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An electronic
presentation by
Douglas Cloud
Pepperdine University
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Task Force Clip Art
included in this electronic
presentation is used with
the permission of New
Vision Technology of
Nepean Ontario, Canada.
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CHAPTER
Introduction:
The Role,
History, and
Direction of
Management
Accounting
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Objectives
1. Discuss the need for management accounting
After studying this
information.
chapter, you should
2. Differentiate between management accounting
be able to:
and financial accounting.
3. Provide a brief historical description of
management accounting.
4. Identify the current focus of management
accounting.
Continued
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Objectives
5. Describe the role of management accountants in
an organization.
6. Explain the importance of ethical behavior for
managers and management accountants.
7. List three forms of certification available to
management accountants.
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The managerial accounting system has three
broad objectives:
1. To provide information for costing out
services, products, and other objects of
interest to management.
2. To provide information for planning,
controlling, evaluating, and continuous
improvement.
3. To provide information for decision
making.
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Management Accounting
Information System
Economic Events
Collecting
Measuring
Storing
Analyzing
Reporting
Managing
Special Reports
Product Costs
Customer Costs
Budgets
Performance Reports
Personal Communication
Inputs
Processes
Outputs
Users
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Management Process
The Management Process is defined by the
following activities:
Planning
Controlling
Decision Making
Planning requires
setting objectives
and identifying
methods to achieve
those objectives.
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Management Process
The Management Process is defined by the
following activities:
Controlling is
Planning
Controlling
Decision Making
the managerial
activity of
monitoring a
plan’s
implementation
and taking
corrective action
as needed.
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Management Process
The Management Process is defined by the
following activities:
Planning
Controlling
Decision Making
Control is
usually achieved
with the use of
feedback.
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Management Process
Feedback is information
that can be used to evaluate
or correct the steps being
taken to implement a plan.
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Management Process
The Management Process is defined by the
following activities:
Planning
Controlling
Decision Making
Decision
making is
the process
of choosing
among
competing
alternatives.
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Differentiate Between
Management Accounting and
Financial Accounting
Management Accounting
1. Internally focused
Financial Accounting
1. Externally focused
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Targeted Users
Management
accounting
focuses on
providing
information for
internal users.
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Targeted Users
ABC
Company
Annual
Report
Financial
accounting focuses
on provided
information for
external users.
Management Accounting
1. Internally focused
2. No mandatory rules
Financial Accounting
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1. Externally focused
2. Must follow externally
imposed rules
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Restrictions on Inputs and Processes
Management
accounting
is not subject
Financial accounting
reporting
must
to the
of generally
follow
therequirements
accounting procedures
set by
accepted
accounting
principles.
the SEC
and the FASB.
Management Accounting
1. Internally focused
2. No mandatory rules
3. Financial and
nonfinancial information; subjective
information possible
Financial Accounting
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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
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Types of Information
ForThe
management
restrictionsaccounting,
imposed onthe
financial
financialaccounting
or nonfinancial
tend to
produce
information
objective
may be
and
much
verifiable
more
financial
subjective
information.
in nature.
Management Accounting
1. Internally focused
2. No mandatory rules
3. Financial and
nonfinancial information; subjective
information possible
4. Emphasis on the future
Financial Accounting
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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
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Time Orientation
Management
accounting strongly
emphasizes providing
information about
future events.
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Time Orientation
Financial
accounting records
and reports events
that have already
happened.
Management 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
detail information
Financial Accounting
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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
5. Information about the
firm as a whole
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Degree of Aggregation
Management
accounting provides
measures and internal
reports used the
evaluate performance of
entities, product lines,
departments, and
managers.
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Degree of Aggregation
Financial
accounting focuses
on overall firm
performance.
Management 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
detail information
6. Broad, multidisciplinary
Financial Accounting
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1. Externally focused
2. Must follow externally
imposed rules
3. Objective financial
information
4. Historical orientation
5. Information about the
firm as a whole
6. More self-contained
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Breadth
It includes aspects of managerial
Management accounting is much
economics, industrial engineering,
broader than financial accounting.
and management science.
Historical Description of
Management Accounting
1880 - 1925
Most of the product-costing and internal
accounting procedures used in this century
were developed
1925
Emphasis of inventory costing for external
reporting
1950s/60s
Effort to improve the managerial usefulness
of traditional cost systems
1980s/90s
Significant efforts have been made to
radically change the nature and practice of
management accounting
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Current Focus of Management Accounting
Activity-Based Management
Activity-based management is a system
wide, integrated approach that focuses
management’s attention on activities with the
objective of improving customer value and
the resulting profit.
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Current Focus of Management Accounting
Customer Orientation
Customer value is the difference between
what the customer receives (customer
satisfaction) and what the customer gives up
(customer sacrifice).
What is received is called the total product.
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Current Focus of Management Accounting
Strategic Positioning
Strategic cost management is the use of cost data
to develop and identify superior strategies that
will produce a sustainable competitive advantage.
Strategies:
1) Cost leadership
2) Superior products through differentiation
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Current Focus of Management Accounting
Value-Chain Framework
The internal value chain is the set of activities
required to design, develop, produce, market,
and deliver products and services to customers.
The industrial value chain is the linked set of
value-creating activities from basic raw
materials to the disposal to the final products by
end-use customers.
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Planting and
Cultivating
Value Chain:
Apple Industry
Harvesting
Firm
B
Distribution of
Apples
Firm
A
Applesauce
Production
Product Disposal
Applesauce
Distribution
End-Use Customer
Supermarkets
Firm
C
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Managing the value chain means
that a management accountant
must understand many functions
of the business, from
manufacturing to marketing.
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This emphasis on quality has
created a demand for management
The philosophy of total quality
accounting systems that provide
management is to manufacture
financial and nonfinancial
perfect products.
information about quality.
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The role of
management
accountants in an
organization is one
of support.
Partial Organization Chart,
Manufacturing Company
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President
Line Function
Staff Function
Production
Vice President
Financial
Vice President
Production
Supervisor
Machining
Foreman
Assembly
Foreman
Controller
Internal
Audit
Cost
Financial
Treasurer
Systems
Ta
x
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Ethical
Behavior
Michael Josephson’s* Ten Ethical Values:
Honesty
Caring for others
Integrity
Respect for others
Promise keeping
Fidelity
Responsible
citizenship
Fairness
Pursuit of excellence
Accountability
*Michael Josephson, “Teaching Ethical Decision Making and Principled
Reasoning”
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Professional Certifications
CMA: One of the main purposes of the CMA was to establish
management accounting as a recognized, professional
discipline, separate from the profession of public
accounting.
CPA: The responsibility of a CPA is to provide assurance
concerning the reliability of financial statements.
CIA: The focus of the CIA is to recognize competency in
internal auditing rather than external auditing as with
the CPA.
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The CMA
Four areas emphasized on the exam:
1) Economics, finance, and management
2) Financial accounting and reporting
3) Management report, analysis, and behavioral
issues
4) Decision analysis and information systems
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Chapter One
The End
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