1. Introduction to Management Accounting

2. Management Accounting
Definition of Accounting ?
Definition of Financial Accounting ?
Definition of Management Accounting ?
© Edited by Ahmad Zahiruddin Yahya 2012

3. Definition of accounting
….the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information.
© Edited by Ahmad Zahiruddin Yahya 2012

4. Management versus Financial Accounting
Accounting System
(accumulates financial and
managerial accounting data)
Managerial Accounting
Information for decision
making, and control
of an organization’s
operations.
Financial Accounting
Published financial
statements and other
financial reports.
Internal
Users
External
Users
© Edited by Ahmad Zahiruddin Yahya 2012

5. Comparison of Financial and Managerial Accounting#1
Financial Accounting
Management Accounting
Users
External persons who make financial decisions
Managers who plan for and control an organisation
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6. Comparison of Financial and Managerial Accounting#2
Financial Accounting
Management Accounting
Time focus
Historical perspective
Future emphasis
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7. Comparison of Financial and Managerial Accounting#3
Financial Accounting
Management Accounting
Verifiability vs. Relevance
Emphasis on verifiability
Emphasis on relevance for planning & control
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8. Comparison of Financial and Managerial Accounting#4
Financial Accounting
Management Accounting
Precision vs. Timeliness
Emphasis on precision
Emphasis on timeliness
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9. Comparison of Financial and Managerial Accounting#5
Financial Accounting
Management Accounting
Subject
Primary focus is in the whole organisation
Focuses on segments of an organisation
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10. Comparison of Financial and Managerial Accounting#6
Financial Accounting
Management Accounting
GAAP
Must follow GAAP and prescribed formats
Need not follow GAAP or any prescribed format
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11. Comparison of Financial and Managerial Accounting#7
Financial Accounting
Management Accounting
Requirement
Mandatory for external reports
Not mandatory
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12. Do you know when accounting for managerial decision making began?
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13. MANAGERIAL ACCOUNTING HISTORY
Beginnings between 1880 and 1925
Pre-1915, management accounting focused on product costing, that is, what products provided best profit
1925 to 1950, emphasis on inventory costing systems
Improvements to inventory costing in 1950s and 1960s
1980s recognized need for improvements in management accounting
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14. Do you know what the current focus for managerial accounting is?
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15. CURRENT FOCUS: The changing business environment
Organizations have faced dramatic changes in their business environment.
Move from protected markets to highly competitive global markets
Deregulation
Declining product life-cycles
© Edited by Ahmad Zahiruddin Yahya 2012

16. CURRENT FOCUS: The changing business environment
To compete successfully in today’s environment companies are:
Making customer satisfaction an overriding priority.
Adopting new management approaches.
Changing their manufacturing systems.
Investing in AMT ’s.
Above changes are having a significant impact on the MAS.
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17. Focus on Customer Satisfaction
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18. © Edited by Ahmad Zahiruddin Yahya 2012
Key success factors
Cost efficiency –increased emphasis on accurate product costs and cost management.
Quality –TQM, quality measures.
Time – reduced cycle time, reduced focus on non-value-added activities.
Innovation – responsiveness in meeting customer requirements. Product comparisons. Feedback on customer satisfaction.
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19. Continuous improvement
Static historical standards no longer appropriate.
Benchmarking
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20. © Edited by Ahmad Zahiruddin Yahya 2012
Employee empowerment
Delegate more responsibility to people closest to operating processes and customers.
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21. © Edited by Ahmad Zahiruddin Yahya 2012
Value chain analysis
The term “value chain” refers to the sequence of business functions in which usefulness is added to the products or services of an organization.
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22. Value chain R & D Design Production Management Accounting Marketing
Distribution
Service
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23. What are management accounting roles?
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24. Management Accounting Roles
Problem Solver
Scorekeeper
Attention Director
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25. Problem Solving This involves comparative analysis
for decision making.
This role asks: Of the several alternatives
available, which is the best?
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26. Scorekeeping This involves accumulating data and
reporting reliable results to
all levels of management.
This role asks: How is the business doing?
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27. Attention Directing This involves helping managers
properly focus their attention.
This role asks: Which opportunities and
problems should be emphasized first.
Attention directing should focus on all
opportunities to add value to an organization,
not just cost-reduction opportunities.
© Edited by Ahmad Zahiruddin Yahya 2012

28. MANAGEMENT ACCOUNTING: Designed for Profit Maximization
“The objective of profit maximization should be constrained by the requirement that profits be achieved through legal and ethical means.”1
1Hansen & Mowen, 2007, p. 17
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29. Code of Conduct for Management Accountants
The Institute of Management Accountant’s (IMA) Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management have two major parts offering guidelines for:
 Ethical behavior.
 Resolution for an ethical conflict.
© Edited by Ahmad Zahiruddin Yahya 2012

30. IMA Guidelines for Ethical Behavior
Follow applicable laws, regulations and standards.
Maintain professional competence.
Competence
Prepare complete and clear reports after appropriate analysis.
© Edited by Ahmad Zahiruddin Yahya 2012

31. IMA Guidelines for Ethical Behavior
Do not disclose confidential information unless legally obligated to do so.
Do not use confidential information for personal advantage.
Confidentiality
Ensure that subordinates do not disclose confidential information.
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32. IMA Guidelines for Ethical Behavior
Avoid conflicts of interest and advise others of potential conflicts.
Do not subvert organization’s legitimate objectives.
Integrity
Recognize and communicate personal and professional limitations.
© Edited by Ahmad Zahiruddin Yahya 2012

33. IMA Guidelines for Ethical Behavior
Avoid activities that could affect your ability to perform duties.
Communicate unfavorable as well as favorable information.
Refrain from activities that could discredit the profession.
Refuse gifts or favors that might influence behavior.
Integrity
© Edited by Ahmad Zahiruddin Yahya 2012

34. IMA Guidelines for Ethical Behavior
Communicate information fairly and objectively.
Objectivity
Disclose all information that might be useful to management.
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35. © Edited by Ahmad Zahiruddin Yahya 2012
THE END
ADVISE & REMINDER: Now, your reading time….it’s your responsibility to read Chapter 1 in the main text and related chapters in the additional recommended references !
© Edited by Ahmad Zahiruddin Yahya 2012