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MS04-01: INTRODUCTION TO MANAGEMENT ACCOUNTING
THE MANAGEMENT PROCESS AND MANAGEMENT ACCOUNTING
Business organizations are normally not under the supervision of its owners and investors. These
individuals opt to entrust the operations of the organization to its management. Due to this trust given to
them by the owners, managers must ensure organization’s objectives are met by planning, organizing,
leading, and controlling various tasks of the organization.
In order to properly perform its function as management, managers are required to have relevant and
reliable information which would serve as the basis of their day to day decisions. Due to this need for
information, accountants are task to perform management accounting which is defined to be the branch
of accounting that aims to identify, analyze, interpret, and communicate various information to support the
management process.
MAIN OBJECTIVES OF MANAGEMENT ACCOUNTING
The main objectives of management accounting are the following:
• Make information available and understandable to management;
• Assist management in performing its function (PLOC);
• And help the organization in achieving its short-term and long term goals.
SCOPE OF MANAGEMENT ACCOUNTING
The main scope of management accounting are as follows:
• Information Gathering
• Data Analysis
• Reporting
• Decision Making
MANAGEMENT FUNCTIONS
The fundamental management functions, all of which involves a certain level of decision making, are as
follows:
• Planning – setting the objectives
• Organizing – utilization of resources
• Controlling – performance evaluation
MANAGEMENT ACCOUNTANTS IN ORGANIZATION
Note that management accountants assist management in performing its various functions. As such,
management accountants should be strategically positioned in various departments to obtain a more vivid
understanding of the entity’s operations. The position of management accountants, although deployed in
various departments, are still usually considered as staff function. Note that staff function supports the
organization although not directly involved in its front operations while line positions are those directly
dealing with customers (that is front operations). The highest position directly tasked to monitor
management accounting activities is called Chief Financial Officer (CFO) or Controller.
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FINANCIAL ACCOUNTING
VARIOUS STAKEHOLDERS AND FINANCIAL ACCOUNTING
Business organizations, apart from management, also have various stakeholders such as customers,
investors, government, suppliers, and etc. which demand relevant and reliable information about the
business operations specifically its profit and current financial position. Despite this information need, these
stakeholders have no direct access to the company’s accounting records. Due to this demand, accountants
are required to perform financial accounting which involves the preparation of general=purpose financial
statements for internal and external users.
USERS OF FINANCIAL STATEMENTS
According to the framework, financial statements are used by investors (potential and current) - concerned
with the risk inherent and the return provided by their investment. It is also an important venue to know
whether the investor should hold, sell, or buy an investment; employees – main concern is the profitability
of their employers and the capacity to provide remuneration, retirement benefits and employee
opportunities; lenders – main concern is the capacity to pay the loan due to them; suppliers (other trade
creditors) – capacity to pay the debt due to them but normally on a short term planning horizon; customers
– continuance and dependence theory; and governments – concerned with public regulation, levy of taxes,
allocation of resources.
COST ACCOUNTING
COST AND COST ACCOUNTING
Cost pertains to a resource “given up” or “to be given up” to attain a specific objective. Usually, costs are
driven by various activities within an organization (cost driver). Accounting, on the other hand, is simply
defined as the language of business because it identifies, analyzes, interprets, and communicates business
information to various users. Combining the two definitions together, cost accounting is a branch of
accounting that deals with the process of identifying, analyzing, interpreting, and communicating cost
information to various users.
COST ACCOUNTING AND VARIOUS USERS OF COST INFORMATION
Cost information has various uses depending on the objective of the user. Generally, information
stakeholders can be classified as external and internal.
INTERNAL
USERS OF
COST
INFORMATION
Managers, at different levels, are the most common internal users of cost
information. As defined in our basic management courses, managers are task to
perform the process of planning, leading, organizing and controlling tasks in order
to achieve company’s objectives. Due to this, managers are expected to use cost
information in order to plan and control business operations.
EXTERNAL
USERS OF
COST
INFORMATION
There are various external users of cost information such as investors, employees,
governments, and other parties. Take note that the primary characteristic common
to all external users is that they have limited access to information. As such, they
only rely on published reports regarding cost information. However, kindly take note
that these stakeholders have various objectives in dealing with cost information.
