STRATEGIC COST
MANAGEMENT
CHAPTER ONE
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OVERVIEW OF COST MANAGEMENT AND
STRATEGY
Strategy is a set of policies, procedures and approaches to
business that produce long-term success while strategic
management involves the development of a sustainable
competitive position. Strategic cost management involves
the development of cost management information to
facilitate the principal management function which is
strategic management.
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OVERVIEW OF COST MANAGEMENT AND
STRATEGY
Cost management information is the information that the
manager needs to effectively manage the firm, profitoriented as well as not-for-profit organization. This includes
both financial information about cost and revenues as well
as relevant nonfinancial information about productivity,
quality and other key success factors for the firm.
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OVERVIEW OF COST MANAGEMENT AND
STRATEGY
Cost management is the practice of accounting in which
the accountant develops and uses cost management
information. For competitive success, it is not enough to
emphasize only on financial information. This could lead
managers to stress cost reduction (a financial measure)
while ignoring or even lowering quality standards (a
nonfinancial measure). This decision could be a critical
mistake which could lead to the loss of customers and
market share in the long run.
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OVERVIEW OF COST MANAGEMENT AND
STRATEGY
Strategic thinking involves anticipating changes. Products
and production processes are designed to accommodate
expected changes in customer demands. Flexibility is
important. The ability to make fast changes is critical as a
result of the demand of the new management concepts of
e-commerce,
speed
to
market,
and
flexible
manufacturing.
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OVERVIEW OF COST MANAGEMENT AND
STRATEGY
Product life cycle - the time from the introduction of a new
product to its removal from the market - is expected to
become shorter and shorter. Success in the recent past
days or months is no longer a measure of ultimate success;
the manager must be “driving" the firm by using the
windshield, not the rear-view mirror.
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USERS OF COST MANAGEMENT
INFORMATION
Cost management information is useful in all organizations:
business firms, governmental units, and not-for-profit
organizations. Business firms are usually categorized by
industry, the main categories being merchandising,
manufacturing, and service.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
USERS OF COST MANAGEMENT
INFORMATION
Governmental and not-for-profit organizations provide
services, much like the firms in service industries. However,
these organizations provide the services for which no direct
relationship exists between the amount paid and the
services provided. Instead, both the nature of these
services and the customers to receive them are
determined by government or philanthropic organizations.
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COST MANAGEMENT INFORMATION
1. Strategic Management
Strategic management involves the development of
a sustainable competitive position in which the firm's
competitive advantage spells continued success. A
strategy is a set of goals and specific action plans that if
achieved, provide the desired competitive advantage.
Strategic
management
involves
identifying
and
implementing these goals and action plans.
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COST MANAGEMENT INFORMATION
1. Strategic Management
Management must make sound strategic decisions
regarding the choice of products, manufacturing methods,
marketing techniques and channels and other long-term
issues.
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COST MANAGEMENT INFORMATION
1. Strategic Management
The strategic emphasis requires an integrative
approach which combines skills from all business function,
namely,
marketing,
production,
finance
and
accounting/controllership, is necessary in a dynamic and
competitive environment.
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COST MANAGEMENT INFORMATION
2. Planning and Decision-making
Cost management information is needed to support
recurring decisions such as replacing and maintaining
equipment, managing cash flows, budgeting raw materials
purchases, scheduling production, pricing and managing
distribution of products to customers, and so forth.
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COST MANAGEMENT INFORMATION
2. Planning and Decision-making
Planning and decision-making involves budgeting
and profit planning, cash flow management and other
decisions related to the firm's operation such as deciding
whether to lease or buy a facility, whether to replace or just
repair as equipment, when to change a marketing plan or
when to begin new product development.
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COST MANAGEMENT INFORMATION
3. Management and Operational Control
Cost management information is needed to provide
a fair and effective basis for identifying inefficient
operations and to reward and motivate the most effective
manages.
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COST MANAGEMENT INFORMATION
3. Management and Operational Control
Operational Control takes place when mid-level
manages (e.g., product managers, regional managers)
monitors the activities of operating-level managers and
employers (e.g., production supervisions, department
heads). Management control on the other hand, is the
evaluation of midlevel manager by upper-level manager
(e.g., Controller or the Chief Financial Officer (CFO)).
