MODULE IN
Updates in Financial Management and
Advisory Services
ACREV423
FACILITATORS
Maybel Lee C. Kua, CPA, MSBA in progress
Joseph R. Mendoza, CPA, MBA
Department of Accountancy
SAMCIS
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Module 1: Management Accounting
MANAGEMENT (Managerial/Internal) Accounting
➢ LITERALLY, management accounting means providing information needed by management in
making rational economic decisions to attain the goals (objectives) of the organization.
BASIC MANAGEMENT FUNCTIONS
1. PLANNING – involves setting up both short term and long term goals, predicting future conditions
expected to prevail, determining the alternative means on how to achieve them and deciding
the best alternative means based on expected future conditions.
2. ORGANIZING (directing and motivating) –allocating and arranging human and nonhuman
resources so that plans can be carried out successfully. It is the process of dividing organizational
activities and specifying job responsibilities and authority (staffing) to people for their accomplishment.
3. CONTROLLING - process of evaluating and monitoring performance against predetermined
goals or standards and taking corrective actions for any deviations.
Management BY OBJECTIVE – a procedure wherein a subordinate and a supervisor agree on goals
and the methods of achieving them and develop a plan in accordance with that agreement. The
subordinate is then evaluated at the end of the period based on the agreed plan. This is associated
with the planning function (stage) of management.
Management BY EXCEPTION – a procedure by which managers focus their time and effort towards
material exception to or deviations from predetermined plans or standards set. Thus, it is primarily
associated with the controlling function (stage).
➢ in formal terms, management accounting is a field of accounting
a. that is concerned with accumulation, analysis, and presentation of information thru appropriate
concepts and techniques, to assist management in planning, directing/coordinating and
controlling business operations to attain organizational objectives.
that provides economic and financial information for internal users (managers/decision makers) in an
organization.
ROLE of MANAGEMENT ACCOUNTING in MANAGEMENT
➢ All management functions involve decision making, which is based on information, provided by
management accountants.
1. In PLANNING, accounting provides quantitative information (monetary and nonmonetary,
accounting and non-accounting, from inside and outside the business) to help management
establish organizational goals. Ex: budgets
2. In CONTROLLING, accounting is the principal means of measuring and recording actual
performance. Through accounting reports, actual results are compared with standards set to guide
management in making corrective actions. Ex: use of standard costs & flexible budgets, variance analysis
3. In NON-ROUTINE DECISION MAKING, accounting provides relevant costs and benefits, regarding
different courses of actions, coupled with recommendation on the best possible course of action.
Examples are make or buy, adding or dropping product segments, accept or reject special order decisions.
Every organization, whether business or non-profit, needs and uses the economic information provided by managerial
accounting, in their decision making which leads to attainment of organizational goals.
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Principles Governing the Design of Management Accounting System
1. The system should help to establish the decision-making authority over the organization’s assets.
2. The information generated by the system should support planning and decision making.
3. The report should provide a means for performance monitoring and evaluation.
Sub-disciplines of Accounting
1. FINANCIAL Accounting is concerned primarily with reporting to EXTERNAL users, thru a set of
financial statements prepared in accordance with GAAP. Thus, it has a historical focus.
2. MANAGEMENT Accounting is concerned primarily with reporting to INTERNAL users. The goal of the
management accountant is to produce reports that improve organizational decision making. Thus,
it is future oriented.
3. COST Accounting supports both financial accounting and management accounting. Information
about the cost of resources acquired and consumed by an organization underlies effective
reporting for both internal and external users.
The collection, presentation and analysis of information regarding costs and benefits helps the
management in accomplishing the following tasks:
a. Creating and executing plans (budgets) for operating under expected competitive and economic
conditions. (Unit 6: Budgeting)
b. Establishing costing methods that permit control of activities, reduction of costs and improvements of
quality. (Unit 4: Standard Costing; Unit 7: Responsibility Accounting)
c. Controlling physical quantities of inventory and determining the cost of each product for the purpose
of pricing and evaluating the performance of a product, department or division. (Unit 7: Transfer Pricing;
Unit 9: Relevant Costing)
d. Determining the company costs and profit for annual accounting period. This includes the inventory
costs in the balance sheet and cost of goods sold in the income statement for external reporting
purposes. (Unit 5: AC and VC)
e. Choosing among 2 or more short run or long run alternatives that might alter revenues or costs. (Unit 9:
Relevant Costing)
MANAGEMENT Accounting vs FINANCIAL Accounting
A. SIMILARITIES
1. Both financial and management accounting draw information from the same accounting system.
2. The same considerations that make GAAP sensible for purposes of financial accounting are applied
in management accounting.
