The Context of Management

Accounting

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 Learning Outcomes
Understand the role of management accountants in an
organisation
Nature and Purpose of Internal management report
Financial and Non Financial information
Characteristics of good information
Role and importance of information technology
Requirement for management information
Distinguish between management and financial
accounting.
Element involved in decision making, planning and
control process
Ethics in Management Accounting.
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 What is Accounting?
1. Definition of accounting

the process of identifying, measuring and communicating

economic information to permit informed judgements and
decisions by users of the information.

2. Users of accounting information can be divided into two categories:

(i) External parties outside the organization (financial accounting).

(ii) Internal parties within the organization (management accounting).

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 Branches of Accounting
Management Accounting
Concerned with the provision of information to people
within the organisation to assist them make better decision
regarding business operations. (Internal reporting)

Financial Accounting
Concerned with providing information to external parties
outside the organisation. (External Reporting)

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Differences between Financial and
Management Accounting

Legal requirement
Statutory requirement for public companies
to produce annual financial accounts, whereas
there is no legal requirement for management
accounting.
Focus on individual parts of business
Financial accounting reports describe the
whole of the organization, whereas
management accounting focuses on reporting
information for different parts of the business.

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 Difference between management and financial
accounting
Accounting principles
Financial accounting reports must be prepared in accordance with
generally accepted accounting principles (e.g. IFRS) which require data
to be verifiable and objective. Management accounting is focused on
serving management needs and providing information that is useful to
managers.

Time dimension
Financial accounting reports historical information, whereas
management accounting places g eater emphasis on reporting estimated
future costs and revenues

Report frequency
Management accounting reports are produced at more frequent intervals

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 Financial and Managerial Accounting:
Seven Key Differences
Financial Accounting Managerial Accounting
1. Users External persons who Managers who plan for
make financial decisions and control an organization

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on

versus relevance objectivity and verifiability relevance

4. Precision versus Emphasis on Emphasis on

timeliness precision timeliness

5. Subject Primary focus is on Focus on

companywide reports segment reports

6. Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS

and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
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reports Mandatory 7
 ACC 3208

COST AND MANAGEMENT ACCOUNTING FOR

DECISION MAKING

Financial accounting Management accounting

prepares reports most prepares reports most
frequently used by frequently used by
decision makers external decision makers internal
to the organisation to the organisation

Cost accounting is a method for measuring

the cost of a project, process, or thing
It includes both financial and nonfinancial
information and is used for both financial
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and management accounting
 Management Accounting and
Cost Accounting
Management Accounting
relates to the provision of appropriate information, including cost
information for decision-making, planning, control, and
performance evaluation.
Cost accounting
defines costs and valuates inventories to help managers to run
businesses; examples including
FIFO, weighted average inventory valuation technique
Job costing, Process costing, Activity-based costing
Cost allocation techniques
Management Accounting and Cost Accounting
are intertwined and
the terms are sometimes interchangeable
their functions are to help companies make better decisions
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 Function of management
accounting
Allocate costs between cost of goods sold
and inventories for internal and external
profit reporting.
Provide relevant information to help
managers make better decisions
Provide information for planning, control,
performance measurement and
continuous improvement.
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 Decision making process
Identify objectives
Search for alternative courses of action
Select appropriate courses of action
Implement the decisions
Compare actual and planned outcome
Respond to divergences from plan

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 Decision Making
Decision making involves
making a selection among
competing alternatives.

What should
we be selling?
Who should
we be serving?
How should
we execute?
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Work of Management

Planning Controlling

Decision
Making

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 Planning

Establish Goals.

Specify How Goals

Will Be Achieved.

Develop Budgets.

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 Directing and Motivating

Directing and motivating involves managing

day-to-day activities to keep the organization
running smoothly.
Employee work assignments.
Routine problem solving.
Conflict resolution.
Effective communications.

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 Controlling
The control function gathers feedback to
ensure that plans are being followed.

Feedback in the form of performance reports

that compare actual results with the budget
are an essential part of the control function.

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 Planning and Control Cycle

Formulating long-
Begin
and short-term plans
(Planning)

Comparing actual
Implementing
to planned Decision plans (Directing
performance Making and Motivating)
(Controlling)

Measuring
performance
(Controlling)
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Strategic Management Skills

A strategy
is a game plan that enables a company
to attract customers by distinguishing itself
from competitors.

The focal point of a

companys strategy should
be its target customers.
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Customer Value Propositions
Customer
Understand and respond to
Intimacy
individual customer needs.
Strategy

Operational Deliver products and services

Excellence faster, more conveniently,
Strategy and at lower prices.

Product
Leadership Offer higher quality products.
Strategy ACC 3208 19
 Managerial Accounting: Beyond the
Numbers
In addition to the External, Internal, Leadership and
Cultural Perspectives, the following four business
management perspectives also go beyond the
numbers to enable intelligent planning, control, and
decision making:
An Ethics Perspective
A Corporate Governance Perspective
An Enterprise Risk Management Perspective
A Corporate Social Responsibility and
Sustainability Perspective
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 An Ethics Perspective
All Professional Management Accountants Bodies issue their
own Code of Conduct but they all share similar fundamental
principles and conceptual approaches as the one issued by
the Institute of Management Accountants.
The Institute of Management Accountants (IMA) Statement
of Ethical Professional Practice
consists of two parts that offer guidelines for:
Ethical behavior.
Resolution for an ethical conflict.

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 Guidelines for Ethical Behavior
Competence
Confidentiality
Integrity
Credibility

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 An Ethics Perspective:
Why Have Ethical Standards?
Ethical standards in business are essential for a
smooth functioning economy.

Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer.

Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods andACC
services
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at higher prices.
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 An Ethics Perspective:
Company Codes of Conduct
Broad-based statements of a
companys responsibilities to:

Employees Customers Suppliers

And to the communities in

which the company operates.
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