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Chapter 1:
Managerial
Accounting:
An Overview
Modified Slides
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Financial and Managerial Accounting:
Seven Key Differences
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization
2. Time focus Historical perspective Future emphasis
3. Verifiability Emphasis on Emphasis on
versus relevance objectivity and verifiability relevance
4. Precision versus Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focus on
companywide reports segment reports
6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
external reports Mandatory
Like Exhibit 1-1, page 2
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The Work of Management and the Need for
Management Accounting Information
Decision Making in:
Planning (including Strategy formulation
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Strategy: Customer Value Propositions
Understand and respond to
individual customer needs.
Customer
Intimacy
Strategy
Operational
Excellence
Strategy
Deliver products and services
faster, more conveniently,
and at lower prices.
Product
Leadership
Strategy
Offer higher quality products.
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The Work of Management and the Need for
Management Accounting Information
Decision Making in:
Planning (including Strategy formulation),
Controlling:
By Directing & Motivating to implement plans
(e.g., by allocation & extrinsic incentives; p. 17)
By gathering, evaluating, and responding to
feedback on actual results versus plans (e.g.,
budgets) reported to managers in performance
reports
Control decisions necessary
Financial & nonfinancial information required.
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The Planning and Control Cycle
Decision
Making
Formulating long-
and short-term plans
(Planning)
Measuring
performance
(Controlling)
Implementing
plans: Directing
and Motivating
(Controlling)
Comparing actual
to planned
performance
(Controlling)
Begin
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Cost Management
The approaches and activities of managers to
use resources to increase value to customers
and to achieve organizational goals (e.g., lower
the costs of products and services.)
(From: Horngren, Datar, & Rajan, Cost
Accounting, 14
th
Edition, Pearson Prentice Hall,
Upper Saddle River, NJ, 2012, page 848).
Cost management should be across the internal
value chain*; e.g., see Exhibit 1-6 page 16:
Business functions making up the value chain
Product Customer
R&D Design Manufacturing Marketing Distribution Service
*Also, across the supply chain.
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Corporate Organization Chart
Purchasing Personnel Vice President
Operations
Treasurer Controller
Chief Financial
Officer
President
Board of Directors
Management Accountants in the
Organizational Structure
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Line and Staff Relationships
Line positions are directly
related to achievement of
the basic objectives of an
organization.
Example: Production
supervisors in a
manufacturing plant.
Staff positions support and
assist line positions.
Examples: Cost accountant
in a manufacturing plant and
Controller/Chief Accounting
Officer, who is primarily
responsible for management
accounting and financial
accounting.
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Business Environment: Process Management
Managers need to continually improve the business
processes across business functions in the value chain;
for example (management accounting supportive
response examples in brackets):
Lean Thinking; e.g., Lean Production such as just-in-
time, pull versus just-in-case, push (e.g., Lean Accounting
(page 489) and Backflush costing (not in textbook))
Theory of Constraints: a lean model that is designed to
effectively manage constraints; (Throughput accounting or
super variable costing, pages 279-282; e.g.: John B.
MacArthur, From Activity-Based Costing to Throughput
Accounting, posted in Blackboard)
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A constraint (also called a bottleneck) is anything that
prevents you from getting more of what you want.
The constraint in a system is determined
by the step that has the smallest capacity.
Theory of Constraints (continued)


http://www.thermofab.com/drum_buffer_rope.html
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Theory of Constraints (continued)
A sequential process of identifying and
removing constraints/bottlenecks in a system:
1. Identify the systems constraints.
2. Decide how to exploit the systems constraints.
3. Subordinate everything else to the above
decision.
4. Elevate/relax the systems constraints (see
pages 550-551).
5. If in the previous steps a constraint has been
broken, go back to step 1
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Business Environment: Other Factors
Strategic Management: e.g., combat increased
international competition (strategic cost management
models; e.g., ABC (Ch 7) & Target Costing (Appendix A))
Enterprise Risk Management: a process used by
organizations to proactively identify and manage risk; e.g.,
by sharing the risk, accepting the risk, or reducing the risk
by implementing specific controls (e.g., measure the
benefits and costs of alternative enterprise risk
management approaches)
Corporate Social Responsibility: a concept whereby
organizations consider the needs of all stakeholders when
making decisions that extend beyond legal compliance to
include voluntary actions to satisfy stakeholder
expectations (e.g., environmental cost management)
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Ethics: Code of Conduct for
Management Accountants
The Institute of Management Accountant (IMA) Statement
of Ethical Professional Practice has the following three
major parts (for more detail, see Exhibit 1-9, page 16):
1. Ethical Principles (honesty, fairness, objectivity, and
responsibility)
2. Standards of ethical behavior (competence,
confidentiality, integrity, and credibility)
3. Resolution of Ethical Conflict (discuss with immediate
superior &/or successive management levels, clarify
ethical issues with an IMA Ethics Counselor or other
impartial advisor, and consult your own attorney)
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Ethics (continued)
Ethical Codes of Conduct at the International Level:
The IFACs International Ethics Standards Board for
Accountants (IESBA) develops ethical standards and
guidance for use by professional accountants. It
encourages member bodies to adopt high standards of
ethics for their members and promotes good ethical
practices globally. The IESBA also fosters international
debate on ethical issues faced by accountants.
(http://www.ifac.org/Ethics/index.php)
The Foreign Corrupt Practices Act of 1977.
ACFE Occupational Fraud & Abuse Reports:
http://www.acfe.com/fraud/report.asp; Most occupational fraud
(26.3%) committed in accounting department - 2012 Report, 53
Appendix 1A: Corporate Governance
Sarbanes-Oxley Act 0f 2002.
Internal Control: preventative control and detective control.
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Certified Management Accountant
A management accountant
who has the necessary qualifications and
who passes a rigorous professional exam earns
the right to be known as a Certified
Management Accountant (CMA).
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CMA Exam Content: Exhibit 1-4, page 8
Information about becoming a CMA and the CMA program can be accessed
on the IMAs website at www.imanet.org or by calling 1-800-638-4427.
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