1. CHAPTER
Introduction: The Role, History, and Direction of Management Accounting
Chapter 1 -

2. Objectives Discuss the need for management accounting information.
Differentiate between management accounting and financial accounting.
Provide a brief historical description of management accounting.
Identify the current focus of management accounting.

3. Objectives
5. Describe the role of management accountants in an organization.
6. Explain the importance of ethical behavior for managers and management accountants.
7. List three forms of certification available to management accountants.

4. The managerial accounting system has three broad objectives:
1. To provide information for costing out services, products, and other objects of interest to management.
2. To provide information for planning, controlling, evaluating, and continuous improvement.
3. To provide information for decision making.

5. Personal Communication
Management Accounting Information System
Collecting
Measuring
Storing
Analyzing
Reporting
Managing
Special Reports
Product Costs
Customer Costs
Budgets
Performance Reports
Personal Communication
Economic Events
Inputs
Processes
Outputs
Users

6. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Planning requires setting objectives and identifying methods to achieve those objectives.
Planning
Controlling
Decision Making

7. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Controlling is the managerial activity of monitoring a plan’s implementation and taking corrective action as needed.
Planning
Controlling
Decision Making

8. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Planning
Controlling
Decision Making
Control is usually achieved with the use of feedback.

9. Management Process
Feedback is information that can be used to evaluate or correct the steps being taken to implement a plan.

10. Management Process Planning Controlling Decision Making
The Management Process is defined by the following activities:
Planning
Controlling
Decision Making
Decision making is the process of choosing among competing alternatives.

11. Differentiate Between Management Accounting and Financial Accounting

12. Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused

13. Targeted Users
Management accounting focuses on providing information for internal users.

14. ABC Company Annual Report
Targeted Users
ABC Company Annual Report
Financial accounting focuses on provided information for external users.

15. Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules

16. Restrictions on Inputs and Processes
Financial accounting reporting must follow the accounting procedures set by the SEC and the FASB.
Management accounting is not subject to the requirements of generally accepted accounting principles.

17. Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information

18. Types of Information
For management accounting, the financial or nonfinancial information may be much more subjective in nature.
The restrictions imposed on financial accounting tend to produce objective and verifiable financial information.

19. Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future
4. Historical orientation

20. Time Orientation
Management accounting strongly emphasizes providing information about future events.

21. Time Orientation
Financial accounting records and reports events that have already happened.

22. Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future
4. Historical orientation
5. Internal evaluation and decisions based on very detail information
5. Information about the firm as a whole

23. Degree of Aggregation
Management accounting provides measures and internal reports used the evaluate performance of entities, product lines, departments, and managers.

24. Financial accounting focuses on overall firm performance.
Degree of Aggregation
Financial accounting focuses on overall firm performance.

25. Management Accounting
Financial Accounting
1. Internally focused
1. Externally focused
2. No mandatory rules
2. Must follow externally imposed rules
3. Financial and nonfinancial informa-tion; subjective information possible
3. Objective financial information
4. Emphasis on the future
4. Historical orientation
5. Internal evaluation and decisions based on very detail information
5. Information about the firm as a whole
6. Broad, multidisciplinary
6. More self-contained

26. Management accounting is much broader than financial accounting.
Breadth
It includes aspects of managerial economics, industrial engineering, and management science.
Management accounting is much broader than financial accounting.

27. Historical Description of Management Accounting
Most of the product-costing and internal accounting procedures used in this century were developed
1925 Emphasis of inventory costing for external reporting
1950s/60s Effort to improve the managerial usefulness of traditional cost systems
1980s/90s Significant efforts have been made to radically change the nature and practice of management accounting

28. Current Focus of Management Accounting
Activity-Based Management
Activity-based management is a system wide, integrated approach that focuses management’s attention on activities with the objective of improving customer value and the resulting profit.

29. Current Focus of Management Accounting
Customer Orientation
Customer value is the difference between what the customer receives (customer satisfaction) and what the customer gives up (customer sacrifice).
What is received is called the total product.

30. Current Focus of Management Accounting
Strategic Positioning
Strategic cost management is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.
Strategies:
Cost leadership
Superior products through differentiation

31. Current Focus of Management Accounting
Value-Chain Framework
The internal value chain is the set of activities required to design, develop, produce, market, and deliver products and services to customers.
The industrial value chain is the linked set of value-creating activities from basic raw materials to the disposal to the final products by end-use customers.

32. Value Chain: Apple Industry
Firm A
Planting and Cultivating
Harvesting
Distribution of Apples
Firm B
Value Chain: Apple Industry
Applesauce Production
Applesauce Distribution
Firm C
Product Disposal
Supermarkets
End-Use Customer

33. Managing the value chain means that a management accountant must understand many functions of the business, from manufacturing to marketing.

34. This emphasis on quality has created a demand for management accounting systems that provide financial and nonfinancial information about quality.
The philosophy of total quality management is to manufacture perfect products.

35. The role of management accountants in an organization is one of support.

36. Partial Organization Chart, Manufacturing Company
President
Production Vice President
Line Function
Financial Vice President
Staff Function
Production Supervisor
Machining Foreman
Assembly Foreman
Controller
Treasurer
Internal Audit
Cost
Financial
Systems
Tax

37. Ethical Behavior Michael Josephson’s* Ten Ethical Values: Honesty
Integrity
Promise keeping
Fidelity
Fairness
Caring for others
Respect for others
Responsible citizenship
Pursuit of excellence
Accountability
*Michael Josephson, “Teaching Ethical Decision Making and Principled Reasoning”

38. Professional Certifications
CMA: One of the main purposes of the CMA was to establish management accounting as a recognized, professional discipline, separate from the profession of public accounting.
CPA: The responsibility of a CPA is to provide assurance concerning the reliability of financial statements.
CIA: The focus of the CIA is to recognize competency in internal auditing rather than external auditing as with the CPA.

39. The CMA Four areas emphasized on the exam:
Economics, finance, and management
Financial accounting and reporting
Management report, analysis, and behavioral issues
Decision analysis and information systems