ACC312: INTRODUCTION TO MANAGEMENT ACCOUNTING

STUDY UNIT 1: Basic Management Functions and Concepts

CPALE Syllabus Covered
1.0 Management Accounting
1.1 Objectives, role and scope of management accounting
1.1 Basic management functions and concepts
1.2 Distinction among management accounting, cost accounting and financial
accounting
1.3 Roles and activities of controller and treasurer
1.4 International certifications in management accounting
1.5 Global trends in management accounting

I.I.I Basic management functions and concepts

Management advisory services refer to the function of providing professional
advisory (consulting) services, the primary purpose of which is to improve the
client's use of its capabilities and resources to achieve the objectives of the
organization.

Top level planning: also known as overall or strategic planning, top level planning
is done by the top management, i.e., board of directors or governing body. It
encompasses the long-range objectives and policies or organization and is concerned
with corporate results rather than sectional objectives

Strategic alliances are agreements between two or more independent companies to

cooperate in the manufacturing, development, or sale of products.

A corporate-level strategy is when a business makes a decision that affects the

whole company. A corporate-level strategy affects a company's finances, management,
human resources, and where the products are sold.

Operational strategies refer to the methods companies use to reach their objectives.
By developing operational strategies, a company can examine and implement effective
and efficient systems for using resources, personnel and the work process.

Basic Functions of Management

1. PLANNING
It is the basic function of management. It deals with chalking out a future course
of action & deciding in advance the most appropriate course of actions for
achievement of pre-determined goals. According to KOONTZ, "Planning is deciding in
advance - what to do, when to do & how to do. It bridges the gap from where we are
& where we want to be". A plan is a future course of actions. It is an exercise in
problem solving & decision making. Planning is determination of courses of action
to achieve desired goals. Thus, planning is a systematic thinking about ways &
means for accomplishment of pre-determined goals. Planning is necessary to ensure
proper utilization of human & non-human resources. It is all pervasive, it is an
intellectual activity and it also helps in avoiding confusion, uncertainties, risks,
wastages etc.

2. ORGANIZING
It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational
goals. According to Henry Fayol, "To organize a business is to provide it with
everything useful or it’s functioning i.e., raw material, tools, capital and
personnel's". To organize a business involves determining & providing human and
non-human resources to the organizational structure. Organizing as a process
involves:
➢ Identification of activities.
➢ Classification of grouping of activities.
➢ Assignment of duties.
➢ Delegation of authority and creation of responsibility.
➢ Coordinating authority and responsibility relationships.

3. STAFFING
It is the function of manning the organization structure and keeping it manned.
Staffing has assumed greater importance in the recent years due to advancement of
technology, increase in size of business, complexity of human behavior etc. The
main purpose of staffing is to put right man on right job i.e., square pegs in
square holes and round pegs in round holes. According to Kootz & O'Donell,
"Managerial function of staffing involves manning the organization structure through
proper and effective selection, appraisal & development of personnel to fill the
roles designed un the structure". Staffing involves:
 • Manpower Planning (estimating man power in terms of searching, choose the
person and giving the right place).
• Recruitment, Selection & Placement.
• Training & Development.
• Performance Appraisal.
• Promotions & Transfer.

4. DIRECTING
It is that part of managerial function which actuates the organizational methods
to work efficiently for achievement of organizational purposes. It is considered
life- spark of the enterprise which sets it in motion the action of people because
planning, organizing and staffing are the mere preparations for doing the work.

Direction is that inert-personnel aspect of management which deals directly with

influencing, guiding, supervising, motivating sub-ordinate for the achievement of
organizational goals. Direction has following elements:
• Supervision
• Motivation
• Leadership
• Communication

Supervision- implies overseeing the work of subordinates by their superiors. It is

the act of watching & directing work & workers.

Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal

to work. Positive, negative, monetary, non-monetary incentives may be used for this
purpose.

Leadership- may be defined as a process by which manager guides and influences the
work of subordinates in desired direction.

Communications- is the process of passing information, experience, opinion etc.

from one person to another. It is a bridge of understanding.

5. CONTROLLING
It implies measurement of accomplishment against the standards and correction of
deviation if any to ensure achievement of organizational goals. The purpose of
controlling is to ensure that everything occurs in conformities with the standards.
An efficient system of control helps to predict deviations before they actually
occur.

According to Theo Haimann, "Controlling is the process of checking whether or not

proper progress is being made towards the objectives and goals and acting if
necessary, to correct any deviation". According to Koontz & O'Donell "Controlling
is the measurement & correction of performance activities of subordinates in order
to make sure that the enterprise objectives and plans desired to obtain them as
being accomplished". Therefore, controlling has following steps:

1) Establishment of standard performance.

2) Measurement of actual performance.
3) Comparison of actual performance with the standards and finding out deviation
if any.
4) Corrective action.

1.1.2 DISTINCTION AMONG MANAGEMENT ACCOUNTING, COST ACCOUNTING AND FINANCIAL

ACCOUNTING
Seven key differences between managerial accounting and financial accounting as
noted by IMA

1. Financial reports are for external users. Managerial accounting reports are
for internal users. Financial reports are intended to be submitted to
government regulatory bodies such as BIR and SEC, while managerial accounting
reports are intended for decision makers such as management in different
levels.

