Chapter 1
Introduction to
Management
Accounting
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Definition of Accounting and
its Users
The American Accounting Association define accounting
as:
 the process of identifying, measuring and communicating
economic information to permit informed judgements
and decisions by users of the information.
The users of accounting information can be divided into
two categories:
(i) internal users within the organization (management
accounting);
(ii) external parties outside the organization (financial
accounting).
Needs of Management
Financial accounting is concerned with
reporting financial information to external
parties, such as stockholders, creditors, and
regulators.
Managerial accounting is concerned with
providing information to managers within an
organization so that they can formulate plans,
control operations, and make decisions.
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Differences between Management
Accounting and Financial Accounting
Statutory requirement for limited companies to produce annual financial accounts,
whereas there it is optional for management accounting.
Financial accounting reports describe the whole of the business, whereas management
accounting focuses on reporting information for different parts of the business.
Financial accounting reports must be prepared in accordance with generally accepted
accounting principles (e.g. the International Financial Reporting Standards Board).
Financial accounting reports historical information, whereas management accounting
places greater emphasis on reporting estimated future costs and revenues.
Management accounting reports are produced at more frequent intervals.
The Decision-making, Planning and
Control Process
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6
The Impact of the Changing
Business Environment on
Management Accounting
 Global competition
 Changing product life cycles
 Advances in manufacturing technologies
 The impact of information technology
 Environmental and sustainability issues
 Pressures to adopt higher standards of
ethical behaviour
 Deregulation and privatization
 Focus on value creation
 Customer orientation
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Focus on Customer Satisfaction and
New Management Approaches
To compete successfully in today’s environment,
companies should focus on providing customer
satisfaction by concentrating on:
Cost efficiency (increased emphasis on
accurate product costs and cost management)
Quality control (TQM, quality reporting)
Time management (customer response time,
on-time delivery, eliminating non-value-added
activities)
Innovation and continuous improvement
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Functions of Management
Accounting
A cost and management accounting system should
generate information to meet the following:
 allocate costs between products sold, and fully and
partly completed products that are unsold;
 provide relevant information to help managers make
better decisions;
 provide information for planning, control,
performance measurement and continuous
improvement.
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Thank you