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OVERVIEW OF MANAGERIAL ACCOUNTING - NOTES
Managerial Accounting
Definition: A profession that involves partnering in management decision making,
financial reporting and control to assist management in the formulation and
implementation of an organization’s strategy (by Institute of Management Accountants)
It relates to reporting in an organization
Broadly entails many activities that relates to planning, directing and controlling
Supports management decisions and drives the creation of business value
Tends to be focused on products, departments and activities
Unlike financial accounting, it does NOT focus on following reporting standards
Qualitative and quantitative information that is useful for economic decision
making
Main goal of a business: to “maximize” profit
o Increase revenue and reduction of cost
Functions of Managerial Accounting
1. PLANNING
Deciding on a course of action to reach a desired outcome
Setting both immediate and long-range goals
Predicting future conditions
Considering different means or strategies to achieve the goals
Planning Goals Desired results
Predictions (use) professional judgement
- Cut unnecessary costs
Example in manufacturing,
purchasing dept., look for suppliers
that offers low prices without
sacrificing the quality of the
products/ materials
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Strategy
A business should devote substantial time and effort in developing strategy
Strategic planning ultimately defines the organization, generally it comprises
elements relating to the definition of core values, mission, objectives and
sustainability
Positioning
Positioning is a comprehensive concept and depends on gathering and evaluating
accounting information, such as:
Cost-volume-profit analysis and scalability where it is imperative for
managers to understand the nature of cost behavior and how changes in
volume impact profitability.
Global trade and transfer where management accountants should regularly
perform significant and complex analysis related to global activities such
as in-depth research into laws about tariffs, taxes and shipping.
Branding, pricing, sensitivity and competition where in positioning a
company’s product, considerable thought must be given to branding and
its influence on the business which requires significant investment with an
uncertain payback.
Product pricing decisions must be balanced against costs and
competitive market conditions and sensitivity analysis is needed to
determine how sales and costs will respond to changes in market
conditions.
PLANNING
Strategy
Positioning
Budgets
It occurs at
high level of
setting
strategy
Establish on
optimum
position to
maximize the
potential for
realization of
goals
Give
thoughtful
consideration
to financial
realities/
constraints
and
anticipated
monetary
outcomes
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Budgets
Outline the financial plans for an organization
A company’s budgeting process must take into account ongoing operations, capital
expenditure plans and corporate financing.
2. ORGANIZING/ DIRECTING (Staffing)
Establishing organizational framework
Assigning responsibility to workers for achieving goals and objectives
Managerial accountant has a major role in moving business plans in action
Information systems must be developed to allow management to operate the
organization
Management must know when needed inventory is available, productive
resources (such as people and machineries) are scheduled appropriately
and transportation systems will be available to deliver outputs, and so on.
Management must be prepared to demonstrate compliance with contracts
and regulations
Areas of support include costing, production management and special analysis.
3. CONTROLLING
Ensuring that operations are carried out in the best possible way
Checking the performance of the activities against the plan
The managerial accountant is a chief facilitator of this control process, including
exploration of alternative counteractive strategies to remedy unfavorable situations
Controller (sometimes referred to as “comptroller”)
- An important and respected position within an organization
- Primarily responsible for the control task, providing leadership for
the entire cost and managerial accounting functions
Managerial accounting provides monitoring tools and establishes a logical basis for
making adjustments to business operations.
Monitoring involves developing standards for productive efficiency and
control
While focusing on standards,
managers should keep an eye on
significant deviation from norm known
as the “variances”.
These variances provide warning
signs of occurrences of situations
which requires corrective actions.
Scorecards are focused on evaluating
elements that are important to an
organization. This scorecard systems
are custom tailored for low-level
employees.
These standards represent
benchmarks against which
actual productive activity is
compared.
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Controlling Financial Budget (based on past experiences)
Budgeting consider whether it’s peak season or not, etc.
- Investigate further (Is there a problem with
our products? Advertisement? Personnel?)
4. DECISION MAKING
Deciding what strategies should be taken to achieve goals
Choosing what corrective action should be taken when problems arise
Decisions are made at every level of management to guarantee organizational and
business goals are achieved.