B. DIFFERENCES
BASIS of COMPARISON
1. TYPE of information
2. PRIMARY USER of
information
FINANCIAL Accounting
Financial (primarily monetary)
external users
(shareholders, creditors)
MANAGEMENT Accounting
Monetary and non-monetary
internal users
(management)
3. PURPOSE
Produce F/S decision making
of external users
Provide information that can be used
by management for efficient and
effective discharge of its functions.
4. NECESSITY of
reports
5. FREQUENCY of
report
Mandatory (required by law)
Optional
Periodic ( annually, quarterly)
As the need arise.
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6. EMPHASIS of
reports
7. SOURCE of data
8. FOCUS of
information
Precision /accuracy
(reliability)
Internal – company’s system
Focus on business as a whole
Timeliness / relevance over precision
9.
10.
11.
12.
Compressed and simplified
GAAP ( PAS, PFRS )
Historical ( past )
A=L+C
Extensive and detailed
Needs of management
Future oriented (also: past & present)
None
Amount of DETAILS
GUIDING PRINCIPLE
TIME orientation
UNIFYING MODEL
Internal and external sources
Focus is on the company’s value chain,
such as business segments, product line,
supplier or customer
MANAGEMENT ACCOUNTING ADDS VALUE
a. Management accounting provides managers with information useful in strategic planning and
decision making.
b. Management accounting assists managers in directing and controlling the activities of the
organization by highlighting successful or problem areas thru the periodic reports comparing actual
and planned results.
c. Management accounting motivates managers and employees to achieve the organization’s goals
by communicating the plans, providing a measurement of how well the plan was achieved, and
prompting an explanation of deviations from plans.
➢ Motivation is achieved, in part, through employee empowerment—the concept of
encouraging and authorizing workers to improve operations, reduce costs, and improve
product quality and customer service.
d. Management accounting measures performance not only for the entire organization, as in financial
accounting, but also for many subunits (divisions, departments, managers).
e. Management accounting Assesses the organization’s competitive position in the rapidly changing
business environment. Looks at how well the firm is doing internally, in the eyes of its customers, from
the standpoint of innovation and continuous improvement, and financially.
➢ This is integrated in a model of performance evaluation known as the balanced scorecard.
STANDARDS of ETHICAL CONDUCT for MANAGEMENT ACCOUNTANTS
➢ Ethical standards are motivated by a very practical consideration – if the standards are not followed
in business, then the economy and all of us would suffer. Abandoning ethical standards would lead
to a lower standard of living with lower-quality goods and services, less to choose from, and higher
prices. In short, ethical standards are essential for the smooth functioning of advanced market economy.
➢ The Institute of Management Accountants (IMA) promulgated the standards of ethical conduct
which are integral to achieving the objectives of management accounting. Management
accountants shall adhere to these standards and shall not condone acts of others in the
organization, which are contrary to these standards.
1. COMPETENCE – management accountants have responsibility to:
a. maintain an appropriate level of professional competence by ongoing development of their
knowledge and skills
b. perform their professional duties in accordance with relevant laws, regulations, and technical
standards
c. prepare complete and clear reports and recommendations after appropriate analyses of relevant
and reliable information
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2. CONFIDENTIALITY – management accountants have responsibility to:
a. refrain from disclosing confidential information acquired in the course of their work, except when
authorized and unless legally obligated to do so.
b. Inform subordinates as appropriate regarding the confidentiality of information acquired in the course
of their work and monitor their activities to assure the maintenance of that confidentiality
c. Refrain from using or appearing to use confidential information acquired in the course of their work
for unethical or illegal advantage, either personally or through third parties.
3. INTEGRITY – management accountants have responsibility to:
a. avoid actual/apparent conflicts of interest and advise all appropriate parties of any potential conflict.
b. refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically.
c. refuse any gift, favor, or hospitality that would influence or would appear to influence their actions.
d. refrain from either actively or passively subverting the attainment of the organization’s legitimate
and ethical objectives
e. recognize and communicate professional limitations or other constraints that would preclude
responsible judgment or successful performance of an activity.
f. communicate unfavorable, as well as favorable information & professional judgments/opinions.
g. refrain from engaging in or supporting any activity that would discredit the profession.