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COST MANAGEMENT INFORMATION
4. Reportorial and Compliance to Legal Requirements
Reportorial and compliance responsibilities require
management to comply with the financial reporting
requirements to regulatory agencies such as the Securities
and Exchange Commission (SEC) Bureau of Internal
revenue (BIR), and other relevant government authorities
and agencies.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Cost Management is the practice of accounting in which
the accountant develops and uses cost management
information. This area of accountancy practice is
performed by management accountants. Management
accountants are the accounting professionals who
develop and analyze cost management information and
other accounting information.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Management Accounting involves the application of
appropriate techniques and concepts to economic data
so as to assist management in establishing plans for
reasonable economic objectives and in the making of
rational decisions with a view toward achieving these
objectives.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
It is the process of identification, measurement,
accumulation, analysis, preparation, interpretation, and
communication of financial information, which is used by
management to plan, evaluate and control activities
within an organization.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Management accountants (including cost accountants)
are concerned with providing information to managers,
that is, people inside an organization who direct and
control the operations. They provide a variety of reports.
Some reports focus on how well managers and business
units have performed while other reports provide timely
and frequent updates on key indicators, analysis of
business situation or opportunity and analytical reports that
are needed to investigate specific problems.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Management accountants at appropriate levels are
involved actively in the process of managing the entity. The
process includes making strategic, tactical and operating
decisions and helping to coordinate the efforts of the entire
organization. The management accountant participates,
as part of management, in assuring that the organization
operates as a unified whole in its long-run intermediate and
short-run best interests.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Management accounting is concerned primarily with
providing information to internal managers who are
charged with planning and controlling the operations of
the firm and making a variety of management decisions.
Generally, management accountants do the following
tasks:
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
1.
2.
3.
Scorekeeping or data accumulation which enables both internal
and external parties to evaluate organizational performance and
position.
Interpreting and reporting of information that helps manager to
focus on operating problems, opportunities as well as inefficiencies.
This is commonly associated with current planning and control and
the analysis and investigations of recurring routine internal
accounting reports to signal situations in which management
action may be required.
Problem-solving or quantification of the relative merits of possible
courses of action as well as recommendations as to the best
procedure. This is commonly associated with non-recurring
decisions.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Management accountants continually face resourceallocation decisions, such as whether to purchase a new
software package or hire a new employee. The cost
benefit approach should be used in making these
decisions: Resources should be spent if they are expected
to better attain company goals in relation to the expected
costs of those resources.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Planning
A key activity for all companies is planning. Planning
involves identifying alternatives and selecting a course of
action and specifying how the action will be implemented
to further the organization's objectives.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Control
Control of organizations is achieved by evaluating
the performance of managers and the operations for
which they are responsible. The distinction between
evaluating managers and evaluating the operations they
control is important. Managers are evaluated to determine
how their performance should be rewarded or punished,
which in turn motivates them to perform at a high level.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Control
Cost variance analysis, financial statements analysis, gross
profit variance analysis are some of the accounting control
reports used to inform managers when activities which are
part of their responsibility are deviating from the plan. The
reports used evaluate the performance of managers and
the operations they control are referred to as performance
reports.
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
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MANAGEMENT ACCOUNTANT'S ROLE IN
STRATEGIC COST MANAGEMENT
Decision Making
Should a firm add a new product? Should it drop an
existing product? Should it manufacture a component
used in assembling its major product or contract with
another company to produce the component? What price
should a firm charge for a new product? These questions
indicate just a few of the key decisions that confront
companies. And how well they make these decisions will
determine future profitability and, possibly, the survival of
the company.
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RELATIONSHIP BETWEEN COST ACCOUNTING
AND COST MANAGEMENT
Cost accounting is a systematic set of procedures for
recording and reporting measurements of the cost of
manufacturing goods and performing services in the
aggregate and in detail. It includes methods for
recognizing, classifying, allocating, aggregating and
reporting such costs and comparing them with standard
costs.
