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INTRODUCTION TO

MA NA GEMENT A C C O UNT I NG

16 T H EDI T I O NC H A R L E S T . H O R N G R E N , E T A L

CH 1.Managerial Acounting, the BusinessOrganization, and Professional Ethics


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Management Accounting Definition

Management Accounting is the branch of accountingthat roduces information for managers !ithin an

organization."t is the rocess of identif#ing, measuring,

accumulating, anal#zing, rearing, interreting,and communicating information that hels

managers fulfill organizational ob$ecti%es.


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&inancial Accounting Definition

&inancial Accounting is the branch of accountingthat de%elos information for e'ternal decision

ma(ers such as stoc(holders, suliers, ban(s, andgo%ernment regulator# agencies.


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Distinction Bet!een Managementand &inancial Accounting


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)oles of Accounting "nformation

Accounting System is a formal

mechanism for gathering, organizing, andcommunicating information about anorganization*s acti%ities.


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Accounting and Decision Ma(ing

Decision Ma(ing+ choosing among alternati%e coursesof action designed to achie%e some ob$ecti%es.

sers of Accounting "nformation+"nternal Managers !ho use the information for da#-

to-da# oerating decisions and for long-rangestrategic decisions.

E'ternal arties, such as in%estors and go%ernmentauthorities, !ho use the information for ma(ingdecisions about the coman#.


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)oles of Accounting "nformation

"t can hel managers to ans!er three t#es ofuestions+

1. Scoec!" #uestions. /o that data are

accumulated and classified.$. Attention%"iecting #uestions, focused on

oerating, imerfections, inefficiencies, andoortunities.

&. 'o()em%so)*ing #uestions, in%ol%es a secialstud# to assess ossible courses of action andrecommends the best course to follo!.


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Essential Management Process

Planning 0hat ob$ecti%es does the organization !ant to achie%e

0hen and ho! the organization achie%e these ob$ecti%es

Controlling )efers to imlementing lans and using feedbac( to e%aluate

the attainment of ob$ecti%es.


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Management b# E'cetion

Concentrating more on areas that de%iate from the lan andless on areas that conform !ith lans and are resumed to berunning smooth#.

Budget A uantitati%e e'ression of a lan of action and an aid to coordinating

and imlementing the lan.

Performance )eorts

&eedbac( ro%ided b# comaring results !ith lans and b#highlighting %ariances.

2ariance De%iations from lans.


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Accounting &rame!or( 3e'. /tarbuc(s /tore4


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Performance )eort 3e'. Ma#fair /tarbuc(s /tore4


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"nfluences on Accounting /#stem

Accounting /tandard

"nternal Auditors

Management Audit

/arbanes-O'le# Act


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Cost-Benefit and Beha%ioral Considerations

5!o imortant ideas !hen designing accountings#stem+

5he cost benefit balance

0eighting estimated costs against robable benefits, the rimar#consideration in choosing among accounting s#stems andmethods.

Beha%ioral imlications5he accounting s#stem*s effect on the beha%ior, secificall# thedecisions, of managers.


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Panning and Control for P6C and the 2alue Chain

'o"uct Li+e Cyc)e 'LC- refers to the %ariousstages through !hich a roduct asses, fromconcetion and de%eloment to introduction into the

mar(et to maturation and, finall#, !ithdra!al fromthe mar(et.


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!)ue C/!in is the set of business functions oracti%ities that add %alue to the roducts or ser%ices ofan organization.

Panning and Control for P6C and the 2alue Chain


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Accounting*s Position in the Organization

0or( acti%ities of management accountants+Collecting and comiling information

Prearing standardized reorts

"nterreting and anal#zing information

Being in%ol%ed in decision ma(ing

Positions+

6ine managers

Directl# in%ol%ed !ith ma(ing and selling the organization*s roducts orser%ices.

/taff Managers Ad%isor# to the line managers. 5he# ha%e no authorit# o%er line managers, butthe# suort the line managers b# ro%iding information and ad%ice.


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Partial Organization Chart of A Manufacturing Coman#


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Chief &inancial Officer 3C&O45he to e'ecuti%e !ho deals !ith all finance and accountingissues in an organization. 5he dut# is o%ersees the accountingfunction.

)oles in &inancial &unctions+

5reasurer5he e'ecuti%e !ho is concerned mainl# !ith the coman#*sfinancial matters, such as raising and managing cash.

Controller5he accounting officer of an organization !ho deals mainl# !ithoerating matters, such as aiding management decision ma(ing.

Controller and 5reasurer &unctions


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Controller and 5reasurer &unctions

Controllershi Planning for control )eorting and "nterreting

E%aluating and Consulting 5a' Administration 7o%ernment )eorting Protection of Assets

Economic Araisal

5reasurershi Pro%ision of Caital "n%estor )elations

/hort-5erm &inancing Ban(ing and Custod# Credit Management and

Cash Collections

"n%estments )is( Management

3"nsuramce4


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Adatation to Change

Business trends recentl#+

1. /hift from a manufacturing-based to a ser%ice- based econom#

8. 7lobal cometition

9. Ad%ances in technolog#

:. Changes in business rocess management


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/er%ice /ector

Characteristics+

1. 6abor is a ma$or comonent of costs

8. Outut is usuall# difficult to measure9. /er%ice Organizations cannot store their ma$or

inuts and oututs


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Ad%ances in 5echnolog#

e-commerce

B8C 3business to consumers4

B8B 3business to business4E)P 3Enterrise )esource Planning4 /#stem

;B)6 e;tensible Business )eorting 6anguage


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Changes in Business Process Management

Business Process )eengineering

Comuter-Aided Design 3CAD4

Comuter-Aided Manufacturing 3CAM4

Comuter-"ntegrated Manufacturing 3C"M4 /#stem


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"mortance of Ethics

Practices need integrit#, since theinformation must correct and

accountable.


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Ethical Conduct for Professional Accountants

Ethic deals !ith human conduct in relation to !hat is morall# good

and bad, right and !rong. "t is the alication of %alues to decision ma(ing. "n the %alues, include honest#, fairness, resonsibilit#, resect,

and comassion.


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/tandards of Ethical Conduct

>eeds CPAs and CMAs

"MA /tatement of Ethical Professional Practices A code of conduct de%eloed b# the "nstitute of Management

Accountants, including cometence, confidentialit#, integrit#,and credibilit#.

Code of Conduct


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Ethical Dillemas

5o maintain high ethical standards, accountants andothers need to recognize situations that createressures for unet/ic!) (e/!*io.

/ome usual roblems in &inancial E'ecuti%e+1. Emhasize on short-term results

8. "gnoring the small stuff

9. Economic c#cles 3e'. Enron case4:. Accounting rules 3become more comle' and less

intuiti%e, ma(ing abuse of the rules harder toidentif#4

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