Decision making coming up with the BEST strategy
Choosing corrective actions: There would be a lot of alternatives but we have
to choose for the best alternative.
MANAGEMENT ACCOUNTING INFORMATION
Financial and non- financial
Qualitative and quantitative
Management accounting provides relevant information to managers and employees
Both financial and non-financial information
Useful for making decisions, allocating resources and monitoring,
evaluating and rewarding performance
Customized to serve multiple purposes
Functions of Management Accounting Information:
Operational Control or Task Control provide feedbacks about efficiency and
quality of tasks performed. The focus of operational control is limited on individual
tasks or operations. (“Operations”)
Operational Control is concerned with activities that can be
programmed. Some examples of activities that are susceptible to
operational control are order processing, inventory control, check
handling and payroll accounting.
Product and Customer Costing measure the cost of resources to produce a
product or service to customers. (Cost Accounting)
Management Control provide information about the performance of managers
and operating units. Management control focuses on the whole organization or
division its overall operations. (Responsibility Accounting)
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While operational control system is a rational system due to the
action to be taken is decided by set of logical rules, management
control, psychological considerations are dominant.
Management control have a very little rules and a high degree of
judgement or it involves subjective decision making.
Strategic Control provide information about the enterprise’s financial and long-
run competitive performance, market conditions, customer preferences and
technological innovation.
The important types of strategic controls used in organizations are:
1. Premise Control necessary to identify the key
assumptions and keep track of any change in order to
evaluate their bearing on strategy and its implementation.
2. Implementation Control this control may be put into
practice through the identification and monitoring of
strategic drives such as evaluation of the marketing success
of a new product after pre-testing, or inspection of the
feasibility of a diversification programme after making initial
attempts at seeking technological collaboration.
3. Strategic Surveillance can be done through broad-based
monitoring on the basis of selected information sources to
reveal events that are likely to affect the strategy of the
organization.
4. Special Alert Control - based on trigger mechanism for
quick response and immediate reexamination of strategy in
the light of abrupt and unexpected events called crises.
Some examples of management accounting information:
The reported expense of an operating department
The cost of producing a product
The cost of delivering a service
The of performing an activity or business process
The cost of serving a customer
Major decision areas where management accounting information is useful:
1. Forecasting and Planning 6. Financial Reporting
2. Performance evaluation 7. Motivation of Managers
3. Cost Determination and Cost Management
4. Operations control and improvement
5. Incremental Decision Making
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FINANCIAL ACCOUNTING vs. MANAGERIAL ACCOUNTING
Financial Accounting
Managerial Accounting
1. Users
External persons who make
financial decisions
Managers who plan for and
control an organization
2. Time focus
Retrospective
Retrospective and
Prospective
3. Emphasis
Objectivity and verifiability
Relevance for planning and
control
4. Importance
Precision of information
Timeliness of information
5. Subject focus
Summarized data for the whole
organization
Detailed segment reports of
an organization
6. GAAP
Must follow GAAP/ IFRS and
prescribed formats
Need NOT follow GAAP/
IFRS or any prescribed
format
7. Requirement
Mandatory for external reports
Not mandatory
STANDARDS OF ETHICAL CONDUCT FOR PRACTITIONERS OF MANAGEMENT ACCOUNTING
1. COMPETENCE
Maintain an appropriate level of professional competence by ongoing development
of knowledge and skills.
Perform professional duties in accordance with relevant laws, regulations, and
technical standard.
2. CONFIDENTIALITY
Refrain from disclosing confidential information acquired in the course of their work
except when authorized, unless legally obligated to do so.
Court demands
Obtain “go signal” from authorize person only.