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RELATIONSHIP BETWEEN COST ACCOUNTING
AND COST MANAGEMENT
Cost Management needs the output of cost accounting. Its
purpose is to provide managers with information which aids
decision. There are no generally accepted principles which
specify how management accounting information is to be
reported. While systems such as direct costing and
standard costing exist in management accounting, each
accounting report should be tailored to the needs of the
decision and the decision maker.
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STRATEGIC DECISION AND THE COST
MANAGEMENT ACCOUNTANT
A company earns profit by attracting customers willing to
pay for the goods and services it offers. Customers
compare the goods and services offered by a company to
the same goods and services offered by other companies.
The key to a company's success is creating value for
customers while differentiating itself from its competitors.
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STRATEGIC DECISION AND THE COST
MANAGEMENT ACCOUNTANT
Identifying how a company will do this is what strategy is all
about. However, a chosen strategy is only as good as how
effectively it is implemented. The management
accountant provides input that aids in developing strategy,
building resources and capabilities, and implementing
strategy. To understand the management accountant's
role, we must first understand the manager's tasks in more
detail.
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EXERCISES
Exercise 1: Ethics in Decision Making
Assume that you are the chairman of the Department of Accountancy
at Mountain State University. One of the accounting professors in your
department, Dr. Cruz, has been consistently and uniformly regarded by
students as an awful teacher for more than 10 years. Other accounting
professors within your department have observed Dr. Cruz's classroom
teacher and they concur that his teaching skills are very poor. However,
Dr. Cruz was granted tenure 12 years ago, thereby ensuring him life-long
job security at Mountain State University. Much to your surprise, today
you received a phone call from an accounting professor at University of
Eastern Philippines. During this phone call you are informed that the
University is on the verge of making a job offer to Dr. Cruz. However,
before extending the job offer, the faculty at the University wants your
input regarding Dr. Cruz's teaching effectiveness while at Mountain
State University.
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EXERCISES
Required: How would you respond to the professor from University of
Eastern Philippines? What would you say about Mr. Cruz's teaching
ability? Would you describe your answer to this inquiry as being ethical?
Why?
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EXERCISES
Exercise 2: Ethics and Decision Making
Assume that you just completed a December weekend vacation
to a resort within the Entertainment City in Pasay City. During your
trip you won P100,000 gambling. When the casino exchanged
your chips for cash they did not record any personal information,
such as your driver's license number or social security number.
Four months later while preparing your tax returns for the prior
year, you stop to contemplate the fact that the Bureau of
Internal Revenue requires taxpayers to report all gambling
winnings on Form XXX.
Required: Would you report your gambling winnings to the
Bureau of Internal Revenue so that you could pay income taxes
on those winnings? Do you believe that your actions are ethical?
Why?
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STRATEGIC COST
MANAGEMENT
CHAPTER TWO
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Many of the activities constituting the field of management
accounting are interrelated and thus must be coordinated,
ranked and implemented by the management
accountant in such a fashion as to meet the objectives of
the organization as perceived by him or her.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
A major function of the management accountant is that of
tailoring the application of the process to the organization
so that the organization's objectives, short-term and longterm, are achieved effectively.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Management accounting is intended to include persons
involved in such functions as controllership, treasury,
financial analysis, planning, and budgeting, cost
accounting, internal audit, systems, and general
accounting. Management accountants thus may have
titles as controller, treasurer, budget analyst, cost analyst,
and accountant, among others.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Line authority is the authority to command action or give
orders to subordinates.
Line managers are directly responsible for attaining the
objectives of the business firm as efficiently as possible.
• Sales and production managers typically have line
authority.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Staff authority is the authority to advise but not command
others; it is exercised laterally or upward. Staff managers
give support, advice and service to line departments.
• Examples of staff authority are found in personnel,
purchasing, engineering and accounting.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
THE CHIEF FINANCIAL OFFICER AND THE CONTROLLER
The chief financial officer (CFO) - also called the finance
director in many countries – is the executive responsible for
overseeing the financial operations of an organization. The
responsibilities of the CFO vary among organizations, but
they usually include the following areas:
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
● Controllership - includes providing financial information
for reports to managers and reports to shareholders and
overseeing the overall operations of the accounting
system.
