1-1 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Introduction: The Role, History, and Direction of Management Accounting 1 PowerPresentation® prepared by David J. McConomy, Queen’s University

1-2 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. l Explain the need for management accounting information. l Explain the differences between management accounting and financial accounting. l Provide a brief historical description of management accounting. l Identify and explain recent developments affecting management accounting. Learning Objectives

1-3 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Learning Objectives (continued) l Describe the role of management accountants in an organization. l Explain the importance of ethical behaviour for managers and management accountants. l Identify the different professional accounting designations available for management accountants.

1-4 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Management Accounting Information Systems Inputs Processes Outputs Users Economic Events Collecting Measuring Storing Analyzing Reporting Managing Special Reports Product Costs Customer Costs Budgets Performance Reports Personal Communication

1-5 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. The Management Process The Management Process is defined by the following activities: –Planning –Controlling –Decision making

1-6 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. The Management Process (continued) Planning requires setting objectives and identifying methods to achieve those objectives.

1-7 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. The Management Process (continued) Controlling is the managerial activity of monitoring a plan’s 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.

1-8 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. The Management Process (continued) Decision making is the process of choosing among competing alternatives.

1-9 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Conceptual Framework of Management Accounting l Cost Accumulation and Product Costing (Part I of Text) –‘Know your costs’ –The role of indirect costs l 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. l 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

1-10 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Management Accounting Financial 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 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 Comparison of Management and Financial Accounting

1-11 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Historical Description of Management Accounting Most of the product-costing and internal accounting procedures used in this century were developed 1925Emphasis changes to inventory costing for external reporting 1950s/60sSome effort to improve the managerial usefulness of traditional cost systems 1980s/90sSignificant efforts have been made to develop a new management accounting system

1-12 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Recent Developments Affecting Management Accounting l Activity-Based Management l Customer Orientation –Strategic Positioning –Value Chain Framework l Cross-Functional Perspective l Global Perspective

1-13 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Current Focus of Management Accounting II l Environmental Perspective l Total Quality Management l Time as a Competitive Element l Efficiency l E-business

1-14 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Partial Organization Chart - Manufacturing Company Production Supervisor President Production Vice-president Financial Vice-president ControllerTreasurer Machining Assembly Treasurer's Functions Controller’s Functions

1-15 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Role of Controller and Treasurer ControllerTreasurer 1. Raises Cash 2. Manages Cash 3. Manages Investments 4. Credit and Collections 5. Insurance 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

1-16 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Management Accounting and Ethical Conduct l Honesty l Integrity l Promise Keeping l Fidelity l Fairness Attributes of Ethical Behaviour l Caring for Others l Respect for Others l Responsible Citizen l Pursuit of Excellence l Accountability

1-17 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. Standards of Ethical Conduct for Management Accountants l Competence l Confidentiality l Integrity l Objectivity

1-18 Copyright © 2004 by Nelson, a division of Thomson Canada Limited. l CMA-The distinguishing characteristic of the profession is to establish management accounting as a recognized professional discipline, separate from the profession of public accounting. l CA- The distinguishing characteristic of the profession is its focus on providing assurance concerning the reliability of financial statements to external parties. l CGA- These accountants may specialize in several specialty fields, including management accounting. Professional Designations