CHAPTER

1
MANAGEMENT ACCOUNTING: AN OVERVIEW Management Accounting - - - Application of appropriate techniques and concepts To economic data To assist management

Objective Participate in the Management process and provide information needed in: 1. Planning, evaluating, controlling operations, decision making 2. Safeguarding the organizations assets 3. Communicating with interested parties outside the organization such as shareholders and regulating bodies They are active participants in appropriate levels. Scope - - Primarily to provide information To internal managers

TASKS: Data accumulation (traditional financial accounting) Interpreting and reporting information (explanation of financial data) Problem-solving (quantification of solution suggestions) All for managements Planning Goals, cash budgets, capital budgets, balance sheet projections resource planning Break-even analysis - profit planning Control Cost variance analysis, FS analysis, gross profit variance analysis accounting control reports Decision making comes as an integrative part of the planning and control stages

Financial Accounting versus Management Accounting

Objective FINANCIAL ACCOUNTING Data for internal and external users MANAGEMENT ACCOUNTING Primarily internal users

Compliance with GAAP

Required

Not needed for internal reports; usefulness of data is the key

Time emphasis

Summarizes past transactions FINANCIAL ACCOUNTING

Data is future-oriented MANAGEMENT ACCOUNTING

Relevance and flexibility of data

All-purpose reports with historical data for different parties

Special reports with both historical and projected data for specific users Timeliness over precision; estimates are used

Precision and timeliness of reports

Higher emphasis on precision

Reporting requirements

Reporting for the company as a whole

Reporting for parts/segments

Compliance with law

Required by SEC, BIR, etc.

Not mandatory

Activities of MA 1. Planning quantification and interpretation of effects to the organization of planned transactions and other economic events 2. Reporting relates to both internal and external needs for info about past or future events and circumstances 3. Controlling interpretation of information and judging implications of financial accounting 4. Resource management provision of an accounting system that will accumulate and report appropriate financial data and information to management 5. Information systems development management accountants must ensure that information systems meet varying needs; input output processing security of databases 6. Technological Implementation management accountants must be familiar with current technology for information processing; useful relevant reports from the used technology 7. Verification management accountants must assure accuracy and reliability of info derived from the accounting system; ensures that the companys accounting policies are followed 8. Administration Overall maintenance of an effective and efficient accounting organization Operation Processes 1. 2. 3. 4. 5. 6. Identification (transaction) Measurement (quantification) Accumulation (recording and classifying) Analysis (reasons) Preparation and interpretation (coordination of reporting information) Communication (reporting)

Management accountants normally have staff functions as opposed to line. - - they do not command they only give advice

Chief Financial Officer finance director; responsible for overseeing the overall operations of the accounting system; responsible for the following areas: 1. 2. 3. 4. 5. Controllership Treasury Risk management Taxation Internal audit

Controller chief accounting officer; top management accountant; primarily responsible for management accounting and financial accounting; does not control in the strict sense except for his line staff Controllership process by which management assures itself that the resources are procured and utilized according to plans in order to achieve the companys objectives; for manufacturing companies cost accounting constitutes a large part of their function; in some entities does the function of the treasurer Basic functions 1. 2. 3. 4. 5. Planning Control Reporting Accounting Other Primary Responsibilities

Qualifications 1. 2. 3. 4. 5. Excellent technical foundation in accounting and finance Understanding of the principles of planning, organizing, and control General understanding of the industry Thorough understanding of the company Ability to communicate with all levels of management and a basic understanding of the other functional problems related to other departments 6. Ability to express ideas clearly in writing and making reports 7. Ability to motivate and inspire positive action Areas covered by the standards of conduct for practitioners of management accounting and financial management 1. 2. 3. 4. 5. Competence Confidentiality Integrity Objectivity Resolution of Ethical Conduct

Institute of Management Accountants and Philippine Association of Management Accountants international and local organizations of management accountants
From Management Accounting Concepts and Applications by Ma. Elenita Balatbat Cabrera