OBJECTIVES, ROLE AND SCOPE OF MANAGEMENT ACCOUNTING
Management Accounting Review
/RCROQUE
BASIC MANAGEMENT FUNCTIONS AND CONCEPTS
MANAGEMENT ACCOUNTING FUNCTION
➢
The management accounting function exists to provide information to decision-makers, and to
provide advice based on information that is provided.
➢
The information provided by management accounting covers all areas of strategy and operations, and
includes information to assist with planning, control, and other decision-making by
management.
➢
The role of the management accountant today is more concerned with providing complex analysis
and information to support business management than with providing routine reports, since much
routine work is now computerized.
➢
Developments in technology have also made it easier to provide accounting information to nonfinancial managers. At the same time, the areas covered by management accounting have extended
and broadened to include strategic information and non-financial information, and information to
support risk management. Developments in technology have also made it easier to provide
accounting information to non-financial managers.
MANAGEMENT ACCOUNTING ROLE IN CROSS-FUNCTIONAL TEAMS
➢
In some organizations, the cost and management accounting function may be organized as a
functional section or department within the organization.
However, because management
accountants provide information to other managers, it has become common to include management
accountants within cross-functional teams, or to assign them to work with non-accounting functions.
➢
A cross-functional team is a small group of individuals, with different expertise, taken from many
different parts and levels of an organization, which comes together to work towards a common
purpose or goal. The size of cross-functional team will vary according to the scale and complexity of
the project.
➢
Benefits of cross-functional teams include: (1) improved coordination and integration of systems or
activities, (2) problem-solving across traditional functional or organizational boundaries, (3) facilitate
innovation and product/service development.
MANAGEMENT OBJECTIVES OF THE ACCOUNTING FUNCTION
➢
The objectives of the management accounting function within an organization should depend on the
information needs of the ‘internal customers’ – the managers who need information to help them to
run the business. The overall objective should be the provision of a quality service, but this broad
objective can be analyzed into a number of sub-objectives.
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Sub-objective
The provision of
good information
Detail
This requires supplying information that fulfils the following criteria. Information
must be relevant to the needs of users. This involves identifying the users of
information and the reasons why they need it. Information can only ever be
relevant if it has a purpose and a use.
Information should be reliable. It should be sufficiently accurate for its
purpose. For example, it should be free from material error and should not be
taken from an unreliable source. Unless information is reliable, management will
not have sufficient confidence to use it.
Information should be timely, which means that it should be provided in time
for the purpose for which it is intended. Information has no value if it is
provided too late. Some information, such as information provided for control
purposes, may lose value with time, so that it is better to provide the information
sooner rather than later.
The provision of a
value-for-money
service
The availability of
informed
personnel
Flexibility
Information should be clear, comprehensible, and appropriately
communicated, since it will lose its value if it is not clearly communicated to
the user in a suitable format and through a suitable medium. A large amount of
management accounting information should be accessible immediately and online to authorize managers.
The costs of management accounting should be justified by the benefits that the
function provides to the organization, and the level of service and the
quality of information provided.
Users will expect management accounting staff to be available to answer
queries and resolve problems as and when required.
The management accounting function should be flexible in its response to
user requests for information and reports.
DISTINCTION AMONG MANAGEMENT ACCOUNTING,
COST ACCOUNTING, AND FINANCIAL ACCOUNTING
MANAGEMENT ACCOUNTING
➢
The process of identification, measurement, accumulation, analysis, preparation, interpretation, and
communication of information (both financial and operating) used by management to plan, evaluate
and control within an organization and to assure use of and accountability for its resources (Financial
and Management Accounting Committee of the International Federation of Accountants, 1989).
➢
An activity that provides financial and non-financial information to an organization’s managers and
other internal decision makers.
COST ACCOUNTING
➢
A technique or method for determining the cost of a project, process, or thing. This cost is
determined by direct measurement, arbitrary assignment, or systematic and rational allocation.