2. Financial accounting summarizes past transactions. Managerial accounting has

a strong emphasis on the future. The end product of financial accounting is
the Financial Statements which is a summary of all of a company's transactions.
Managerial accounting analyzes the Financial Statements to predict future
operations. Moreover, Managerial accounting involves lots of decision making
whose results will materialize only in the future.
 3. Financial accounting data should be objective and verifiable. Managerial
accounting data should be relevant. Financial accounting must abide with the
financial characteristics of objectivity which means that for every
transaction there is a corresponding treatment as required by the financial
accounting standards. Verifiable means information presented in the Financial
Statements can be determined using different approaches such as the Direct
and Indirect method of Statement of Cashflows. While relevance means,
information is useful decision making.

4. Financial accounting focuses on precision. Managerial accounting focuses on

timeliness of information. Financial statements are subject to audit before
it is released to the intended users. In contrast, timeliness is an important
element to keep information relevant.

5. Financial accounting is concerned with reporting for a company as a whole.

Managerial accounting focuses on segments of a company such as product lines,
sales territories, divisions, and departments. Periodic Financial Statements
are always prepared for the entire operations of the company. In contrast,
managerial accounting

6. Financial accounting must conform to generally accepted accounting principles

(GAAP). Managerial accounting is not bound by GAAP. The financial accounting
standards require that the Financial Statements should comply with the
reporting standards. In contrast, managerial accounting reports are intended
for internal users, hence the reports are tailor fitted to the needs of the
decision maker and the situation to be resolved.

7. Financial accounting is mandatory, Managerial accounting is not. The financial

reporting principle of Periodicity or Time Periods require a complete set of
financial statements should be prepared during the life of a business entity.
Unlike with managerial accounting, reports are prepared only when the need
arises.

Financial Accounting vs. Cost Accounting

A key difference between the financial accounting system and the cost management
accounting system is the targeted user. Financial accounting provides information
for external users such as investors, creditors, and regulators. Financial
information assists external users with business decisions centering on a variety
of issues such as the purchase and sale of stock, issuance of loans, etc. Cost
management has an internal focus. Cost management identifies, collects, measures,
classifies, and reports information that is used by managers for costing purposes,
planning, controlling, and decision making.

Cost accounting attempts to satisfy costing objectives for both financial and
management accounting. Management accounting is concerned specifically with how
cost information and other financial and nonfinancial information should be used
for planning, controlling, and decision making. Both the cost management information
system and the financial accounting information system are part of the total
accounting information system.

1.1.3 ROLES AND ACTIVITIES OF CONTROLLER AND TREASURER

Treasurership and Controllership Compared:

In essence, a financial controller is the head accountant of the company. They

supervise other accountants and oversee the preparation of financial reports, such
as income statements and balance sheets. The treasurer serves as the protector of
a company's value and finances from financial risks that arises from business
activities. Traditionally, a treasurer is under the accounting department, but has
now branched out into a new segment which is known as the corporate treasury
management.

Treasurer Controller
1. Provision of Capital 1. Planning and control
2. Investor relation 2. Reporting and interpreting
3. Short-term financing 3. Evaluating and consulting
4. Banking and custody 4. Tax administration
5. Credits and collection 5. Government reporting
6. Investments 6. Protection of assets

Roles and Activities

l. Strategic Decisions

Key to a company's success in creating value for customers while differentiating

itself from its competitors
Strategic planning is the process of documenting and establishing a direction of
your small business—by assessing both where you are and where you're going. The
strategic plan gives you a place to record your mission, vision, and values, as
well as your long-term goals and the action plans, you'll use to reach them.

The five stages of the process are goal-setting, analysis, strategy formation,
strategy implementation and strategy monitoring.

1) Clarify Your Vision

The purpose of goal-setting is to clarify the vision for your business. This stage
consists of identifying three key facets: First, define both short- and long-term
objectives. Second, identify the process of how to accomplish your objective.
Finally, customize the process for your staff, give each person a task with which
he can succeed. Keep in mind during this process your goals to be detailed, realistic
and match the values of your vision. Typically, the final step in this stage is to
write a mission statement that succinctly communicates your goals to both your
shareholders and your staff.

2) Gather and Analyze Information

Analysis is a key stage because the information gained in this stage will shape the
next two stages. In this stage, gather as much information and data relevant to
accomplishing your vision. The focus of the analysis should be on understanding the
needs of the business as a sustainable entity, its strategic direction and
identifying initiatives that will help your business grow. Examine any external or
internal issues that can affect your goals and objectives. Make sure to identify
both the strengths and weaknesses of your organization as well as any threats and
opportunities that may arise along the path.

Analysis is a key stage because the information gained in this stage will shape the
next two stages. In this stage, gather as much information and data relevant to
accomplishing your vision. The focus of the analysis should be on understanding the
needs of the business as a sustainable entity, its strategic direction and
identifying initiatives that will help your business grow. Examine any external or
internal issues that can affect your goals and objectives. Make sure to identify
both the strengths and weaknesses of your organization as well as any threats and
opportunities that may arise along the path.

