Libby, Libby and Short

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CHAPTER
Introduction The Role, History, and Direction
of Management Accounting
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Objectives

1. Discuss the need for management accounting
   information.
2. Differentiate between management accounting and
   financial accounting.
3. Provide a brief historical description of
   management accounting.
4. Identify the current focus of management
   accounting.

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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.
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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.

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Management Accounting Information System
Collecting Measuring Storing Analyzing Reporting M
anaging
Special Reports Product Costs Customer
Costs Budgets Performance Reports Personal
Communication
Economic Events
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Management Process
The Management Process is defined by the
following activities

• Planning
• Controlling
• Decision Making

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Management Process
The Management Process is defined by the
following activities
Controlling is the managerial activity of
monitoring a plans implementation and taking
corrective action as needed.

• Planning
• Controlling
• Decision Making

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Management Process

• The Management Process is defined by the
  following activities

• Planning
• Controlling
• Decision Making

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Management Process
Feedback is information that can be used to
evaluate or correct the steps being taken to
implement a plan.
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Management Process
The Management Process is defined by the
following activities

• Planning
• Controlling
• Decision Making

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Differentiate Between Management Accounting and
Financial Accounting
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Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
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Targeted Users
Management accounting focuses on providing
information for internal users.
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Targeted Users
Financial accounting focuses on provided
information for external users.
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Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
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Restrictions on Inputs and Processes
Management accounting is not subject to the
requirements of generally accepted accounting
principles.
Financial accounting reporting must follow the
accounting procedures set by the SEC and the FASB.
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Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion
subjective information possible
3. Objective financial information
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Types of Information
The restrictions imposed on financial accounting
tend to produce objective and verifiable
financial information.
For management accounting, the financial or
nonfinancial information may be much more
subjective in nature.
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Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion
subjective information possible
3. Objective financial information
4. Historical orientation
4. Emphasis on the future
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Time Orientation
Management accounting strongly emphasizes
providing information about future events.
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Time Orientation
Financial accounting records and reports events
that have already happened.
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Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion
subjective information possible
3. Objective financial information
4. Historical orientation
4. Emphasis on the future
5. Internal evaluation and decisions based on
very detail information
5. Information about the firm as a whole
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Degree of Aggregation
Management accounting provides measures and
internal reports used the evaluate performance of
entities, product lines, departments, and
managers.
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Degree of Aggregation
Financial accounting focuses on overall firm
performance.
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Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion
subjective information possible
3. Objective financial information
4. Historical orientation
4. Emphasis on the future
5. Internal evaluation and decisions based on
very detail information
5. Information about the firm as a whole
6. Broad, multidisciplinary
6. More self-contained
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Breadth
Management accounting is much broader than
financial accounting.
It includes aspects of managerial economics,
industrial engineering, and management science.
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Historical Description ofManagement 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

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Current Focus of Management Accounting
Activity-Based Management
Activity-based management is a system wide,
integrated approach that focuses managements
attention on activities with the objective of
improving customer value and the resulting profit.
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Current Focus of Management Accounting
Customer 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.
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Current Focus of Management Accounting
Strategic 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

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Current Focus of Management Accounting
Value-Chain 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.
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Value Chain Apple Industry
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Managing the value chain means that a management
accountant must understand many functions of the
business, from manufacturing to marketing.
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This emphasis on quality has created a demand for
management accounting systems that provide
financial and nonfinancial information about
quality.
The philosophy of total quality management is to
manufacture perfect products.
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The role of management accountants in an
organization is one of support.
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Partial Organization Chart, Manufacturing Company
President
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Ethical Behavior
Michael Josephsons Ten Ethical Values

• Honesty
• Integrity
• Promise keeping
• Fidelity
• Fairness

• Caring for others
• Respect for others
• Responsible citizenship
• Pursuit of excellence
• Accountability

Michael Josephson, Teaching Ethical Decision
Making and Principled Reasoning
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Professional 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.

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The 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