4. OBJECTIVITY – management accountants have responsibility to:
a. communicate information fairly and objectively
b. disclose fully all relevant information that could reasonably be expected to influence an intended
user’s understanding of the reports, comments and recommendations.
c. disclose delays or deficiencies in information, timeliness, processing or internal controls in
conformance with organization policy and or applicable law.
RESOLUTION of ETHICAL CONFLICT
In applying the Standards of Ethical Professional Practice, the practitioners of management
accounting (and financial management) may encounter problems identifying unethical behavior or
resolving an ethical conflict. When faced with ethical issues, they should follow the organization’s
established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict,
the practitioner should consider the following courses of action:
a. Discuss the issue with immediate supervisor except when it appears that the supervisor is involved. In that
case, the case must be presented to the next level. If a satisfactory level of resolution cannot be
achieved, submit the issue to the next management level.
If the immediate superior is the CEO or equivalent, the acceptable reviewing authority maybe a group
such as the audit committee, executive committee, board of directors, board of trustees or owners.
Contact with levels above the immediate superior should be initiated only with the superior’s knowledge,
assuming he or she is not involved. Communication of such problems to authorities or individuals not
employed or engaged by the organization is not considered appropriate, unless the practitioner believes
that there is a clear violation of law.
b. Clarify relevant ethical issues by initiating a confidential discussion with an impartial advisor to obtain a
better understanding of possible courses of action.
c. Consult a lawyer as to legal obligations and rights concerning the ethical conflict.
d. If the ethical conflict still exists after exhausting all levels of internal review, there may be no other
recourse on significant matters than to resign from the organizations and to submit an informative
memorandum to an appropriate representative of the organizations. After resignation, depending on
nature of conflict, it may also be appropriate to notify other parties.
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CONTROLLER: the CHIEF MANAGEMENT ACCOUNTANT
CONTROLLERSHIP is the function of business management which combines accounting, auditing,
taxes, operating controls and other related areas. The controller (comptroller) is the chief
management accounting executive of an organization who is mainly responsible for the accounting
aspects of management planning and control
A. ROLE in the Organization
1. MANAGEMENT CONTROL – controller is responsible for:
a. designing and operating a system thru w/c control information is collected and prepared.
b. analyzing figures, pointing out their significance and making recommendations to management
2. OPERATIONAL FUNCTION – exercise direct control (authority) over his department only but
functions as a staff in view of the organization as a whole.
LINE FUNCTION is exercised by those that are directly involved in achieving the basic objective of
the firm. They relate to research & development, production and marketing activities of the
organization. STAFF FUNCTION is exercised by those that are not directly involved in achieving the
basic objectives. They involve provision of specialized or professional skills in support of line
departments. It includes the administrative activities like accounting, legal, public relations and HRD.
B. PLACE in the Organization
➢ In big organization, the controller is under VP Finance.
CONTROLLER – responsible for accounting
TREASURER – responsible more on cash
related activities. (INTERNAL FINANCE )
related activities. (EXTERNAL FINANCE )
1. Planning for Control
1. Provision of Capital
2. Reporting and Interpreting
2. Investor relations
3. Evaluating and consulting
3. Short term financing
4. Tax administration
4. Banking and custody
5. Government Reporting
5. Credit and collections
6. Protection of Assets
6. Insurance
7. Economic Appraisal
7. Investments
C. Controllership FUNCTIONS
1. PLANNING for CONTROL – the controller acts as the overall coordinator in establishing and
administering an adequate plan for the control of operations. Such plan is usually quantified in
monetary and nonmonetary aspects and is termed as budgets.
2. REPORTING and INTERPRETING – the controller is responsible for accumulating and summarizing data
regarding the results of operations to all levels of management. Moreover, the controller is expected
to disclose to the management the implications of those results of operations, whether it meets or
not the specific objectives set by the organization.
3. EVALUATING and CONSULTING – to consult with all levels of management responsible for policy or
action concerning any phase of business operations as it relates to the attainment of objectives and
effectiveness of policies, organizational structures and procedures.
4. TAX ADMINISTRATION - the controller supervises the formulation and implementation of tax policies
and procedures of the organization. Such function covers the preparation of tax returns and giving
of advice regarding the tax implication of certain actions or decisions the organization is about to
undertake. Consequently, the controller is concerned in finding ways on how to minimize the taxes
to be paid to the government through legal means (tax avoidance).