3) Formulate a Strategy
The first step in forming a strategy is to review the information gleaned from
completing the analysis. Determine what resources the business currently has that
can help reach the defined goals and objectives. Identify any areas of which the
business must seek external resources. The issues facing the company should be
prioritized by their importance to your success. Once prioritized, begin formulating
the strategy. Because business and economic situations are fluid, it is critical
in this stage to develop alternative approaches that target each step of the plan.

4) Implement Your Strategy

Successful strategy implementation is critical to the success of the business
venture. This is the action stage of the strategic management process. If the
overall strategy does not work with the business' current structure, a new structure
should be installed at the beginning of this stage. Everyone within the organization
must be made clear of their responsibilities and duties, and how that fits in with
the overall goal. Additionally, any resources or funding for the venture must be
secured at this point. Once the funding is in place and the employees are ready,
execute the plan.

5) Evaluate and Control

Strategy evaluation and control actions include performance measurements,
consistent review of internal and external issues and making corrective actions
when necessary. Any successful evaluation of the strategy begins with defining the
parameters to be measured. These parameters should mirror the goals set in Stage
1. Determine your progress by measuring the actual results versus the plan.

Mission vs. Vision

A Mission Statement defines the company's business, its objectives and its approach
to reach those objectives. A Vision Statement describes the desired future position
of the company. Elements of Mission and Vision Statements are often combined to
provide a statement of the company's purposes, goals and values. However, sometimes
the two terms are used interchangeably.
Sources of Competitive Advantage
Michael Porter's Three Generic Strategies
Porter called the generic strategies "Cost Leadership" (no frills),
"Differentiation" (creating uniquely desirable products and services) and "Focus"
(offering a specialized service in a niche market). He then subdivided the Focus
strategy into two parts: "Cost Focus" and "Differentiation Focus."

The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as
they could be interpreted as meaning "a focus on cost" or "a focus on
differentiation."

Remember that Cost Focus means emphasizing cost-minimization within a focused

market, and Differentiation Focus means pursuing strategic differentiation within
a focused market.

1) The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage — in other
words, developing the "edge" that gets you the sale and takes it away from your
competitors. There are two main ways of achieving this within a Cost Leadership
strategy:
Increasing profits by reducing costs, while charging industry-average prices.
Increasing market share by charging lower prices, while still making a reasonable
profit on each sale because you've reduced costs. Remember that Cost Leadership is
about minimizing the cost to the organization of delivering products and services.
The cost or price paid by the customer is a separate issue!

The Cost Leadership strategy is exactly that — it involves being the leader in
terms of cost in your industry or market. Simply being amongst the lowest-cost
producers are not good enough, as you leave yourself wide open to attack by other
low-cost producers who may undercut your prices and therefore block your attempts
to increase market share.
The greatest risk in pursuing a Cost Leadership strategy is that these sources of
cost reduction are not unique to you, and that other competitors copy your cost
reduction strategies. This is why it's important to continuously find ways of
reducing every cost. One successful way of doing this is by adopting the Japanese
Kaizen philosophy of "continuous improvement. "

2) The Differentiation Strategy

Differentiation involves making your products or services different from and more
attractive than those of your competitors. How you do this depends on the exact
nature of your industry and of the products and services themselves, but will
typically involve features, functionality, durability, support, and also brand
image that your customers value.

To make a success of a Differentiation strategy, organizations need:

Good research, development and innovation. The ability to deliver high-quality
products or services. Effective sales and marketing, so that the market understands
the benefits offered by the differentiated offerings.

Large organizations pursuing a differentiation strategy need to stay agile with

their new product development processes. Otherwise, they risk attack on several
fronts by competitors pursuing Focus Differentiation strategies in different market
segments.

3) The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and,
by understanding the dynamics of that market and the unique needs of customers
within it, develop uniquely low-cost or well-specified products for the market.
Because they serve customers in their market uniquely well, they tend to build
strong brand loyalty amongst their customers. This makes their particular market
segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will
pursue Cost Leadership or Differentiation once you have selected a Focus strategy
as your main approach: Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success
of a generic Focus strategy is to ensure that you are adding something extra
as a result of serving only that market niche. It's simply not enough to focus on
only one market segment because your organization is too small to serve a broader
market (if you do, you risk competing against better-resourced broad market
companies' offerings).

The "something extra" that you add can contribute to reducing costs (perhaps through
your knowledge of specialist suppliers) or to increasing differentiation (though
your deep understanding of customers' needs).

A not-for-profit can use a Cost Leadership strategy to minimize the cost of getting
donations and achieving more for its income, while one pursuing a Differentiation
strategy will be committed to the very best outcomes, even if the volume of work
it does, as a result, is smaller. Local charities are great examples of organizations
using Focus strategies to get donations and contribute to their communities.

