2006 by Pearson Education.Key Success Factors  The dimensions of performance that customers expect. by Horngren/Datar/Foster. All rights reserved. 1-11 . and that are key to the success of a company include:     Cost and efficiency Quality Time Innovation To accompany Cost Accounting 12e.

Planning and Control Systems  Planning selects goals. and provides feedback to the organization To accompany Cost Accounting 12e. All rights reserved. and communicates this to the organization  Budget – the most important planning tool  Control takes actions that implement the planning decision. by Horngren/Datar/Foster. predicts results. decides how to attain goals. 1-12 . Copyright © 2006 by Pearson Education. decides how to evaluate performance.

by Horngren/Datar/Foster. 1-13 . Copyright © 2006 by Pearson Education. All rights reserved.Management Accounting Roles  Problem Solver  Scorekeeper  Attention Director To accompany Cost Accounting 12e.

Copyright © 2006 by Pearson Education. 1-14 . not just dollars and cents  Different definitions of cost may be used for different applications To accompany Cost Accounting 12e. by Horngren/Datar/Foster. All rights reserved.Management Accounting Guidelines  Cost – benefit approach is commonly used: benefits generally must exceed costs as a basic decision rule  Behavioral and Technical Considerations – people are involved in decisions.

1-15 . Copyright © 2006 by Pearson Education. by Horngren/Datar/Foster.Organizational Structure and the Management Accountant  A typical structure might include:  CEO  CFO  Controller – responsible for managerial and financial accounting  Treasury  Risk Management  Taxation  Internal Audit To accompany Cost Accounting 12e. All rights reserved.

COST MANAGEMENT : AN OVERVIEW A Typical Organization Chart. All rights reserved. Other Reporting Obligations 1-16 . Showing the Function of the Controller Chief Executive Officer Chief Financial Officer Vice President for Marketing Vice President for Operations Controller Treasurer Chief Information Officer Functions of the Controller Cost Management Financial Reporting Financial Systems To accompany Cost Accounting 12e. Copyright © 2006 by Pearson Education. by Horngren/Datar/Foster.

1-17 . Copyright © 2006 by Pearson Education.Professional Ethics  The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants:     Competence Confidentiality Integrity Objectivity To accompany Cost Accounting 12e. by Horngren/Datar/Foster. All rights reserved.

Copyright © 2006 by Pearson Education.Competence Practitioners of management accounting and financial management have 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. and technical standards  Prepare complete and clear reports and recommendations after appropriate analysis of relevant and reliable information To accompany Cost Accounting 12e. 1-18 . All rights reserved. by Horngren/Datar/Foster. regulations.

of the basic values. Beliefs System the explicit set of statements. communicated to employees. All rights reserved. by Horngren/Datar/Foster. 1-19 . purposes. Copyright © 2006 by Pearson Education. and direction of the organization  Boundary Systems prescribe organization behaviors that are unacceptable and usually state the consequence of unacceptable behavior To accompany Cost Accounting 12e.

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 the 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 To accompany Cost Accounting 12e. All rights reserved. Copyright © 2006 by Pearson Education. 1-20 . by Horngren/Datar/Foster.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.

or hospitality that would influence or would appear to influence their actions  Refrain from 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 responsible judgment or successful performance of an activity  Communicate unfavorable as well favorable information and professional judgments or opinions  Refrain from engaging in or supporting any activity that would discredit the profession To accompany Cost Accounting 12e. All rights reserved. Copyright © 2006 by Pearson Education. 1-21 . favor.Integrity Practitioners of management accounting and financial management have a responsibility to :  Avoid actual or apparent 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. by Horngren/Datar/Foster.

1-22 . All rights reserved. Copyright © 2006 by Pearson Education. comments. and recommendations presented To accompany Cost Accounting 12e.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 users’ understanding of the reports. by Horngren/Datar/Foster.

by Horngren/Datar/Foster. Copyright © 2006 by Pearson Education. All rights reserved.Emerging Themes of Management Accounting Customer Orientation Cross Function Perspective Global Competition Total Quality Management Activity. 1-23 .Based Management Time as a Competitive Element Advances in Information Technology Advances in the Manufacturing Environment Growth and Deregulation in the Service Industry MANAGEMENT ACCOUNTING To accompany Cost Accounting 12e.

All rights reserved. measuring. motivates behavior. and operating objectives 1-24 To accompany Cost Accounting 12e. and supports and creates the cultural values necessary to achieve an organization’s strategic. Copyright © 2006 by Pearson Education. designing. tactical. and operating both nonfinancial information systems and financial information systems that guides management action. by Horngren/Datar/Foster. .DEFINITION OF MANAGEMENT ACCOUNTING  A value-adding continuous improvement process of planning.

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