5. GOVERNMENT REPORTING – the controller supervises or coordinates the preparation of reports to
comply with the requirements set by government authorities such as financial reports submitted to
BIR, SEC and other government regulations such as those regarding the effects of the business to its
surrounding environment.
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6. PROTECTION of ASSETS – the controller to protect the company against losing the value of its
assets because of theft, embezzlement or misappropriation of funds or natural disasters such as
fire, earthquake and flood. The controller performs this function by properly implementing
internal controls, internal auditing and insurance coverage on the company’s assets.
7. ECONOMIC APPRAISAL – to continuously appraise (assess the value of) economic and social
forces, government influences and interpret their effects on the business.
➢ By performing evaluation, consulting and economic appraisal functions, the controller is elevated
to top management. The other functions are primarily accounting in nature.
QUALIFICATIONS of a Good Controller
1. General understanding of the industry to which he belongs, including the social and political forces
directly related to it.
2. A thorough knowledge of his company: its history, policies, programs, organization and to some extent,
its technical operations.
3. Understanding of the basic problems of production, marketing, finance and personnel management.
4. Understanding of the basic problems of organization planning and control.
5. Ability to analyze and interpret accounting and statistical data.
6. Communication skills.
7. A thorough knowledge of accounting concepts, principles and procedures, accounting being basically
an accounting function.
International Certifications in Management Accounting
1. CMA (Certified Management Accountant) in USA
Management accounting has expanded in scope to cover a wide variety of business disciplines such
as finance, economics, organizational behavior, and quantitative methods. In line with this
development, the National Association of Accountants (NAA) originally founded on 1919 in Buffalo,
New York, USA created the Institute of Management Accountants (IMA) in 1991 to emphasize the role
played by accountants and financial professionals working inside organizations.
IMA offers a program for becoming a CMA. The program requires candidates to pass a series of
uniform examinations covering a wide range of subjects. The fourfold objectives of the program are
as follows:
1. To establish management accounting as a recognized profession.
2. To foster higher educational standards in the area of management accounting.
3. To establish objective measurement of an individual’s knowledge and competence in the area of
management accounting.
4. To encourage continued professional development by management accountants.
According to the IMA, the CMA is the advanced professional certification specifically designed to
measure the accounting and financial management skills that drive business performance.
Unlike other accounting certifications, CMA is a globally recognized credential with a special focus on
corporate finance and management accounting.
The CMA certification is offered by the IMA and is awarded thru its division, the Institute of Certified
Management Accountants (ICMA). The IMA is headquartered in New Jersey, USA and to date, have
certified 70,000 CMAs in more than 140 countries.
The CMA examination is developed and offered by ICMA in numerous domestic and international
locations. The exam is divided into 2 parts as follows:
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2020 CMA Exam
Part 1 – Financial Planning, Performance and Analytics
External financial reporting decisions
Planning, budgeting and forecasting
Performance management
Cost management
Internal controls
Technology and Analytics
Total
15%
20%
20%
15%
15%
15%
100%
Part 2 Strategic Financial Management
Financial Statements Analysis
Corporate Finance
Decision Analysis
Risk Management
Investment Decisions
Professional Ethics
Total
20%
20%
25%
10%
10%
15%
100%
A CMA is an accounting professional who specializes in financial/asset/performance management.
The CMA possesses the skills required to make financial decisions for a company.
CPA vs CMA – Which Certification is Better?
The real answer to this question is that neither of these certifications is better than the other. They’re
both highly respected and used in different career paths. Basically, if you’re interested in
management, strategy/analysis, and decision-making, then becoming a CMA would be a good
choice. However, if you prefer auditing, tax, reporting, and regulation, then the CPA route would be better.
CPA vs CMA Career Path Differences
While CPAs are equipped for management positions, their skills are not as finely honed as those of the CMA.
You can find both CPAs and CMAs at the financial helm in industry, holding such titles as CFO and controller.
However, a CMA have the edge when it comes down to making hard management decisions for a
corporation or small business. A CMA typically works as cost accountants, corporate accountants,
management accountants, risk managers, financial/budget analyst, financial strategists, and executive
decision makers.
CPAs have a wider breadth of training so you will often find them working for the government as well as in
the private sector or even as a solo practitioner (although rare these days) performing duties such as
auditing or tax preparation. The lines are blurred but in simplistic terms, CMAs manage whereas CPAs
provide advice, prepare financial reports and/or make sure that regulations are being complied with.
Obtaining both certifications can offer huge benefit when pursuing a career in executive level
management.