II. Identifying and Building Resources and Capabilities

1) Strategic analysis: matching knowledge of marketplace opportunities and
threats with company's resources and capabilities. Apply the principles of
environmental scanning. A common tool used is the Strength, Weakness,
Opportunity, Threats (SWOT) Analysis. Management creates strategies that
matches its Strength to overcome the weaknesses, and utilized the
opportunities to mitigate threats. Michael Porter's 5 competitive forces and
Boston Consulting Group (GGC) share-growth matrix are useful tools for
environmental scanning.

2) Balance sheet information about assets

a. Current resources- this are indented to give management and idea of the
company's liquidity. There is a trade-off between liquidity and profitability.
If a company wants to be liquid, most of its assets are in current assets
sacrificing investments and long-term productive assets needed to generate
profits. This area will be fully discussed in Financial Management.
I. Cash adequacy
II. Inventory management

b. Long-term productive assets: important strategic decisions for the right

investments. Long-term assets are needed to support operating activities to
sustain long- term profitability. This are capital goods needed to produce
the final product or services offered by the company.
I. Analyze trends and measure efficiencies- this is intended to determine
long-term trends on the proper utilization of company resources to
generate revenues and profits.

II. Develop network of relationships with customers and suppliers. This

involves efficient logistics management. The company has a steady
flow of materials or goods that are needed in production that are
converted into finished goods. After production, goods are delivered
to customers on a timely manner. The objective is to minimize customer
waiting time to attain customer satisfaction.

III. Identify financial and nonfinancial costs and benefits associated

with alternative choices. Financial data are measurable in terms of
money such as revenues or profits. Examples of non-financial data are
percentage of customer complaints, percentage of defective goods over
good units. Non-financial data are important in attaining operational
efficiency. Decision making involves an analysis of both quantitative
and qualitative information. Quantitative information affect short-
run.

Michael Porter's 5 Competitive Forces

Porter's Five Forces is a model that identifies and analyzes five competitive forces
that shape every industry and helps determine an industry's weaknesses and
strengths. The Five Forces model can help businesses boost profits, but they must
continuously monitor any changes in the five forces and adjust their business
strategy.

1. Competition in the Industry

This refers to the number of competitors and their ability to offer goods or
services at a lower price than the company. The larger the number of competitors,
along with the number of equivalent products and services they offer, the lesser
the power of a company. Suppliers and buyers seek out a company's competition if
they are able to offer a better deal or lower prices. Conversely, when competitive
rivalry is low, a company has greater power to charge higher prices and set the
terms of deals to achieve higher sales and profits.

2. Potential of New Entrants into an Industry

A company's power is also affected by the force of new entrants into its market.
The less time and money it cost for a competitor to enter a company's market and
be an effective competitor, the more an established company's position could be
significantly weakened. An industry with strong barriers to entry is ideal for
existing companies within that industry since the company would be able to charge
higher prices and negotiate better terms.

3. Power of Suppliers
The next factor in the five forces model addresses how easily suppliers can drive
up the cost of inputs. It is affected by the number of suppliers of key inputs of
a good or service, how unique these inputs are, and how much it would cost a company
to switch to another supplier. The fewer suppliers to an industry, the more a
company would depend on a supplier. As a result, the supplier has more power and
can drive up input costs and push for other advantages in trade. On the other hand,
when there are many suppliers or low switching costs between rival suppliers, a
company can keep its input costs lower and enhance its profits.

4. Power of Customers
The ability that customers have to drive prices lower or their level of power is
one of the five forces. It is affected by how many buyers or customers a company
has, how significant each customer is, and how much it would cost a company to find
new customers or markets for its output. A smaller and more powerful client base
means that each customer has more power to negotiate for lower prices and better
deals. A company that has many, smaller, independent customers will have an easier
time charging higher prices to increase profitability.

5. Threat of Substitutes
The last of the five forces focuses on substitutes. Substitute goods or services
that can be used in place of a company's products or services pose a threat.
Companies that produce goods or services for which there are no close substitutes
will have more power to increase prices and lock in favorable terms. When close
substitutes are available, customers will have the option to forgo buying a
company's product, and a company's power can be weakened.

Understanding Porter's Five Forces and how they apply to an industry, can enable a
company to adjust its business strategy to better use its resources to generate
higher earnings for its investors.

BCG Growth-Share Matrix

The Boston Consulting Group (BCG) growth-share matrix is a planning tool that uses
graphical representations of a company's products and services in an effort to help
the company decide what it should keep, sell, or invest more in.

Understanding Porter's Five Forces and how they apply to an industry, can enable a
company to adjust its business strategy to better use its resources to generate
higher earnings for its investors.

a) Dogs (or Pets)

If a company's product has a low market share and is at a growth rate of growth,
it is considered a "dog" and should be sold, liquidated, or repositioned. Dogs,
found in the lower right quadrant of the grid, don't generate much cash for the
company since they have low market share and little to no growth. Because of this,
dogs can turn out to be cash traps, tying up company funds for long periods of
time. For this reason, they are prime candidates for divestiture.

b) Cash Cows
Products that are in low-growth areas but for which the company has a relatively
large market share are considered "cash cows," and the company should thus
milk the cash cow for as long as it can. Cash cows, seen in the lower left quadrant,
are typically leading products in markets that are mature.

c) Stars
Products that are in high growth markets and that make up a sizable portion of that
market are considered "stars" and should be invested in more. In the upper left
quadrant are stars, which generate high income but also consume large amounts of
company cash. If a star can remain a market leader, it eventually becomes a cash
cow when the market's overall growth rate declines.

d) Question Marks
Questionable opportunities are those in high growth rate markets but in which the
company does not maintain a large market share. Question marks are in the
upper right portion of the grid. They typically grow fast but consume large amounts
of company resources. Products in this quadrant should be analyzed frequently and
closely to see if they are worth maintaining.

