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MANAGEMENT ACCOUNTING
Objectives:

1. To understand what is management and its function

2. To understand what is Management Accounting
3. To differentiate Management Accounting vs. Financial Accounting
4. To differentiate line function vs. Staff Function
5. To understand what is Controllership
6. To differentiate Controller vs. Treasurer
7. To define what is Financial Management
8. To understand the role of Financial Managers
9. To understand basic principles in Managerial Finance
10. To understand the Standards of Ethical Conduct for Management Accountants

MANAGEMENT- Is the process of planning, organizing, and controlling tasks to realize the
objectives of the organization.

BASIC MANAGEMENT FUNCTIONS

• PLANNING - setting immediate and long-term objectives.

- deciding which alternative is best suited to attain the set objectives.

• ORGANIZING - deciding how to utilize available resources as plans are carried out.
- tackling activities necessary to achieve objectives such as staffing,
subordinating, directing and motivating.

• CONTROLLING - comparing actual performance with set plans or standards.

- deciding what corrective actions to take should there be any
deviation (variance) between actual and planned performance.

Decision-making is an inherent function of management; all management functions would

require a certain level of decision-making, which makes management accounting
information useful in all stages of management.

MANAGEMENT BY OBJECTIVES
The management process in which subordinate and supervisor agree on goals and
the methods of achieving them and develop a plan in accordance with that agreement. The
subordinate is them evaluated with reference to the agreed plan at the end of the project.
MANAGEMENT BY EXEPTION
The management technique of highlighting those which vary significantly from plans
and standards in line with the management principle that executive time should spent on
items that are non-routine and are identified as top priority.

MANAGEMENT ACCOUNTING

The discipline of providing accounting information that is useful in making

managerial decisions about planning, organizing and controlling business operations. It is a
provision of financial data and advice to a company for use in the organization and
development of its business. Also, the practice of identifying, measuring, analyzing,
interpreting, and communicating financial information to managers for the pursuit of an
organization's goals.

NATURE OF MANAGEMENT ACCOUNTING

• Provides Information: As we have mentioned above, management accounting

means to provide information to different levels of management. It’s necessary to
represent the information in a proper way to meet the managerial requirements.

• Cause and Effect Analysis: One of the main distinctive features of managerial
accounting from financial accounting is that it reviews the cause and effect
relationship, while the financial accounting only focuses on determining the profit
and loss. Managerial accounting explores the reasons behind loss and profit and
analyzes their effect.

• Special Techniques and Concepts: Management accounting utilizes special

techniques and concepts in order to make accounting information more useful and
functional for the management team. These techniques include standard costing,
marginal costing, financial planning and analyses, budgetary control, cash flow, and
so on.

• Decision Making: We have already highlighted, that the main goal of management
accounting is to provide the information to the management team in order to
facilitate the decision-making process for them.

• Objectives: Managerial accounting is very useful in determining the objectives and

forming plans for the future. It’s done based on analyzing the historical information
and comparing it to the current situation. The managers get the appropriate idea
about the performance of several departments and they make some necessary
changes if there are any deviations of actuals when they evaluate the past results.
 • No Fixed Rules: although financial accounting has various established rules and
conventions in providing financial accounts there are any such norms for managerial
accounting. The techniques and tools are the same for both of them, but how you
use those techniques depends on the concern and situation.

SCOPE OF MANAGEMENT ACCOUNTING

• Enhance Efficiency • Cost Accounting

• Provides Data Not Decisions • Reporting
• Financial Accounting • Internal Audit
• Forecasting and Budgeting • Financial Management

MANAGEMENT ACCOUNTING vs. FINANCIAL ACCOUNTING

Financial Accounting Management Accounting

User of information Exclusively for internal users
Primarily for external users
(management)
Guiding Principle Generally Accepted Accounting
Management wants and needs
Principle
Optional/Mandatory Mandatory
Discretionary or optional
(especially for public entities)
Type of Information Primarily monetary (financial) in
Monetary and non-monetary
nature
Emphasis of Report Reliability (precision of data) Relevance (timeliness of data)
Purpose/End Result Financial reporting and Management decision-making
compliance
Source of data From company’s (internal) info From internal and external
system sources
Amount of detail Compressed and simplified Extensive and detailed
Focus of Information Focus mainly on business as a Focus on segments and
whole business as a whole
Frequency Periodic (annually, quarterly) As frequent as the need arises
Time Orientation Mainly historical (past) data Future-oriented using current
and past data
Unifying Model Assets = Liabilities + Equity No unifying model or equation

CONTROLLERSHIP
The practice of the established science of control, which is the process by which
management assures itself that company resources are obtained and utilized according to
plans that are in line with company’s set objectives.
CONTROLLER – the company official responsible for the accounting aspect of management
control. It is a title given to a person holding the position of a chief management accounting
executive. In many business texts and literatures, the controller is often referred to as the
‘chief accountant’

LINE FUNCTION vs. STAFF FUNCTION

LINE function - the authority to give command or orders to subordinates; it exercises direct
downward authority over line departments (e.g., VP for operations over
operations manager).

