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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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Introduction:
CHAPTER
The Role,
History, and
Direction of
Management
Accounting
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Objectives
 Discuss the need for management accounting
After studying this
information.
chapter, you should
 Differentiate between management accounting
be able to:
and financial accounting.
 Provide a brief historical description of
management accounting.
 Identify the current focus of management
accounting.

Continued
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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
Collecting Special Reports
Measuring Product Costs
Storing Customer Costs
Analyzing Budgets
Reporting Performance Reports
Economic Managing Personal Communication
Events
Inputs Processes Outputs

Users
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Management Process

The Management Process is defined by the

following activities:
Planning requires
Planning setting objectives
and identifying
Controlling methods to achieve
those objectives.
Decision Making
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Management Process

The Management Process is defined by the

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

The Management Process is defined by the

following activities:
Planning Control is
usually achieved
Controlling
with the use of
Decision Making 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
Decision
Controlling making is
the process
Decision Making of choosing
among
competing
alternatives.
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Differentiate Between
Management Accounting and
Financial Accounting
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Management Accounting Financial Accounting

1. Internally focused 1. Externally focused

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Targeted Users

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

Financial
accounting focuses
on provided
information for
ABC external users.
Company
Annual
Report
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Management Accounting Financial Accounting

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
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Restrictions on Inputs and Processes

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

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
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Types of Information

For
Themanagement
restrictions imposed
accounting,
on
the
financial
financial
accounting
or nonfinancial
tend to
produce
information
objective
may be and
much
verifiable
more
financial
subjectiveinformation.
in nature.
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Management Accounting Financial Accounting

1. Internally focused 1. Externally focused

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

1. Internally focused 1. Externally focused

2. No mandatory rules 2. Must follow externally
imposed rules
3. Financial and 3. Objective financial
nonfinancial informa- information
tion; subjective
information possible
4. Emphasis on the future 4. Historical orientation
5. Internal evaluation and 5. Information about the
decisions based on very firm as a whole
detail information
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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 informa-
tion; subjective
information possible
4. Emphasis on the future
5. Internal evaluation and
decisions based on very
detail information
6. Broad, multidisciplinary
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Financial Accounting
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.
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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
management’s 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
Value Chain: Cultivating
Apple Industry
Harvesting Firm
B
Distribution of
Apples
Firm
A Applesauce
Production Firm
C
Product Disposal Applesauce
Distribution

End-Use Customer Supermarkets

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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
accounting systems that provide
quality management is to
financial and nonfinancial
manufacture perfect products.
information about quality.
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The role of
management
accountants in an
organization is
one of support.
 Partial Organization Chart, 1 -38

Manufacturing Company
President
Line Function Staff Function

Production Financial
Vice President Vice President

Production
Supervisor Controller Treasurer

Machining Assembly Internal Ta

Foreman Foreman Audit
Cost Financial Systems
x
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Ethical
Behavior
Michael Josephson’s* Ten Ethical Values:
Honesty Caring for others
Integrity Respect for others
Promise keeping Responsible
citizenship
Fidelity
Pursuit of excellence
Fairness
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
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