3. INTEGRITY
Avoid actual or apparent conflicts of interest and advise all appropriate parties of
any potential conflict
Refuse any gift, favor, or hospitality that would appear to influence their actions
Refrain from engaging in any activity that would prejudice ability to carry out duties
ethically
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4. OBJECTIVITY
Communicate information fairly and objectively
Disclose fully all relevant information that could reasonably be expected to
influence an intended user’s understanding of the reports, comments, and
recommendations presented

Unformatted Attachment Preview

OVERVIEW OF MANAGERIAL ACCOUNTING - NOTES Managerial Accounting Definition: A profession that involves partnering in management decision making, financial reporting and control to assist management in the formulation and implementation of an organization’s strategy (by Institute of Management Accountants) ✓ ✓ ✓ ✓ ✓ ✓ It relates to reporting in an organization Broadly entails many activities that relates to planning, directing and controlling Supports management decisions and drives the creation of business value Tends to be focused on products, departments and activities Unlike financial accounting, it does NOT focus on following reporting standards Qualitative and quantitative information that is useful for economic decision making ✓ Main goal of a business: to “maximize” profit o Increase revenue and reduction of cost - Cut unnecessary costs Example in manufacturing, purchasing dept., look for suppliers that offers low prices without sacrificing the quality of the products/ materials Functions of Managerial Accounting 1. PLANNING ✓ Deciding on a course of action to reach a desired outcome ✓ Setting both immediate and long-range goals ✓ Predicting future conditions ✓ Considering different means or strategies to achieve the goals ➢ Planning Goals Predictions Desired results (use) professional judgement PLANNING Strategy Positioning ✓ It occurs at high level of setting strategy ✓ Establish on optimum position to maximize the potential for realization of goals Budgets ✓ Give thoughtful consideration to financial realities/ constraints and anticipated monetary outcomes ➢ Strategy ✓ A business should devote substantial time and effort in developing strategy ✓ Strategic planning ultimately defines the organization, generally it comprises elements relating to the definition of core values, mission, objectives and sustainability ➢ Positioning ✓ Positioning is a comprehensive concept and depends on gathering and evaluating accounting information, such as: ▪ Cost-volume-profit analysis and scalability where it is imperative for managers to understand the nature of cost behavior and how changes in volume impact profitability. ▪ Global trade and transfer where management accountants should regularly perform significant and complex analysis related to global activities such as in-depth research into laws about tariffs, taxes and shipping. ▪ Branding, pricing, sensitivity and competition where in positioning a company’s product, considerable thought must be given to branding and its influence on the business which requires significant investment with an uncertain payback. • Product pricing decisions must be balanced against costs and competitive market conditions and sensitivity analysis is needed to determine how sales and costs will respond to changes in market conditions. ➢ Budgets ✓ Outline the financial plans for an organization ✓ A company’s budgeting process must take into account ongoing operations, capital expenditure plans and corporate financing. 2. ORGANIZING/ DIRECTING (Staffing) ✓ Establishing organizational framework ✓ Assigning responsibility to workers for achieving goals and objectives ✓ Managerial accountant has a major role in moving business plans in action ✓ Information systems must be developed to allow management to operate the organization • Management must know when needed inventory is available, productive resources (such as people and machineries) are scheduled appropriately and transportation systems will be available to deliver outputs, and so on. • Management must be prepared to demonstrate compliance with contracts and regulations ✓ Areas of support include costing, production management and special analysis. 3. CONTROLLING ✓ Ensuring that operations are carried out in the best possible way ✓ Checking the performance of the activities against the plan ✓ The managerial accountant is a chief facilitator of this control process, including exploration of alternative counteractive strategies to remedy unfavorable situations • Controller (sometimes referred to as “comptroller”) - An important and respected position within an organization - Primarily responsible for the control task, providing leadership for the entire cost and managerial accounting functions ✓ Managerial accounting provides monitoring tools and establishes a logical basis for making adjustments to business operations. ▪ Monitoring involves developing standards for productive efficiency and control These standards represent ▪ While focusing on standards, benchmarks against which managers should keep an eye on significant deviation from norm known actual productive activity is compared. as the “variances”. ▪ These variances provide warning Standards can be developed signs of occurrences of situations for: which requires corrective actions. ▪ Scorecards are focused on evaluating • Labor efficiency and costs elements that are important to an • Materials cost and organization. This scorecard systems utilization are custom tailored for low-level • General assessments of employees. the overhead (overall deployment of facilities and equipment) Controlling Financial Budget (based on past experiences) ➢ Budgeting – consider whether it’s peak season or not, etc. - Investigate further (Is there a problem with our products? Advertisement? Personnel?) 