STAFF function – the authority to advise but not to command others -- the function of
providing line and staff managers with specialized service and technical
advice for support; it is exercised laterally or upward.

The controller primarily exercises a staff function as the controller’s office gives advice and
service to other departments and to entire organization as a whole; however, in an
accounting department headed by the controller, the controller has a line authority over
subordinates within the department.

CONTROLLER vs. TREASURER

To avoid incompatible duties being assigned to a single officer, a controller (recording
function) must not hold at the same time the position of a treasurer (custody function).
Consider the following:

Controller Treasurer
Financial Reporting Provision of Capital
Tax Administration Investor Relations
Government Accounting Short Term Financing
Accounting Information System Banking and Custody
Cost and Management Accounting Credit and Collections
Financial Analysis and Special Studies Investments
Protection of Assets and Economic Appraisal Insurance

FINANCIAL MANAGEMENT
Concerns the duties of the financial manager, who is responsible for making significant
corporate investment and financing decisions. Modern managerial finance theory works
under the premise that the primary goal of the firm is to maximize shareholders’ wealth,
rather than to maximize profit. The financial manager acts in the shareholders’ best interests
by making decisions that maximize the market value of the company stocks.
ROLE OF FINANCIAL MANAGERS

The role of a financial manager may include, but is not limited to, the following tasks:
• Financial analysis and planning. Determining the proper amount of funds to employ
in the firm through liquidity and profitability analysis of the company’s financial
statements. (related topics: budgeting, financial statement analysis and additional
funds needed)
• Investment decisions. Selecting the best projects in which to invest firm resources,
based on consideration of risks and returns. (related topic: capital budgeting)
• Financing and capital structure decisions. Outsourcing company funds (mix of debt
and equity financing) to support firm’s operations and investment programs. (related
topic: costs of capital)
• Management of financial resources. Managing the firm’s current assets and source
of short-term credit in the most efficient manner. (related topic: working capital
management)
• Risk management. Managing the firm’s exposure to all types of risk. (related topics:
leverage, risks and returns)
No single person is tasked for all the responsibilities of a financial manager. These tasks are
dispersed throughout the firm. In large firms, financial responsibilities are usually carried
out by the treasurer and/or the controller while the chief financial officer (CFO) usually
oversees their work.

BASIC PRINCIPLES IN MANAGERIAL FINANCE

Most techniques and tools in finance are based on the following theoretical principles:
• Risk-return trade-off: a company does not take additional risks unless it expects to
be compensated with additional returns.
• Time value of money: a peso received today is worth more than a peso received in
the future.
• Cash – not profit – is king.
• Incremental cash flows: it’s only what changes that counts.
• Tax consideration: virtually all financial decisions are influenced by the effect of
taxes.
• Ethical behavior – doing the right thing – is always relevant.

STANDARDS OF ETHICAL CONDUCT FOR MANAGEMENT ACCOUNTANTS

1. Competence
• Maintain an appropriate level of professional expertise by continually developing
knowledge and skills.
 • Perform professional duties in accordance with relevant laws, regulations, and
technical standards.
• Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
• Recognize and communicate professional limitations or other constraints that would
preclude responsible judgment or successful performance of an activity.

Confidentiality
• Keep information confidential except when disclosure is authorized or legally
required.
• Inform all relevant parties regarding appropriate use of confidential information.
Monitor subordinates' activities to ensure compliance.
• Refrain from using confidential information for unethical or illegal advantage.

Integrity
• Mitigate actual conflicts of interest; regularly communicate with business associates
to avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
• Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
• Abstain from engaging in or supporting any activity that might discredit the
profession.

Credibility
• Communicate information fairly and objectively.
• Disclose all relevant information that could reasonably be expected to influence an
intended user's understanding of the reports, analyses, or recommendations.
• Disclose delays or deficiencies in information, timeliness, processing, or internal
controls in conformance with organization policy and/or applicable law

In applying the Standards of Ethical Professional Practice, you may encounter problems
identifying unethical behavior or resolving an ethical conflict. When faced with ethical
issues, you should follow your organization's established policies on the resolution of such
conflict. It suggests steps in resolving ethical conflict: discuss it with immediate supervisor
first, bring up to the next management level if unresolved, talk to an IMA advisor, or
consulting a lawyer in case of a legal offense.