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: (043) 723 8412
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-----------------------FINANCIAL, MANAGEMENT, AND COST ACCOUNTING--------------Financial accounting is the branch of accounting that is tasked to identify, analyze, interpret, and
communicate information to external users. Management accounting is the branch of accounting that is
tasked to identify, analyze, interpret, and communicate information to management. Both financial and
management accounting pertains to accumulation of information and communicating this information to its
various users. However, management accounting and financial accounting differs in various aspects as
illustrated in Table I.
Table I: Differences between Management Accounting and Financial Accounting
Management Accounting
Financial Accounting
End User
Management
Various Stakeholders
Frequency
Frequently, Depending on
Management
Needs
Annual or depending on rules and regulation
Focus of Reports
Reports depend on management
needs; future oriented
Reports are limited to financial aspect (in the
form of financial statements), it focuses on
historical data
Regulation
Optional and not regulated
Required by various government agencies and
is regulated
Types of
accounting
system
Unrestricted
Restricted
Measurement
Not limited to monetary value
Limited to monetary value (historical peso
value)
Although there are differences between management and financial accounting, it must be noted that cost
accounting serves as the bridge between these two lines of accounting practice.
ETHICAL STANDARDS IN MANAGEMENT ACCOUNTING
1. Integrity – avoid being associated with incorrect, incomplete, misleading statements.
2. Objectivity – it means being fair, honest, and free from conflict of interest (e.g. bias)
3. Professional Competence and Due care – a consultant should strive to improve his knowledge and
skills to ensure that client receive a competent service. Due care encompasses compliance with
technical and professional standards, thorough examination and on a timely basis.
4. Confidentiality – the consultant must not disclose or use for own personal advantage any information
acquired in the course of the professional relationship, unless with authority, required by law (evidence
in court, infringement) right, or duty to disclose (quality review, self-protection, comply with ethics). This
standard extends to social environment, prospective client, each staff, and expert used, as well as after
business relationship.
Behavior – refrain from actions that will
A consultant must not make exaggerated claims and comparisons.
5. Professional
discredit
the
profession.
MS-01Q: MULTIPLE CHOICE THEORY QUESTIONS
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MULTIPLE CHOICE (THEORY)
1. The primary purpose of management accounting is to provide relevant information to
a. Both internal and external users
b. Internal users
c. External users
d. Those charged with governance
2. A person qualified by education, experience, technical expertise to advise and assist businessmen on
a professional basis in identifying and solving specific management problems regarding business
operations
a. Management Accountant
b. Management Consultant
c. Professional Adviser
d. Public Accountant
3. Managers that are making economic decisions are more concerned with receiving information that is
a. Relevant, flexible and available immediately
b. Relevant, completely accurate and precise
c. Always financial in nature
d. Completely accurate and precise
4. Management accounting
a. Is concerned with financial information only
b. Focuses on the entirety of a business rather than the individual segments
c. Complies with external reportorial requirements
d. Is allowed to make use of the measurement and allocation bases in GAAP
5. Decision-making is required in which aspect of management functions?
a. Planning
b. Planning and organizing
c. Organizing and control
d. Planning, organizing and control
6. The following are the differences of management accounting and financial accounting, except
a. Degree of estimates being used
b. Quality of financial data used in reporting
c. Governed by the PFRS
d. Deals with economic events
7. The following are the characteristic of Management Advisory Services, except
a. Broad in scope
b. Deals with both quantitative and qualitative information
c. Involves varied assignments
d. Engagements are usually recurring
8. The “controller” position in an organization is primarily classified as
a. Line position
b. Staff position
c. Both line and staff position
d. Neither a staff nor a line position
9. Controller is usually concerned with the following, except
a. Reporting and interpreting
b. Tax administration
c. Protection of assets
d. Insurance
10. Treasurer is usually concerned with the following, except
a. Short-term financing
b. Credit and collection
c. Economic appraisal
d. Banking and custody
11. Which of the following describes the ethical standard of integrity?
a. Free from bias
b. Refrain from actions that will discredit the profession
c. Strive for competence and continuous improvement
d. Intellectual honesty and act in good faith
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12. All of the following are areas of MAS practice, except
a. Conducting special research
b. Introducing new concepts and methodologies
c. Marketing and public relations activities
d. Re-engineering processes, systems and policies
13. Deciding which alternative course of action is best suited to attain the set objectives is under what
management function?
a. Planning
b. Organizing
c. Controlling
d. Monitoring
14. Utilization of available resources is carried out during
a. Planning
b. Organizing
c. Controlling
d. Monitoring
15. Comparing actual performance with set plans or standards is conducted in what management function?
a. Planning
b. Organizing
c. Controlling
d. Monitoring
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