● Treasury - includes banking and short and long-term
financing, investments, and management of cash.
● Risk management – includes managing the financial risk
of interest-rate and exchange-rate changes and
derivatives management.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
● Taxation – includes income taxes, sales taxes, and
international tax planning
●
Internal audit - includes reviewing and analyzing
financial and other records to attest to the integrity of the
organization's financial reports and to adherence to its
policies and procedures.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
The controller (also called the chief accounting officer) is
the
financial
executive
primarily
responsible
for
management accounting and financial accounting.
Modern controllers do not do any controlling in terms of line
authority except over their own departments.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Yet, the modern concept of controllership maintains that
the controller does control in a special sense. That is, by
reporting and interpreting relevant data (problem- solving
and attention-directing roles), the controller exerts a force
or influence that impels management toward making
better-informed decisions.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Controllership is the practice of the established science of
control which is the process by which management assures
itself that the resources are procured and utilized
according to plans in order to achieve the company's
objectives.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
The controller is an integral part of the top management
team. If one wants a high accounting skills but also skills
required of all high-level executives. These skills include
excellent written and oral communication skills, solid
interpersonal skills and a deep knowledge of the industry in
which the firm competes.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
Basic Functions of Controllership
The basic principal functional responsibilities and activities
of controllership may be categorized as follows:
1. Planning. Establish and maintain an integrated plan of
operation consistent with the company's goals and
objectives, both short and long term, analyzed and
revised, as required, communicated to all levels of
management, with appropriate systems and procedures
installed.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
2. Control. Develop and revise standards against which to
measure performance and provide guidance and
assistance to other members of management in ensuring
conformance of actual results to standards.
3. Reporting. Prepare, analyze, and interpret financial
results for utilization by management in the decisionmaking process, evaluate the data with reference to
company and unit objectives; prepare and file external
reports as required to satisfy government regulatory bodies,
shareholders, financial institutions, customers, and the
general public.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
4.
Accounting. Design, establish, and maintain general
and cost accounting systems at all company evels,
including corporate, divisional, plant, and unit to
properly record all financial transactions in the books of
accounts and records in accordance with sound
accounting principles with adequate internal control.
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ORGANIZATION STRUCTURE AND THE
MANAGEMENT ACCOUNTANT
4.
Other Primary Responsibilities. Manage and supervise
such functions as taxes, including interface with the
respective taxing authorities and agents; maintain
appropriate relationships with internal and external
auditors; develop and maintain systems and
procedures; develop record retention programs;
supervise assigned treasury functions; institute investor
and financial public relations programs; office
management; and direct other assigned functions.
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THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
Treasurership is concerned with the acquisition, financing
and management of assets of a business concern to
maximize the wealth of the firms for its owners.
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THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
In addition to the position of the controller, many
companies have a position called treasurer. The treasurer
has custody of cash and funds invested in various
marketable securities.
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THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
In addition to money management duties, the treasurer is
other creditors. Thus, the treasurer plays a major role in
managing cash and marketable securities, preparing cash
forecasts and obtaining financing from banks and other
lenders. Both the controller and the treasurer report to the
chief financial officer (CFO) who is the senior executive
responsible for both accounting and financial operations.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
In most firms the treasurer has the following responsibilities:
1. Funds Procurement
This involves raising of funds in accordance with the firms
planned capital structure. This responsibility may require
negotiating for loans, short-term or long-term, issuing equity
of debt instruments at the best terms and conditions
possible.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
2. Banking and Custody of Funds
This involves direct management of cash and cash
equivalents and maintenance of good relations with banks
and other non-bank institution.
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THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
3. Investment of Funds
This involves management of the company's placements
and securities or purchase of debt or equity instruments
such as ordinary or preference shares in other corporate
entities. This responsibility also includes analysis of decisions
related to investment in property, plant and equipment.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
THE CHIEF FINANCIAL OFFICER AND THE
TREASURER
4. Operating Responsibilities related to
a. Credit and Collection
b. Inventory Management
c. Corporate pension and retirement fund
d. Insurance
e. Compliance with legal and regulatory provisions
relating to funds procurement, use and
f. Distribution as well as coordination of the finance
function with accounting function.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
The Institute of Management Accountants (IMA) of the
United States has developed a very useful ethical code
called the Standards of Ethical Conduct for Practitioners of
Management Accounting and Financial Management.