III. Role in Implementing Strategy

A. Implementing strategy: managers taking action by using planning and control
systems to help the collective decisions of an organization
1) Planning- This stage involves setting the company's specific targets for
attaining long term goal.
a) Thinking process- this involves annual strategic planning session to
determine progress of attainment of long-term goals. It involves review of
what was attained and what needs to be attained.
i. Selecting organization goals- this process involves matching the
company's strengths and opportunities to succeed in the market place.
ii. Predicting results under various alternatives of achieving those goals-
these deals with identifying desired outcomes it plans materialize.
iii. Deciding how to attain desired goals- this involves formulating
operational plans that is supposedly intended to attain desired
results.

b) Communicating goals and how to attain them to entire organization. Top

level management uses the planning phase as a communication tool to cascade
long- term plans of the company to lower-level managers and rank and file.
This is intended to attain goal congruence, that is everyone in the
organization is geared towards the attainment of one common goal.
2) Control
a. Taking actions to implement the planning decisions. It involves actual
implementation of plans to make sure that desired outcomes are attained.
This step involves overseeing day to day activities to motivate
employees and guide them on what needs to be done.

b. Deciding on performance evaluation. This involves critical success

areas that must be achieved from the individual employee until
attainment of the company's Mission and Vision. The basis of performance
evaluation are the minimum standards that are set by the company. It
has to be specific, measurable, attainable, realistic, and time bound
to become a basis of performance evaluation.

3) Feedback: linking planning and control to help future decision making. This
process involves analysis of plans against actual achievements. This is the
basis of rewarding good performers and creating corrective actions for
deficiencies. Feedback is very important for the next planning session.

B. Supporting managers by providing information to improve strategic, planning, and

control decisions

1. Three roles of management accountants for success

a. Problem solving: comparative analysis for decision making. It is the role
of the managerial accountant to help top level management identify its
primary problem. After doing so, the managerial accountant helps in
formulating solutions that will resolve the problem of the client. The
managerial accountant can only give suggestions, top level management has
the sole discretion to decide for the company.

b. Scorekeeping: accumulating data and reporting reliable results. This is

the process of gathering relevant information that is needed in decision
making. It is a basic skill for a managerial accountant to identify
information that is needed to a peculiar issue that must be resolved. The
relevance of information depends on the issue at hand. What is relevant in
another situation may not be relevant in another situation.

c. Attention directing: helping managers properly focus their attention.

Managerial accountants help management identify issues that needs top level
concern and attention. Issues are classified according to severity and
priority, most specially for issues that are significantly detrimental to
company operations.

2. Goals to assist managers in making better decisions

a. Different decisions emphasize roles differently
i. Strategy and planning emphasize problem solving
ii. Control emphasizes scorekeeping and attention directing

b. Interaction among types of decisions means activity/roles done

simultaneously. The functions of management overlap as it performs its
duties. It is non-sequential in nature.

c. Information must be relevant and timely to be useful. Management needs

information as a basis of formulating sound business judgement. Relevant
information means it can be used in the decision situation. The timeliness
of information will affect its usefulness. Late information will become
stale and will lose its relevance. Information received the soonest will
resolve issues in an effective and timely manner.
C. Enhancing the value of management accounting systems by guiding managers to
focus on challenges:

1. Customer focus. Doing business today has shifted from creating shareholder
wealth to satisfying the customer. Customer satisfaction is equated with
overall profitability. Either way, it is the customer that will purchase the
product or avail of the services of the company.

2. Value-chain and supply-chain analysis. Value chain is the process or

activities by which a company adds value to an article, including production,
marketing, and the provision of after-sales service. It is said to be value
adding if it satisfies customer wants and needs and the customer is willing
to pay for it. Supply chain involves all parties in fulfilling a customer
request and leading to customer satisfaction, a value chain is a set of
interrelated activities a company uses to create a competitive advantage.

Companies add value through

1. Research and development- creating products that will satisfy the needs of
wants of customers. It is even the creation of a product that the customer
will perceive to be useful.
2. Design of products, services, or processes. Product design is the aesthetics
of the finished product. The design will significantly affect the long-term
sustainability of producing the product. It involves outsourcing of the needed
components, evaluation of needed infrastructure, and the required labor to
create the product.
3. This is the mass production of the product for commercial consumption.
4. This is the process of advertising or creating promotional materials to inform
target customers about the product.
5. This involves the efficient distribution of the products to the customers.
The objective is on-time delivery.
6. Customer service. This is the after sales support
7. provided to the consumers while the product is being used by the customer.

b. Managers in all business functions are customers of management accounting

information. Management accountants provide relevant information to the key
decision makers of the company from financial, production, logistics, marketing,
and human resource concerns.

