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An electronic
presentation by
Douglas Cloud
Pepperdine University

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Task Force Clip Art

included in this electronic
presentation is used with
the permission of New
Vision Technology of
Nepean Ontario, Canada.

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CHAPTER

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

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

After studying this

chapter, you should
be able to:

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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.

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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.

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Management Accounting
Information System

Economic Events

Collecting
Measuring
Storing
Analyzing
Reporting
Managing

Special Reports
Product Costs
Customer Costs
Budgets
Performance Reports
Personal Communication

Inputs

Processes

Outputs

Users

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Management Process
The Management Process is defined by the
following activities:
Planning

Controlling
Decision Making

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

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Management Process
The Management Process is defined by the
following activities:
Controlling is
Planning

Controlling
Decision Making

the managerial
activity of
monitoring a
plans
implementation
and taking
corrective action
as needed.

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Management Process
The Management Process is defined by the
following activities:
Planning

Controlling
Decision Making

Control is
usually achieved
with the use of
feedback.

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

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Management Process
The Management Process is defined by the
following activities:
Planning

Controlling
Decision Making

Decision
making is
the process
of choosing
among
competing
alternatives.

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Differentiate Between
Management Accounting and
Financial Accounting

Management Accounting

1. Internally focused

Financial Accounting

1. Externally focused

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

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Targeted Users

ABC
Company
Annual
Report

Financial
accounting focuses
on provided
information for
external users.

Management Accounting

1. Internally focused
2. No mandatory rules

Financial Accounting

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1. Externally focused
2. Must follow externally
imposed rules

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Restrictions on Inputs and Processes

Management
accounting
is not subject
Financial accounting
reporting
must
to the
of generally
follow
therequirements
accounting procedures
set by
accepted
accounting
principles.
the SEC
and the FASB.

Management Accounting

1. Internally focused
2. No mandatory rules
3. Financial and
nonfinancial information; subjective
information possible

Financial Accounting

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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information

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Types of Information
ForThe
management
restrictionsaccounting,
imposed onthe
financial
financialaccounting
or nonfinancial
tend to
produce
information
objective
may be
and
much
verifiable
more
financial
subjective
information.
in nature.

Management Accounting

1. Internally focused
2. No mandatory rules
3. Financial and
nonfinancial information; subjective
information possible
4. Emphasis on the future

Financial Accounting

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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation

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

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Time Orientation

Financial
accounting records
and reports events
that have already
happened.

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
detail information

Financial Accounting

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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
5. Information about the
firm as a whole

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

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Degree of Aggregation
Financial
accounting focuses
on overall firm
performance.

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
detail information
6. Broad, multidisciplinary

Financial Accounting

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

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

Historical Description of
Management Accounting
1880 - 1925

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

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Current Focus of Management Accounting

Activity-Based Management

Activity-based management is a system

wide, integrated approach that focuses
managements attention on activities with the
objective of improving customer value and
the resulting profit.

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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.

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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:
1) Cost leadership
2) Superior products through differentiation

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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.

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Planting and
Cultivating

Value Chain:
Apple Industry

Harvesting

Firm
B

Distribution of
Apples

Firm
A

Applesauce
Production

Product Disposal

Applesauce
Distribution

End-Use Customer

Supermarkets

Firm
C

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Managing the value chain means

that a management accountant
must understand many functions
of the business, from
manufacturing to marketing.

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This emphasis on quality has

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

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

Partial Organization Chart,

Manufacturing Company

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President
Line Function

Staff Function

Production
Vice President

Financial
Vice President

Production
Supervisor

Machining
Foreman

Assembly
Foreman

Controller

Internal
Audit

Cost

Financial

Treasurer

Systems

Ta
x

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Ethical
Behavior
Michael Josephsons* Ten Ethical Values:
Honesty
Caring for others
Integrity

Respect for others

Promise keeping
Fidelity

Responsible
citizenship

Fairness

Pursuit of excellence
Accountability

*Michael Josephson, Teaching Ethical Decision Making and Principled

Reasoning

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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.

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The CMA
Four areas emphasized on the exam:
1) Economics, finance, and management

2) Financial accounting and reporting

3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems

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Chapter One

The End