Even though the standards were specifically developed for
management accountants, they have much broader
application.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Code of Conduct for Management Accountants
The Institute of Management Accountants (IMA) issued the
Standards of Ethical Conduct for Practitioners of
Management Accounting and Financial Management.
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ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
The first part provides general guidelines for ethical
behavior. In a nutshell, the management accountant has
ethical responsibilities in four broad areas namely
1.
2.
3.
4.
to maintain a high level of professional competence,
to treat sensitive matters with confidentiality,
to maintain personal integrity, and
to be objective in all disclosing.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
The second part of the standards gives specific guidance
concerning what should be done if an individual finds
evidence of ethical misconduct within an organization.
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ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
The ethical standards provide sound, practical advice for
management accountants and managers. They require
professional behavior, especially in avoiding conflicts of
interest. They require management accountants to bring
bad news to the attention of their supervisors, and to work
competently.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Practitioners of management accounting and financial
management have an obligation to the public, their
profession, the organization they serve, and themselves, to
maintain the highest standards of ethical conduct. In
recognition of this obligation, the Institute of Management
Accountants has promulgated the following standards of
ethical conduct for practitioners of management
accounting and financial management.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Competence. Practitioners of management accounting
and financial management have a responsibility to:
● Maintain an appropriate level of professional
competence by ongoing development of their knowledge
and skills.
● Perform their professional duties in accordance with
relevant laws, regulations, and technical standards.
●
Prepare
complete
and
clear
reports
and
recommendations after appropriate analysis of relevant
and reliable information.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Confidentiality. Practitioners of management accounting
and financial management have a responsibility to:
● Refrain from disclosing confidential information acquired
in the course of their work except when authorized, unless
legally obligated to do so.
●
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.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Confidentiality. Practitioners of management accounting
and financial management have a responsibility to:
● 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.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Integrity. Practitioners of management accounting and
financial management have a responsibility to:
● Avoid actual or apparent conflicts of interest and advise
all appropriate parties of any potential conflict.
●
Refrain from engaging in any activity that would
prejudice their ability to carry out their duties ethically
● Refuse any gift, favor, or hospitality that would influence
or would appear to influence their actions.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Integrity. Practitioners of management accounting and
financial management have a responsibility to:
● Refrain from either actively or passively subverting the
attainment of the organization's legitimate and ethical
objectives.
● Recognize and communicate professional limitations or
other constraints that would preclude responsibility
judgment or successful performance of an activity.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Integrity. Practitioners of management accounting and
financial management have a responsibility to:
●
Communicate unfavorable as well as favorable
information and professional judgments or opinions. Refrain
from engaging in or supporting any activity that would
discredit the profession.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Objectivity. Practitioners of management accounting and
financial management have a responsibility to:
●
Communicate information fairly and objectively.
●
Disclose fully all relevant information that could
reasonably be expected to influence an intended user's
understanding
of
the
reports,
comments,
and
recommendations presented.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Resolution of Ethical Conflict.
In applying the standards of ethical conduct, practitioners
of management accounting and financial management
may encounter problems in identifying unethical behavior
or in resolving an ethical conflict. When faced with
significant ethical issues, practitioners of management
accounting and financial management should follow the
established policies of the organization bearing on the
resolution of such conflict.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
COMPANY CODE OF CONDUCT
Ethical standards serve a very important practical function
in an advanced market economy. Without widespread
adherence to ethical standards, material living standards
would fall. A former president of CMA emphasizes the
importance of ethics in business:
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ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
COMPANY CODE OF CONDUCT
“Employees like to work for a company that they can trust.
Customers like to deal with an ethically reliable business.
Suppliers like to sell to firms with which they can have a real
partnership. Communities are more likely to cooperate with
organizations that deal honestly and fairly with them. If the
business community is to function effectively, all of the
players need to act ethically."
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ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
COMPANY CODE OF CONDUCT
It is unfortunate though, that some companies place so
much emphasis on short-term profits that may make it
seem like the only way to get ahead is to act unethically.
