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Learning Objectives. Explain the need for management accounting information. Explain the differences between management accounting and financial accounting. Provide a brief historical description of management accounting. Identify and explain the emerging themes of management accounting.

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Learning objectives
Learning Objectives

  • Explain the need for management accounting information.

  • Explain the differences between management accounting and financial accounting.

  • Provide a brief historical description of management accounting.

  • Identify and explain the emerging themes of management accounting.

  • Describe the role of management accountants in an organization.


Learning objectives continued
Learning Objectives (continued)

  • Explain the importance of ethical behaviour for managers and management accountants.

  • Identify the three forms of certification available to management accountants.


Management accounting information systems
Management Accounting Information Systems

Special Reports

Product Costs

Customer Costs

Performance Reports

Personal Communication

Collecting

Measuring

Storing

Analyzing

Reporting

Managing

Economic Events

Inputs

Processes

Outputs

Users


The management process
The Management Process

The Management Process is defined by the following activities:

  • Planning

  • Controlling

  • Decision making


The management process continued
The Management Process(continued)

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


The management process continued1
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.


The management process continued2
The Management Process(continued)

Decision makingis the process of choosing among competing alternatives.


Conceptual framework of management accounting
Conceptual Framework of Management Accounting

  • Cost Accounting Systems (Part I of Text)

    • ‘Know your costs’

    • The how to of ‘cost accumulation & allocation’

  • 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 de-emphasize the role of individual decision-makers

  • Planning & Control Systems (Part III of Text)

    • Focus on how organizations run by delegation & accountability

    • Information asymmetry (subordinate knows what superior does not know) results in problems of harmony of objectives. We assume economically rational decision makers who have their own goals within the organization


Comparison of management and financial accounting
Comparison of Management and Financial Accounting

Management Accounting Financial Accounting

  • 1. Internal focus

  • 2. No mandatory rules

  • 3. Financial and nonfinancial information; subjective information possible

  • 4. Emphasis on the future

  • 5. Internal evaluation and decisions based on detailed

  • information

  • 6. Broad, multidisciplinary

1. External focus

2. Externally imposed rules

3. Objective financial information

4. Historical orientation

5. Information about the firm as a whole

6. More self-contained


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

Historical Description ofManagement Accounting


Emerging themes of management accounting
Emerging Themes of accounting procedures used in this century were developedManagement Accounting

  • Activity-Based Management

  • Customer Orientation

  • Cross-Functional Perspective

  • Total Quality Management

  • Time as a Competitive Element

  • Efficiency


Most innovative in management comment from peter drucker
Most Innovative in Management? accounting procedures used in this century were developedComment from Peter Drucker

  • "The most exciting and innovative work in management today is found in accounting theory, with new concepts, new methodology--even what might be called new economic philosophy--rapidly taking shape. And while there is enormous controversy over specifics, the lineaments of the new manufacturing accounting are becoming clearer every day.”

  • Peter E. Drucker, “The Emerging Theory of Manufacturing,” Harvard Business Review, May-June 1990, pp. 94-102.


  • Partial organization chart manufacturing company
    Partial Organization Chart - accounting procedures used in this century were developedManufacturing Company

    President

    Production

    Vice-president

    Financial

    Vice-president

    Machining

    Supervisor

    Assembly

    Supervisor

    Controller

    Treasurer

    Controller’s

    Functions

    Treasurer's

    Functions


    Role of controller and treasurer
    Role of Controller and Treasurer accounting procedures used in this century were developed

    Controller

    Treasurer

    1. Collection of cash

    2. Monitoring of cash

    payments

    3. Monitors cash availability

    4. Short-term investments

    5. Short and long-term

    borrowing

    6. Issuing of capital stock

    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


    Management accounting and ethical conduct

    Abuse of accounting information accounting procedures used in this century were developed

    Acceptance of bribes or gifts

    Conflict of interest

    Disclosure of confidential information

    Management Accounting andEthical Conduct

    Some Types of Unethical Conduct


    Standards of ethical conduct for management accountants
    Standards of Ethical Conduct for Management Accountants accounting procedures used in this century were developed

    • Competence

    • Confidentiality

    • Integrity

    • Objectivity


    Competence

    Management Accountants have a responsibility to accounting procedures used in this century were developed

    Maintain professional competence.

    Perform professional duties in accordance with relevant laws, regulations, and technical standards.

    Prepare complete and clear reports and recommendations.

    Competence


    Confidentiality

    Management Accountants have a responsibility to accounting procedures used in this century were developed

    Refrain from disclosing confidential information.

    Inform subordinates as to how to handle confidential information.

    Refrain from using confidential information for unethical or illegal advantage.

    Confidentiality


    Integrity

    Management Accountants have a responsibility to accounting procedures used in this century were developed

    Avoid conflicts of interest.

    Refrain from activity that would prejudice their ability to carry out their duties ethically.

    Refuse gifts, favors, or hospitality that would influence their actions.

    Refrain from subverting attainment of the organization’s legitimate and ethical objectives.

    Integrity


    Integrity continued

    Management Accountants have a responsibility to accounting procedures used in this century were developed

    Recognize and communicate professional limitations that would preclude responsible judgment.

    Communicate unfavourable as well as favourable information.

    Refrain from engaging in or supporting any activity that would discredit the profession.

    Integrity (continued)


    Objectivity

    Management Accountants have a responsibility to accounting procedures used in this century were developed

    Communicate information fairly and objectively.

    Disclose fully all relevant information that could reasonably be expected to influence user's understanding of the reports, comments, and recommendations presented.

    Objectivity


    Resolution of ethical conflict

    Discuss problems with immediate supervisor except when it appears the superior is involved.

    If the immediate superior is the chief executive officer, or equivalent, the acceptable reviewing authority may be the audit committee, board of trustees, or owners.

    Clarify relevant concepts by confidential discussion with an objective advisor to obtain an understanding of possible courses of action.

    Resolution of Ethical Conflict

    Courses of actions


    Resolution of ethical conflict continued

    If the ethical conflict still exists after exhausting all levels of internal review, the management accountant may have no other recourse than to resign.

    Except where legally prescribed, communication of such problems with external parties is not appropriate.

    Resolution of Ethical Conflict (continued)

    Courses of actions


    Professional designations
    Professional Designations levels of internal review, the management accountant may have no other recourse than to resign.

    • CA- The distinguishing characteristic of the profession is its unchallenged right to provide assurance concerning the reliability of financial statements to external parties.

    • CMA-The distinguishing characteristic of the profession is its upholding of management accounting as a recognized, professional discipline, separate from public accounting.

    • CGA- CGA’s may specialize in financial, managerial, or tax accounting but the right to audit financial statements is somewhat restricted.