A. CPAs will find that additional management training makes them more marketable to the industry. Skills
and knowledge gained while pursuing CMA certification enable the professional to connect accounting
concepts to its practical applications in finance. Furthermore, CMA certification hones skills in accounting
and financial data analysis, which can be leveraged to improve performance and make strategic
business decisions. CMAs are experts in cost management, budgeting, and efficiency. Consequently,
with enough years of experience, they make great COOs and controllers. This is because of their expert
knowledge and ability to identify wasteful areas in company operations and correct them to make the
company more efficient and profitable.
B. If you are a CMA and your job’s duties involve overseeing your company’s taxes, for example, the
additional knowledge gained by becoming a CPA could be beneficial. Likewise, if you need to shore up
your auditing or reporting skills.
Some jobs require both the CPA and CMA designations.
The Certified in Strategy and Competitive Analysis (CSCA) is a specialty credential designed for CMAs. It
complements and expands upon the strategic planning and analysis skills developed through the CMA
certification. It is a unique certification, designed for those already proficient in accounting and finance,
and geared toward developing the strategic thinking skills needed to be part of the senior leadership
strategy team. Earning the CSCA will strengthen one’s current skills and develop new ones, setting them
apart from their peers.
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2. CIMA (Chartered Institute of Management Accountants) in United Kingdom
The CIMA is a UK based professional body offering training and qualification in management
accountancy and related subjects. It is the largest management accounting body in the world with
281,467 students and CGMAs 106,095 of which are members in 2017.[1] CIMA is also a member of
the International Federation of Accountants (IFAC).
CIMA, was formed in March 1919, as the Institute of Cost and Works Accountant, by a group of legal
professionals and businessmen who wanted to develop an approach to accounting that would meet the
demands of a rapidly changing business world. Industrialization had led to large scale, complex businesses
providing unprecedented challenges in management. Employers needed a new form of in-house
accountant to provide, in addition to accounts, better analysis of cost and of operations to inform
performance management. The new institute soon gained the backing of leading industrialists including,
Lord Leverhulme who became its president. Advances in technology and globalization made business ever
more complex over the 20th century and the role of the accountant in business became more significant.
It expanded to include provision of a wider range of information and the emphasis shifted from accounting
to management. The status of management accounting as distinct branch of accounting profession was
recognized by the granting of Royal Charter in 1975.
3. CGMA (Chartered Global Management Accountant)
The CGMA designation is created in 2012 by the CIMA and the American Institute of Certified Public
Accountants (AICPA). This designation recognizes the most talented and committed management
accountants with the discipline and skill to drive strong business performance. The CGMA is the most widely
held management accounting designation in the world with more than 150,000 designees. It is
educationally equivalent to a master’s degree. The designation is built on extensive global research to
maintain the highest relevance with employers and develop the competencies most in demand. CGMA®
professionals are business strategists who can link the board’s objectives and the rest of your organization,
guiding critical business decisions and creating sustainable business success.
CGMA designation holders are either CPAs with qualifying management accounting experience, or
associates (ACMA) or fellow (FCMA) members of CIMA.
4. CMA Canada (now part of CPA Canada)
CMA Canada has been the Canadian professional body for management accountants. In 2013, three
accounting associations in Canada merged to form a new designation of Certified Professional
Accountant, known as CPA Canada. The combined association has approximately 125,000 members as
well as 20,000 candidates and registered students.
CMA Canada used to have mutual recognition agreements with CIMA and CPA Australia. It remains to
be seen whether this applies to a new designation. Currently, this designation is suitable only for those who
study and work in the Canada.
5. ICMA or CPA Australia?
The Institute of Certified Management Accountants (ICMA) is the management accounting body that
grants the CMA title in Australia. It is a relatively new institute founded in 1996, currently with 2,500 members
including certificate holders and candidates. ICMA and IMA proposed a merger in 2006 but did not
succeed. Currently, the most relevant certification for management accountant in Australia is CPA
Australia. This is also a certification that welcomes candidates around the world.
Management Accountants - The Ultimate Business Professional
Management Accountants are seen as the "value-creators" since they are much more interested in
forward looking and taking decisions that will affect the future of the organization, than in the historical
recording and compliance (scorekeeping) aspects of the profession. Management accounting
knowledge and experience can be obtained from varied fields and functions within an organization,
such as data analytics, information management, treasury, strategic auditing, governance,
marketing, valuation, pricing, and logistics, and other business areas.
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