3. Key Success Factors:

a. Cost and efficiency- modern production strategies require production efficiency
meaning elimination of waste and non-value-added activities. This will lead to
significant cost savings, thus generating more profits for the company.
b. Quality- customers demand high quality products that are affordable. Quality is
relative to the user. It is said to be of quality if it exceeds the expectations
of the customer.
c. Time- on time delivery is very important to attain customer satisfaction.
d. Innovation- for a company to stay relevant in the competition, it must be able
to offer different products that cater to a broad spectrum of customers. Failure
to innovate will give chance to competitors to do better and capture the market.

4. Continuous improvement and benchmarking.

A company should continuously innovate the product it offers to its customers to
keep the market interested. Moreover, the company should unceasingly keep up
with the competitors to maintain its market position. Benchmarking is a key in
determining the best practices in the industry that a company may adopt or even
lead.

1.1.4 INTERNATIONAL CERTIFICATIONS IN MANAGEMENT ACCOUNTING

Certified Management Accountant (CMA) is a professional certification credential
in the management accounting and financial management fields. The certification
signifies that the person possesses knowledge in the areas of financial planning,
analysis, control, decision support, and professional ethics. There are many
professional bodies globally that have management accounting professional
qualifications. The main bodies that offer the CMA certification are:
a. Institute of Management Accountants USA;
b. Institute of Certified Management Accountants (Australia); and
c. Certified Management Accountants of Canada.

Since the Canadian body merged with the CPA Canada in September 2015, there are
only 2 global bodies that offer the CMA certification, IMA (USA) and ICMA Australia).
However, the certification pathways for the two bodies — in terms of entry
requirements, study syllabi and experience requirements are very different.
Ethical Standards in MAS
The Code of Ethics in effect in the Philippines automatically covers all
managerial accountants practicing in the Philippines. In addition to that is
the code of ethics developed by IMA. Members of IMA shall behave ethically. A
commitment to ethical professional practice includes overarching principles that
express our values, and standards that guide our conduct. The IMA Code of Ethics
is composed of two parts, the Personal Standards, and Resolution of Conflict.
The principles are not considered standards but only mind-sets.

PRINCIPLES
IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and
Responsibility. Members shall act in accordance with these principles and shall
encourage others within their organizations to adhere to them.

I. STANDARDS
A member's failure to comply with the following standards may result in
disciplinary action.

a. COMPETENCE
Each member has a responsibility to:
1. Maintain an appropriate level of professional expertise by continually
developing knowledge and skills.
2. Perform professional duties in accordance with relevant laws, regulations,
and technical standards.
3. Provide decision support information and recommendations that are
accurate, clear, concise, and timely.
4. Recognize and communicate professional limitations or other constraints
that would preclude responsible judgment or successful performance of an
activity.

b. CONFIDENTIALITY
Each member has a responsibility to:
1. Keep information confidential except when disclosure is authorized or
legally required.
2. Inform all relevant parties regarding appropriate use of confidential
information. Monitor subordinates' activities to ensure compliance.
3. Refrain from using confidential information for unethical or illegal
advantage.

c. INTEGRITY
Each member has a responsibility to:
1. Mitigate actual conflicts of interest, regularly communicate with business
associates to avoid apparent conflicts of interest. Advise all parties of any
potential conflicts.
2. Refrain from engaging in any conduct that would prejudice carrying out duties
ethically.
3. Abstain from engaging in or supporting any activity that might discredit the
profession.

d. CREDIBILITY
Each member has a responsibility to:
1. Communicate information fairly and objectively.
2. Disclose all relevant information that could reasonably be expected to
influence an intended user’s understanding of the reports, analyses, or
recommendations.
3. Disclose delays or deficiencies in information, timeliness, processing, or
internal controls in conformance with organization policy and/or applicable
law.

II. RESOLUTION OF ETHICAL CONFLICT

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. If these policies do not resolve the
ethical conflict, you should consider the following courses of action:

1. Discuss the issue with your immediate supervisor except when it appears that
the supervisor is involved. In that case, present the issue to the next level.
If you cannot achieve a satisfactory resolution, submit the issue to the next
management level. If your immediate superior is the chief executive officer
or equivalent, the acceptable reviewing authority may be a group such as the
audit committee, executive committee, board of directors, board of trustees,
or owners. Contact with levels above the immediate superior should be initiated
only with your superior's knowledge, assuming he or she is not involved.
Communication of such problems to authorities or individuals not employed or
 engaged by the organization is not considered appropriate, unless you believe
there is a clear violation of the law.
2. Clarify relevant ethical issues by initiating a confidential discussion with
an IMA Ethics Counselor or other impartial advisor to obtain a better
understanding of possible courses of action.
3. Consult your own attorney as to legal obligations and rights concerning the
ethical conflict.

1.1.5 GLOBAL TRENDS IN MANAGEMENT ACCOUNTING (October 2022)

With the advent of new technologies and innovations around the world, the global
economic environment continues to evolve and thrive. Change, therefore, becomes the
new constant. As change becomes a necessity for growth, organizations that continue
to reshape their business processes and business model need to also be aware of the
latest accounting trends.

