Quick Guide
Chapter 1
Chapter highlights: This chapter provides an understanding of what is meant by managerial
accounting; who uses managerial accounting information; the difference between financial and
managerial accounting; key players in company’s organization structure; and the role of
management accountants.
These learning objectives are summarized below:
1) What is ‘managerial accounting’?
Managerial accounting is the process of providing accounting information to help managers make
decisions.
2) The difference between financial and managerial information.
The following table summarizes the important differences between financial and managerial
accounting
Users
Primary accounting
product
Purpose
Content and presentation
Underlying basis of
information
Type of information
Frequency of reports
Verification
Financial Accounting
External users: creditors,
investors, tax authorities
Financial statements
Help make
investment/lending decisions.
Follows GAAP
Retrospective: report on past
performance.
Financial
Quarterly / annually
External auditor
Managerial Accounting
Internal users such as managers
Internal accounting reports
(e.g. cost reports).
Help plan, direct, and control
operations and make decisions.
No prescribed rules
Primarily prospective: forward
looking.
Financial/non-financial
As needed
Not externally audited
3) Describe a company’s typical organizational structure and identify main players in a
corporation.
A public corporation is owned by shareholders who elect a board of directors to manage the
company on their behalf. The board hires the CEO who manages the company on a daily basis and
sets company’s strategic objectives. The CEO hires the COO who is responsible for all company’s
operations and the CFO for all financial matters. The controller prepares managerial and financial
accounting reports. The treasurer is responsible for investing and raising funds. The internal
auditor reviews company’s risk management and internal controls processes and reports to the
audit committee which provides oversight of the financial reporting process including reviewing
the work of the external auditor.
4) Distinguish between traditional and contemporary roles of managerial accountants.
Traditionally, managerial accountants’ role was confined to providing information to departmental
managers to make decisions. They were physically separated as their role was limited to
scorekeeping or number-crunching. Contemporarily, they serve on cross-functional teams with
other members of the value chain to tackle a decision problem collectively so they’re taking an
active role in the decision making process.