FINANCIAL ACCOUNTING
➢
The process of producing financial statements for external users such as shareholders, creditors,
government authorities, and other external users.
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FINANCIAL ACCOUNTING VS. MANAGEMENT ACCOUNTING
1. Users and
decision
makers
2. Purpose of
information
3. Restrictions
4. Timeliness
Financial Accounting
Shareholders,
Investors,
Creditors,
Government and its agencies (i.e.,
Regulatory bodies, tax authorities, etc.),
and other users external to the
organization.
Assist external users in making
investment, credit, and other business
decisions.
Regulated;
restricted
and
often
controlled by GAAP; uses PFRS.
Often available only after an audit is
complete; delayed and/or historical in
nature; focus on historical information
with some predictions.
5. Scope of
information
Highly aggregate; report/emphasis on
entire organization.
6. Type of
information
Monetary
information;
measurements only.
7. Area of
knowledge and
discipline
Focuses on accounting and finance.
8. Others
Focuses on the process of preparing the
financial statements; precision.
financial
Management Accounting
Managers, employees, and decision
makers internal to the organization.
Assist managers in making planning and
control decisions.
No regulations; does not adhere to
GAAP; does not use PFRS.
Available quickly without the need to
wait for an audit; current and/or future
oriented; many projections/forecasts and
estimates;
historical
information
presented.
Disaggregate; reports are segmentized;
emphasis on organizations projects,
processes, and subdivisions.
Mostly monetary but no-nmonetary
information; financial plus operational
and
physical
measurements
on
processes,
technologies,
suppliers,
customers and competitors.
Multi-disciplinary, deals with other areas
of knowledge and disciplines (e.g.,
statistics,
mathematics,
economics,
marketing,
engineering,
operations
research, psychology, physics, geometry,
logic, ethics, etc.)
Concerns with the usefulness of financial
statements; timeliness.
FINANCIAL ACCOUNITNG VS. COST ACCOUNTING
1. Objective
2. Nature
3. Recording of
data
4. Users of
information
5. Analysis of costs
and profits
6. Time period
7. Presentation of
information
Financial Accounting
Provides information about financial
performance and financial position of
the business at a specific point in time.
Classifies
records,
presents,
and
interprets transactions in terms of
money.
Records historical data.
External users such as shareholders,
creditors, financial analysts, bank and
other
financial
intermediaries,
government and its agencies, etc.
It shows profit/loss of the organization.
They are prepared for a definite period,
usually a year.
A set format is used for presenting
financial information.
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Cost Accounting
Provides information of ascertainment of
costs to control costs and for decisionmaking about the costs.
Classifies, records, presents, and
interprets in a significant manner about
materials, labor, and overhead costs.
Records
and
presents
estimated,
budgeted data. It makes use of both
historical costs and predetermined
costs.
Used by internal management at
different levels.
Provides details of costs and profit of
each product, process, job, etc.
They are prepared as and when
required.
There are no set formats for presenting
cost information.
ROLE AND ACTIVITIES OF CONTROLLER AND TREASURER
CONTROLLER
➢
A financial officer responsible for accounting and control and deals with records, systems, and
processes to attain the objectives of internal controls and good managing.
➢
In essence, a financial controller is the head accountant of the company. He supervises other
accountants and oversees the preparation of financial statements such as the statement of financial
position, statement of comprehensive income, cash flow statements, and statement of shareholders’
equity.
➢
The basic functions of a controller are as enumerated:
1. Planning and controlling
2. Reporting
3. Evaluating and consulting
4. Government relations, compliance, and reporting
5. Economic appraisal
6. Tax planning and administration
TREASURER
➢
He serves as the protector of a company’s value and finances from financial risks that arise from
business activities. Traditionally, he is under the accounting department, but has now branched out
into a new segment which is known as the corporate treasury management.
➢
He deals with money, cash, or wealth of an organization.
exercises prudence in using the money of an organization.