Those who engage in unethical behavior often justify their
actions with one or more of the following reasons:
1. the organization expects unethical behavior,
2. everyone else is unethical, and/or
3. behaving unethically is the only way to get ahead.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
COMPANY CODE OF CONDUCT
To counter the first justification for unethical behavior,
many companies have adopted formal ethical codes of
conduct. These codes are generally broad-based
statements of a company's responsibilities to its employees,
its customers, its suppliers and the community in which the
company operates.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
COMPANY CODE OF CONDUCT
Codes give broad guidelines rather than that spell out
specific do's and don'ts or suggest proper behavior in a
specific situation. Companies with a strong code of ethics
can create strong customer and employee loyalty.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
TYPICAL ETHICAL CHALLENGES
Case A. Roger Cruz, a management accountant, knows that
reporting a loss for a software division will result in yet another
series of layoffs, and has concerns about the commercial
potential of software for which R&D costs are currently being
capitalized as an asset rather than being shown as an expense
for internal reporting purposes. The division manager argues that
the new product will be successful and profitable but presents
little evidence to support her argument. The last two products
from this division have been unsuccessful. The management
accountant has many friends in the division and wants to avoid a
personal confrontation with the division manager.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
TYPICAL ETHICAL CHALLENGES
Case B: A packaging supplier, bidding for a new contract,
offers the management accountant of the purchasing
company an all-expense paid weekend to the Boracay
Resort. The supplier does not mention the new contract
when giving the invitation. The accountant is not a
personal friend of the supplier. He knows cost issues are
critical in approving the new contract and is concerned
that the supplier will ask for details about bids by
competing packaging companies.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
TYPICAL ETHICAL CHALLENGES
Case B: A packaging supplier, bidding for a new contract,
offers the management accountant of the purchasing
company an all-expense paid weekend to the Boracay
Resort. The supplier does not mention the new contract
when giving the invitation. The accountant is not a
personal friend of the supplier. He knows cost issues are
critical in approving the new contract and is concerned
that the supplier will ask for details about bids by
competing packaging companies.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
CODES OF CONDUCT ON THE INTERNATIONAL LEVEL
In July 1990, the International Federation of Accountants
(IFAC) in which the Philippines through the PICPA is a
member, issued the “Guidelines on Ethics for Professional
Accountants" which governs the activities of all professional
accountants throughout the world; regardless of whether
they are practicing as independent CPAs, employed in
government service or employed as internal accountants.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
INTERNATIONAL CERTIFICATIONS
The three certifications available to management
accountants are as follows:
● Certificate of Management Accounting (CMA) .
● Certificate in Public Accounting (CPA)
● Certificate in Internal Auditing (CIA)
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
INSTITUTE
OF
MANAGEMENT
ACCOUNTANTS
(IMA)
The IMA is a professional organization that publishes the
monthly magazine Strategic Finance. Since 1973, the IMA
has conducted a comprehensive examination to test the
knowledge a management accountant must have to be
successful in a complex and fast-changing business world.
Those who pass the exam are issued a Certificate in
Management Accounting and are proud to indicate the
designation CMA on resumes and business cards.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
PHILIPPINE ASSOCIATION OF MANAGEMENT ACCOUNTANTS
(PAMA)
To
propagate
and
professionalize
Management
Accounting in the Philippines, PAMA conducts the
Certificate in Management Accounting (CMA) Program
through its continuing education arm, the Philippine
Institute of Management Accounting (PIMA). Basic
objectives of the program are:
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ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
PHILIPPINE ASSOCIATION OF MANAGEMENT ACCOUNTANTS
(PAMA)
1. To establish management accounting as a recognized
profession by identifying the role of the management
accountant and the underlying body of knowledge, and
by outlining a course of study by which such knowledge
can be acquired.
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use.
ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
PHILIPPINE ASSOCIATION OF MANAGEMENT ACCOUNTANTS
(PAMA)
2. To foster higher educational standards in the field of
management
accounting
3. To assist employees, educators and students by
establishing an objective measure of an individuals'
knowledge and competence in the field of management
accounting.
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EXERCISE
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