4. DECISION MAKING ✓ Deciding what strategies should be taken to achieve goals ✓ Choosing what corrective action should be taken when problems arise ✓ Decisions are made at every level of management to guarantee organizational and business goals are achieved. Decision making – coming up with the BEST strategy Choosing corrective actions: There would be a lot of alternatives but we have to choose for the best alternative. MANAGEMENT ACCOUNTING INFORMATION Financial and non- financial Qualitative and quantitative ✓ Management accounting provides relevant information to managers and employees • Both financial and non-financial information • Useful for making decisions, allocating resources and monitoring, evaluating and rewarding performance • Customized to serve multiple purposes ✓ Functions of Management Accounting Information: • Operational Control or Task Control – provide feedbacks about efficiency and quality of tasks performed. The focus of operational control is limited on individual tasks or operations. (“Operations”) ▪ Operational Control is concerned with activities that can be programmed. Some examples of activities that are susceptible to operational control are order processing, inventory control, check handling and payroll accounting. • Product and Customer Costing – measure the cost of resources to produce a product or service to customers. (Cost Accounting) • Management Control – provide information about the performance of managers and operating units. Management control focuses on the whole organization or division – its overall operations. (Responsibility Accounting) ▪ ▪ While operational control system is a rational system due to the action to be taken is decided by set of logical rules, management control, psychological considerations are dominant. Management control have a very little rules and a high degree of judgement or it involves subjective decision making. • Strategic Control – provide information about the enterprise’s financial and longrun competitive performance, market conditions, customer preferences and technological innovation. ▪ The important types of strategic controls used in organizations are: 1. Premise Control – necessary to identify the key assumptions and keep track of any change in order to evaluate their bearing on strategy and its implementation. 2. Implementation Control – this control may be put into practice through the identification and monitoring of strategic drives such as evaluation of the marketing success of a new product after pre-testing, or inspection of the feasibility of a diversification programme after making initial attempts at seeking technological collaboration. 3. Strategic Surveillance – can be done through broad-based monitoring on the basis of selected information sources to reveal events that are likely to affect the strategy of the organization. 4. Special Alert Control - based on trigger mechanism for quick response and immediate reexamination of strategy in the light of abrupt and unexpected events called crises. Some examples of management accounting information: ✓ The reported expense of an operating department ✓ The cost of producing a product ✓ The cost of delivering a service ✓ The of performing an activity or business process ✓ The cost of serving a customer Major decision areas where management accounting information is useful: 1. 2. 3. 4. 5. Forecasting and Planning Performance evaluation Cost Determination and Cost Management Operations control and improvement Incremental Decision Making 6. Financial Reporting 7. Motivation of Managers FINANCIAL ACCOUNTING vs. MANAGERIAL ACCOUNTING Financial Accounting Managerial Accounting 1. Users External persons who make financial decisions Managers who plan for and control an organization 2. Time focus Retrospective Retrospective and Prospective 3. Emphasis Objectivity and verifiability Relevance for planning and control 4. Importance Precision of information Timeliness of information 5. Subject focus Summarized data for the whole organization Detailed segment reports of an organization 6. GAAP Must follow GAAP/ IFRS and prescribed formats Need NOT follow GAAP/ IFRS or any prescribed format 7. Requirement Mandatory for external reports Not mandatory STANDARDS OF ETHICAL CONDUCT FOR PRACTITIONERS OF MANAGEMENT ACCOUNTING 1. COMPETENCE ✓ Maintain an appropriate level of professional competence by ongoing development of knowledge and skills. ✓ Perform professional duties in accordance with relevant laws, regulations, and technical standard. 2. CONFIDENTIALITY ✓ Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so. Court demands ➢ Obtain “go signal” from authorize person only. 3. INTEGRITY ✓ Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict ✓ Refuse any gift, favor, or hospitality that would appear to influence their actions ✓ Refrain from engaging in any activity that would prejudice ability to carry out duties ethically 4. OBJECTIVITY ✓ Communicate information fairly and objectively ✓ Disclose fully all relevant information that could reasonably be expected to influence an intended user’s understanding of the reports, comments, and recommendations presented Name: Description: ...
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