➢
The basic functions of a treasurer are as enumerated:
He knows the sources of money and
1. Cash flow management:
a. Operating – credit and collection
b. Investing – investments
c. Financing – capital provision, investor relations, short-term financing, banking and custody
2. Risk management – insurance
INTERNATIONAL CERTIFICATIONS IN MANAGEMENT ACCOUNTING
INTERNATIONAL CERTIFICATIONS IN MANAGEMENT ACCOUNTING
➢
➢
➢
Certified Public Accounting (CPA)
Certified Management Accountant (CMA) *
Certified Financial Manager (CFM) *
* These are not “licenses”, per se, but do represent significant competency in management accounting
and financial management skills. These certifications are sponsored by the Institute of Management
Accountants.
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Test 1. TRUE OR FALSE QUESTIONS.
________ 1.
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________ 9.
________ 10.
________ 11.
________ 12.
________ 13.
________ 14.
________ 15.
________ 16.
________ 17.
________ 18.
________ 19.
________ 20.
________ 21.
________ 22.
________ 23.
________ 24.
________ 25.
________ 26.
________ 27.
________ 28.
________ 29.
________ 30.
________ 31.
Management accounting places less emphasis on precision and more emphasis on
flexibility and relevance than financial accounting.
Management accounting is not governed by generally accepted accounting principles
(GAAP).
Financial accounting and management accounting reports must be prepared in
accordance with generally accepted accounting principles (GAAP).
When carrying out their directing and motivating activities, managers mobilize the
organization's human and other resources so that the organization's plans are carried
out.
When carrying out planning activities, managers rely on feedback to ensure that the plan
is actually carried out and is appropriately modified as circumstances change.
When carrying out their directing and motivating activities, managers select a course of
action and specify how the action will be implemented.
Persons occupying staff positions provide support and assistance to other parts of the
organization.
Staff departments generally have direct authority over line departments in an
organization.
Informal relationships and channels of communication often develop that do not appear
on the organization chart.
The controller's position in a retail company is considered a line position rather than a
staff position.
The chief financial officer of an organization should present facts and refrain from offering
advice and personal opinion.
A strategy is a game plan that enables a company to attract customers by distinguishing
itself from competitors.
Management accounting generally focuses on reporting information about the enterprise
in its entirety rather than by sub-units.
There are no rules and regulations associated with management accounting since the
information is intended solely for use within the firm.
Management accountants are primarily found at the higher levels of the organizational
hierarchy.
Cross-functional teams involve bringing together individuals from a variety of different
fields (marketing, design, accounting, production, purchasing, and human resources) for
an "interdisciplinary approach" to addressing management issues.
The day-to-day work of management teams will typically comprise planning, decisionmaking, controlling, directing operational activities and cost minimizing.
Decision-making involves a detailed financial and operational description of anticipated
operations.
Planning is the function that is the most directly related to management by objectives.
When carrying out their directing and motivating activities, managers select a course of
action and specify how the action will be implemented.
When carrying out controlling activities, managers rely on feedback to ensure that the
plan is actually carried out and is appropriately modified as circumstances change.
Economic events are the raw data for financial accounting but not for management
accounting.
Generally accepted accounting principles (GAAP) govern both financial accounting and
management accounting.
Management accounting places more emphasis on precision and less emphasis on
flexibility and relevance than financial accounting.
Since there are few rules to restrict how an organization chooses to arrange its own
internal data for decision-making, management accounting provides ample opportunity
for creativity and change.
Management accounting is a subset of both cost and financial accounting.
The cost concept is fundamental in both management and financial accounting, that is,
they both make use of different cost concepts for different purposes.
Management accounting information includes both historical and estimated data.
A staff department or unit is one that provides services, assistance, and advice to the
departments with line or other staff responsibilities.
Line departments generally have direct authority over staff departments in an
organization.
Deciding the best level of inventory to be maintained is normally performed by
management accountants.
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________ 32. The corporate treasurer is the officer responsible for the firm’s accounting activities, such
as corporate accounting, tax management, financial accounting, and cost accounting.