The following are 7 trends in Management Accounting.

1) The shift to predictive accounting.

There is a widening gap between what management accountants report and what managers
and employee teams want. In the few decades, accountants have made significant
strides in improving the utility and accuracy of the costs they calculate and
report. The gap is being caused by a shift in manager's need — from just needing
to know what things cost (such as product cost and what happened) — to a need for
detailed information about what their future costs will be and why. The widening a
between what accountants’ report and what decision makers need involves the shift
from analyzing descriptive historical information to analyzing predictive
information, such as budgets and what-if scenarios. Although accountants are
gradually improving the quality of reported history, decision makers are shifting
their view toward better understanding the future. Predictive accounting focus
management reports on what is expected to happen rather than on what happened in
the past.

2) Business analytics imbedded in Enterprise Performance Management methods

Business analytics and Big Data are here to stay because complexity, uncertainty,
and volatility are on the rise. The need for analytics may be the only sustainable
long-term competitive advantage. Because the traditional generic strategies, such
as being the lowest-cost supplier or providing product or customer differentiation,
are vulnerable to agile competitors who can quickly match a supplier's price or
invade customer base. Business analytics is the process of using quantitative
methods to derive meaning from data in order to make informed business decisions.
Analytics is about investigation and discovery. Business analytics creates
questions. Further analysis stimulates more questions, more complex questions, and
more interesting questions. But most important, business analytics also has the
power to answer the questions. Business analytics' goal should be to gain insights
and solve problems, to make better and quicker decisions with more accurate and
fact-based data, and to take actions.

There are three primary methods of business analysis:

1. Descriptive: The interpretation of historical data to identify trends and
patterns
2. Predictive: The use of statistics to forecast future outcomes
3. Prescriptive: The application of testing and other techniques to determine
which outcome will yield the best result in a given scenario.

Benefits of Business Analytics:

1. More Informed Decision-Making
2. Greater Revenue
3. Improved Operational Efficiency

3) Managing Information Technology and Shared Services as a Business

The substantial growth in IT over the past decade has moved it from a back-office
support function to a critical and strategic function. User demands for faster
response times, more information, and sophisticated equipment are driving IT
spending upward at an ever-increasing rate so that IT now ranks among the top
category of expenditures for many organizations. If IT doesn't in some way
internally "charge back" its expenses to its users with an internal invoice
itemizing all the service and asset use fees, then the users' expenses will get out
of control.

Information Technology Management is the process whereby all resources related to

information technology are managed according to an organization's priorities and
needs. This includes tangible resources like networking hardware, computers and
people, as well as intangible resources like software and data. The central aim
of IT management is to generate value through the use of technology. To achieve
this, business strategies and technology must be aligned.
Shared Services is the consolidation of business operations that are used by
multiple parts of the same organization. It is a common operational strategy
designed reduce costs by eliminating repetition of effort. Shared services are
cost-efficient because they centralize back-office operations that are used by
multiple divisions of the same company and eliminate redundancy.

4. Expansion from product to channel and customer profitability analysis

A product-driven environment involves the business developing a product first, then

searching for a market for it. Basically, it operates under the assumption that
with great products come great customers which, in turn, bring in the profit and
revenue. On the other hand, a customer-driven environment involves the business
actively gathering information on its customers, and subsequently develops a product
based on the information gathered.
Shift from product-driven differentiation toward customer-driven was necessary for
today's survival. The reason for this shift is that customers in almost all
industries are beginning to view suppliers' products and standard service lines as
commodities. In the past, companies focused on developing standard products and
standard service lines and then incenting their sales force to push and sell them
to existing customers and prospects. But now, many products or service lines are
one- size-fits-all and have become commodity-like. With this shift in attention
from products to customers, managers are increasingly seeking granular nonproduct-
associated "costs to serve" customer-related information as well as information
about intangibles, such as customer loyalty and social media messaging about them
company and its competitors.

5. Co-existing and improved management accounting methods

Modern organizations are increasingly becoming more complex due to rapidly changing
and highly competitive environment. Globalization, economic liberalization,
technological advancements and interconnectivity have made the existence of
organizations tougher than ever before. Markets are becoming more
international, dynamic and customer-driven. Customers are demanding more variety,
better quality and service, including both reliability and faster delivery. Changes
in commercial enterprise ecology emphasize the need for complete, transparent,
reliable and correct statistics that can be accessed quickly. These factors were
some of the drivers that lead to a change in management accounting.

The International Federation of Accountants identified four stages in which

management accounting has evolved:
Stage 1 — Prior to 1950, the focus was on cost determination and financial control,
through the use of budgeting and cost accounting technologies.
Stage 2 — By 1965, the focus had shifted to the provision of information for
management planning and control, through the use of technologies such as decision
analysis and responsibility accounting.
Stage 3 — By 1985, attention was focused on the reduction of waste in resources
used in business processes, through the use of process analysis and cost
management technologies.
Stage 4 — By 1995, attention had shifted to the generation or creation of value
through the effective use of resources, through the use of technologies, which
examine the drivers of customer value, shareholder value and organizational
innovation.

