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Introduction: The Role, History, and Direction of Management Accounting

PowerPresentation prepared by David J. McConomy, Queens University

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Learning Objectives

Explain the need for management accounting information. Explain the differences between management accounting and financial accounting. Provide a brief historical description of management accounting.

Identify and explain recent developments affecting management accounting.

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Copyright 2004 by Nelson, a division of Thomson Canada Limited.

Learning Objectives (continued)

Describe the role of management accountants in an organization. Explain the importance of ethical behaviour for managers and management accountants. Identify the different professional accounting designations available for management accountants.

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Management Accounting Information Systems

Collecting Measuring Storing Analyzing Reporting Managing Special Reports Product Costs Customer Costs Budgets Performance Reports Personal Communication

Economic Events

Inputs

Processes

Outputs

Users

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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The Management Process

The Management Process is defined by the following activities: Planning

Controlling
Decision making

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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The Management Process (continued)

Planning requires setting objectives and identifying methods to achieve those objectives.

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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The Management Process (continued)

Controlling is the managerial activity of monitoring a plans implementation and taking corrective action as needed.
Control is usually achieved with the use of feedback, which is information that can be used to evaluate or correct the steps being taken to implement a plan.

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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The Management Process (continued)

Decision making is the process of choosing among competing alternatives.

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Conceptual Framework of Management Accounting

Cost Accumulation and Product Costing (Part I of Text)

Know your costs
The role of indirect costs

Managerial Decision Making (Part II of Text)

What difference will it make when a choice is to be made between alternative courses of action? We assume economically-rational organizations and what is good for the sub-unit is good for the organization as a whole.

Planning & Control Systems (Part III of Text)

Focus on how organizations run by delegation & accountability

Information asymmetry results in difficulty assessing goal congruence. We assume economically rational decision makers who have their own goals within the organization

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Comparison of Management and Financial Accounting

Management Accounting
1. Internally focused 2. No mandatory rules 3. Financial and nonfinancial information; subjective information possible 4. Emphasis on the future 5. Internal evaluation and decisions based on very detailed information 6. Broad, multidisciplinary

Financial Accounting
1. Externally focused 2. Must follow externally imposed rules 3. Objective financial information 4. Historical orientation 5. Information about the organization as a whole 6. More self-contained

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Historical Description of Management Accounting

1880 - 1925 Most of the product-costing and internal accounting procedures used in this century were developed Emphasis changes to inventory costing for external reporting Some effort to improve the managerial usefulness of traditional cost systems

1925

1950s/60s

1980s/90s

Significant efforts have been made to develop a new management accounting system
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Copyright 2004 by Nelson, a division of Thomson Canada Limited.

Recent Developments Affecting Management Accounting

Activity-Based Management Customer Orientation

Strategic Positioning Value Chain Framework

Cross-Functional Perspective Global Perspective

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Current Focus of Management Accounting II

Environmental Perspective Total Quality Management Time as a Competitive Element Efficiency E-business

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Partial Organization Chart Manufacturing Company

President

Production Vice-president Production Supervisor

Financial Vice-president

Controller

Treasurer

Machining

Assembly

Controllers Functions

Treasurer's Functions

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Role of Controller and Treasurer

Controller
1. Financial reports 2. Securities commission reporting 3. Tax planning and reporting 4. Performance reporting 5. Internal auditing 6. Budgeting 7. Accounting systems and internal controls
Copyright 2004 by Nelson, a division of Thomson Canada Limited.

Treasurer
1. Raises Cash 2. Manages Cash 3. Manages Investments 4. Credit and Collections 5. Insurance

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Management Accounting and Ethical Conduct

Attributes of Ethical Behaviour

Honesty Integrity Promise Keeping Fidelity Fairness

Caring for Others Respect for Others Responsible Citizen Pursuit of Excellence Accountability
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Copyright 2004 by Nelson, a division of Thomson Canada Limited.

Standards of Ethical Conduct for Management Accountants

Competence
Confidentiality

Integrity
Objectivity

Copyright 2004 by Nelson, a division of Thomson Canada Limited.

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Professional Designations

CMA-The distinguishing characteristic of the profession is to establish management accounting as a recognized professional discipline, separate from the profession of public accounting.

CA- The distinguishing characteristic of the profession is its focus on providing assurance concerning the reliability of financial statements to external parties.
CGA- These accountants may specialize in several specialty fields, including management accounting.
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Copyright 2004 by Nelson, a division of Thomson Canada Limited.