________ 33. The corporate controller is the officer responsible for the firm’s financial activities such as
financial planning and fund raising, making capital expenditure decisions, and managing
cash, credit, the pension fund, and foreign exchange.
________ 34. The corporate treasurer’s focus tends to be more external, while the controller’s focus is
more internal.
________ 35. A controller normally assumes a narrow role within the organization, often preventing the
individual's rise to top management ranks.
Test 2. MULTIPLE CHOICE QUESTIONS.
1.
Manage accounting places considerable weight on
A. Generally accepted accounting principles.
B. The financial history of the entity.
C. Ensuring that all transactions are properly recorded.
D. Detailed segment reports about departments, products, and customers.
2.
The plans of management are often expressed formally in
A. Financial statements.
C. Budgets.
B. Performance reports.
D. Ledgers.
3.
Which of the following managerial functions involves a detailed financial and operational description
of anticipated operations?
A. Planning
B. Measuring
C. Controlling
D. Decision making
4.
The phase of accounting concerned with providing information to managers for use in planning and
controlling operations and in decision-making is called
A. Throughput time
C. Financial accounting.
B. Management accounting.
D. Controlling.
5.
A staff position
A. Relates directly to the carrying out of the basic objectives of the organization.
B. Is supportive in nature, providing service and assistance to other parts of the organization.
C. Is superior in authority to a line position.
D. None of the choices.
6.
For a manufacturing company, what type of position (line or staff) is each of the following?
A.
B.
C.
D.
Manager of a Data Processing Department
Staff
Staff
Line
Line
Manager of a Production Department
Staff
Line
Staff
Line
7.
A _______________ position in an organization is directly related to the achievement of the
organization's basic objectives.
A. Line
C. Staff
B. Management
D. None of the choices.
8.
______________ is an example of a line position.
A. Controller
for
a
merchandising
company
B. Chief
financial
officer
of
a
merchandising company
9.
C. Store manager for Best Buy
D. Human resources manager for a
community college
The process of creating a formal plan and translating goals into a quantitative format is
A. Budgeting.
D. Value-added analysis.
B. Benchmarking.
E. Activity-based costing.
C. Cost-benefit analysis.
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10.
The field of accounting that depends on generally accepted accounting principles (GAAP) is called
A. Cost accounting.
D. Responsibility accounting.
B. Financial accounting.
E. International accounting.
C. Management accounting.
11.
Which field of accounting emphasizes relevance over comparability?
A. Cost accounting.
C. Responsibility accounting.
B. Financial accounting.
D. International accounting.
12.
Management accounting is an integral part of the management process. As such, it provides
essential information for the following objectives, except
A. Maintaining the current level of resource utilization as well as internal and external
communication.
B. Measuring and evaluation of performance.
C. Planning strategies and controlling current activities of the organization.
D. Enhancing objectivity in decision-making.
13.
In order to be useful to managers, management accounting reports should possess all of the
following characteristics, except
A. Be provided at any time management needs information.
B. Provide objective measures of past operations and subjective estimates about future decisions.
C. Be prepared in accordance with generally accepted accounting principles.
D. Be prepared to report information for any unit of the business to support decision-making.
14.
Which of the following statements about management accountants is false?
A. In a number of companies, management accountants make significant business decisions and
resolve operating problems.
B. An increasing number of organizations are segregating management accountants in separate
management accounting departments.
C. Management accountants often are part of cross-functional teams.
D. Management accountants more and more are considered "business partners."
15.
Management accounting places considerable focus on
A. The financial history of the business.
B. Generally accepted accounting principles (GAAP).
C. Ensuring that all transactions are properly recorded.
D. Detailed segment reports about departments, products, and customers.
16.
The concept of “management by exception” refers to management’s
A. Consideration of only rare events.
B. Considerations of items selected at random.
C. Ignorance of the reasons of variations from standards.
D. Consideration of only those items which vary materially from plans.
17.
Which activity is normally performed by management accountants?
A. Assisting managers to interpret data in management accounting reports.
B. Designing systems to provide information for internal and external reports.
C. Gathering data from sources other than the accounting system.
D. All of the choices.
18.
