Chapter One Introduction: The Role, History, and Direction of

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1
Introduction:
The Role, History,
and Direction of
Management
Accounting
PowerPresentation® prepared by
David J. McConomy, Queen’s University
Copyright © 2004 by Nelson, a division of Thomson Canada Limited.
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Learning Objectives

Explain the need for management accounting
information.

Explain the differences between management
accounting and financial accounting.

Provide a brief historical description of
management accounting.

Identify and explain recent developments
affecting management accounting.
Copyright © 2004 by Nelson, a division of Thomson Canada Limited.
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Learning Objectives
(continued)

Describe the role of management accountants
in an organization.

Explain the importance of ethical behaviour
for managers and management accountants.

Identify the different professional accounting
designations available for management
accountants.
Copyright © 2004 by Nelson, a division of Thomson Canada Limited.
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Management Accounting
Information Systems
Economic Events
Inputs
Collecting
Measuring
Storing
Analyzing
Reporting
Managing
Processes
Special Reports
Product Costs
Customer Costs
Budgets
Performance Reports
Personal Communication
Outputs
Users
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The Management Process
The Management Process is defined by the
following activities:
– Planning
– Controlling
– Decision making
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The Management Process
(continued)
Planning requires setting
objectives and identifying
methods to achieve those
objectives.
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The Management Process
(continued)
Controlling is the managerial activity of
monitoring a plan’s implementation and taking
corrective action as needed.
Control is usually achieved with the use of
feedback, which is information that can be used
to evaluate or correct the steps being taken to
implement a plan.
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The Management Process
(continued)
Decision making is the
process of choosing
among competing
alternatives.
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Conceptual Framework of
Management Accounting

Cost Accumulation and Product Costing (Part I of Text)
– ‘Know your costs’
– The role of indirect costs

Managerial Decision Making (Part II of Text)
– ‘What difference will it make’ when a choice is to be made
between alternative courses of action?
– We assume economically-rational organizations and what is
good for the sub-unit is good for the organization as a whole.

Planning & Control Systems (Part III of Text)
– Focus on how organizations run by delegation & accountability
– Information asymmetry results in difficulty assessing goal
congruence. We assume economically rational decision makers
who have their own goals within the organization
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Comparison of Management
and Financial Accounting
Management Accounting
Financial Accounting
1. Internally focused
2. No mandatory rules
3. Financial and nonfinancial
information; subjective
information possible
4. Emphasis on the future
5. Internal evaluation and
decisions based on very
detailed information
6. Broad, multidisciplinary
1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
5. Information about the
organization as a whole
6. More self-contained
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Historical Description of
Management Accounting
1880 - 1925
Most of the product-costing and
internal accounting procedures used
in this century were developed
1925
Emphasis changes to inventory
costing for external reporting
1950s/60s
Some effort to improve the
managerial usefulness of traditional
cost systems
1980s/90s
Significant efforts have been made to
develop a new management
accounting system
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Recent Developments Affecting
Management Accounting
Activity-Based Management
 Customer Orientation

– Strategic Positioning
– Value Chain Framework
Cross-Functional
Perspective
 Global Perspective

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Current Focus of
Management Accounting II

Environmental Perspective

Total Quality Management

Time as a Competitive
Element

Efficiency

E-business
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Partial Organization Chart Manufacturing Company
President
Production
Vice-president
Production
Supervisor
Machining
Assembly
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Financial
Vice-president
Controller
Treasurer
Controller’s
Functions
Treasurer's
Functions
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Role of
Controller and
Treasurer
Controller
1. Financial reports
2. Securities commission reporting
3. Tax planning and reporting
4. Performance reporting
5. Internal auditing
6. Budgeting
7. Accounting systems and
internal controls
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Treasurer
1. Raises Cash
2. Manages Cash
3. Manages Investments
4. Credit and Collections
5. Insurance
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Management Accounting and
Ethical Conduct
Attributes of Ethical Behaviour





Honesty
Integrity
Promise Keeping
Fidelity
Fairness
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




Caring for Others
Respect for Others
Responsible Citizen
Pursuit of Excellence
Accountability
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Standards of Ethical Conduct
for Management Accountants

Competence

Confidentiality

Integrity

Objectivity
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Professional Designations

CMA-The distinguishing characteristic of the
profession is to establish management accounting as a
recognized professional discipline, separate from the
profession of public accounting.

CA- The distinguishing characteristic of the
profession is its focus on providing assurance
concerning the reliability of financial statements to
external parties.

CGA- These accountants may specialize in several
specialty fields, including management accounting.
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