Three categories of Factors in Change of Management Accounting

a. External — such as globalization, customer- oriented activities, external
reporting requirement, new accounting methods, and external consultants'
advice
b. Internal — such as core competency, information technology, new management
styles, quality- oriented initiatives, production technologies, and new
accounting software.
c. Organizational — such as corporate governance, organizational restructuring,
and change in organizational ownership.

6. Management accounting's expanding role with Enterprise Performance Management

(EPM)
EPM is a process and a methodology designed to enhance the company's
performance and enable management to better respond to presented challenges
as well as opportunities on a project. It is also used to measure performance
across all areas of the business in a consistent, efficient manner and deliver
enhanced results. An EPM system integrates and analyses data from many sources,
including, but not limited to, e-commerce systems, front-office and back-
office applications, data warehouses and external data sources. It effectively
links operational as well as business support functions with each other and
helps to consolidate received information in the context of financials.
 4 Main Themes of EP
a. Target setting
Entails of having a tight alignment between a business strategy and the KPI's
used to set goals as well as benchmarks. Key performance indicator (KPI) are
direct indicators of management decisions at a strategic level. It is the most
critical metrics of the company in terms of effecting a major improvement in
performance. These are the elements of a plan that express what you want to
achieve by when. They are the quantifiable, outcome-based statements used to
measure if you're on track to meet goals or objectives. SMART (specific,
measurable, attainable, relevant and time-based) goals coupled with aligned
motivated team and employee reward models.

b. Integrated business planning

This prompts the execution of business strategy while forecasting and
predicting future results with confidence and agility. The process of
integrated planning requires mission alignment before anything else, that
involves:
i. Understanding or defining the core mission of the organization
ii. Performing a needs assessment and mission analyses

c. Performance measurement & reporting (PMR)

This is the process of collecting and validating performance information
to reveal what's really happening and provide insight to support agile and
confident decision making.

d. Analytics
It is an essential ingredient for agile decision making based on fact
and helps to unleash business potential to outpace competitors and
capitalize on existing tools as well as assets. Testing strategic
decisions and discovering patterns or trends based upon the huge sets
of data available through measurement and reporting efforts or from
external sources.

7. The need for better skills and competency with behavioral change management.
Trend number 7 requires change agent management accountants to motivate mid-
level managers and other "champions" to demonstrate to their co- workers that
progressive management accounting and EPM methodologies make sense to
implement. change management is a process that helps ease any organizational
transitions. In essence, it helps employees to understand, commit to, accept,
and embrace changes in their current business environment. It tells them why
change is happening, what it will look like for them, and how it will
ultimately benefit them in the end.

Change can occur in an organization in many ways — strategic, leadership, or

technological changes. In recent years, companies are seeing change management
play an important role during the implementation of new technology. By helping
employees better understand change, you create a workplace that is more open-
minded and open to change. Change management can help ease this tension and
create a smooth process. If employees are more open to change, they will be
more engaged in the process of making it happen. When employees are more
engaged, the transition can happen more quickly and ultimately save your
organization time and resources.

5 roles that managers and supervisors must play in times of change:

1) Communicator About the Change - Employees want to hear change messages about
how their work and their team will be affected by a change from the person
they report to.
2) Advocate for the Change - Employees look to their supervisors not only for
direct communication messages about a change, but also to evaluate their level
of support for the change effort.
3) Coached for Employees - The role of coach involves supporting employees through
the process of change they experience when projects and initiatives impact
their day-to-day work.
4) Liaison to the Project Team - Managers and supervisors liaise between their
employees and the project team, providing information from the team to their
direct reports.
5) Resistance Manager - In terms of managing resistance, managers and supervisors
are in the best place to identify what resistance looks like, where it is
coming from and the source of that resistance. They are also the best suited
(when provided with the training and tools to do so) to actively manage that
resistance when it occurs.

Meaning of Management Accounting:

- Quite unique of the functions of a CPA because this is more of the DECISION-
MAKING side unlike the other functions of a CPA such as Auditing, Financial
 Accounting and Reporting, most of them are dealing PREVIOUS TRANSACTIONS and
Properly recording them as we present them in the financial statements. In
Management Accounting we will use the reports generated by Financial
Accounting, we analyze them and we use them for decision making.

General Assumption: Kaya kadalasan kapag naririnig ang term na management

accountant you are considered as a CONSULTANT.

Proper utilization of companies CAPABILITIES (labor force/man power) (Performance

Evaluation ng mga Tauhan natin) and RESOURCES (pertains to the companies’ assets,
CA-intended to sustain operating activities and NCA-intended to sustain investing
activities)
- Will improve BOTH Profitability and Revenue Producing capability of the
company.
- Trabaho natin as a managerial accountant.

OBJECTIVE: Company’s Mission and Vision

FUNCTIONS OF A MANGERIAL ACCOUNTANT:

CONSULTANTS- We are not directly or indirectly related to the company

- Our number 1 client is: Management.
- What comprises top level management?
- CFO (Finance), COO (Operating), HR (Human Resource)