Romy Company has set various goals, and management is now taking appropriate action to ensure
that the firm achieves these goals. One is to reduce outlays for overhead, which have exceeded
budgeted amounts. Which of the following functions best describes this process?
A. Decision-making
C. Controlling
B. Planning
D. Organizing
19.
Which of the following is not an objective of management accounting?
A. Providing information for decision-making and planning
B. Assisting in directing and controlling operations
C. Motivating managers toward the organization's goals
D. None of the choices.
20.
The process of encouraging and authorizing workers to take appropriate initiatives to improve the
overall firm is commonly known as
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A.
B.
C.
D.
21.
Employee empowerment.
Planning and control.
Decision-making.
Problem recognition and solution.
What term is used to describe the process of developing the organization’s objectives and goals?
A. Supervising
B. Decision-making
C. Planning
D. None of the choices.
22. To distinguish between management accounting and financial accounting, the following statements
are correct, except
A. Financial accounting is bound by generally accepted accounting principles (GAAP) while
management accounting need not to conform to GAAP.
B. Financial accounting can be regarded as the process while management accounting can be
regarded as the product of that process.
C. Management accounting, in view of its various integrated recipients, should have a separate
data recording and retrieval system from financial accounting.
D. Management accounting output must be released on time so as not to erode its usefulness;
financial accounting output can still be used even when delayed.
23.
Which of the following would likely be considered an internal user of accounting information rather
than an external user?
A. Lenders
B. Stockholders
C. Consumer groups
D. Middle-level managers
24.
The person most likely to use management accounting information is
A. Government taxing authority.
B. Shareholders.
C. Assembly department supervisor.
D. Lenders.
25.
Which of the following is most associated with financial accounting?
A. Can have both objective and subjective information.
B. Prepared in accordance with generally accepted accounting principles (GAAP).
C. Can be prepared periodically, or as needed.
D. Can be prepared for the entity or segment.
26.
Which of the following statements is false?
A. There is an overlap between financial and management accounting.
B. Management accounting does not need to conform to generally accepted accounting principles
(GAAP).
C. Management accounting sometimes relies on past information.
D. None of the choices.
27.
Which of the following influences the frequency of an internal report?
A. The wishes of the managers receiving the report
B. The frequency with which decisions are made that require the information in the report
C. The cost of preparing the report
D. All of the choices.
28.
The following are among the controller’s traditional functions, except
A. Tax management.
B. Financial reporting and interpretation.
C. Credit management.
D. Planning for control.
29.
Which of the following is not a function of the treasurer?
A. Safeguarding assets
B. Managing investments and the related interest and dividend income
C. Computation of the amount of taxes to be paid
D. Being responsible of an entity’s credit policy
30.
All of the following are correct concerning line and staff position functions, except
A. Both line and staff position functions are depicted on the organization chart.
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B. Line functions are directly related to the basic objectives of an organization.
C. Persons occupying staff functions have authority over persons occupying the functions.
D. None of the above.
31.
Which type of authority do management accountants generally exercise?
A. Functional
B. Company
C. Line
D. Staff
32.
A controller is normally involved with
A. Managing investments.
B. Safeguarding assets.
C. Managing the firm's credit policy.
D. Preparing financial statements.
33.
Which of the following statements is false?
A. Customer satisfaction is an example of financial information.
B. Organizational leadership plays a critical role in fostering an organization’s culture of high
ethical standards.
C. Information is never neutral, just the act of measuring and reporting information affects the
individuals involved.
D. Management accounting gathers short-term, long-term, financial and non-financial information.
34.
Which of the following statements refers to financial accounting information?
A. The reports are generally delayed and historical.
B. The audience tends to be shareholders, creditors, and tax authorities.
C. The scope tends to be highly aggregate.
D. All of the choices.
35.
The professional certification most relevant for management accountants is the
A. CMA.
B. CPA.
C. CSA.
D. MAS
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