Introduction to Managerial

Accounting
Prof. Pamela Gonzalez
Source: Cornerstones of Managerial Accounting, 5e

Managerial Accounting
Managerial accounting is providing accounting information for a companys
internal users.

Objectives:

1
2
3

To provide information for planning the organizations actions.

To provide information for controlling the organizations actions.
To provide information for making effective decisions.

Planning
The detailed formulation of action
to achieve a particular end.

Setting
Objectives

Identifying
methods to
achieve those
objectives

Controlling
The managerial activity of
monitoring a plans
implementation and taking
corrective action as needed.

Actual
Performance

Expected
Performance

Decision Making
The process of choosing among
competing alternatives.

Financial and Managerial

Accounting

Financial
Accounting

Provides information for external

users.
Must follow rules:
SEC
FASB
IASB

Managerial
Accounting

Provides information for Internal

users.
Identifies, collects, measures,
classifies, and reports financial and
nonfinancial information to internal
users in planning, controlling, and
decision making.

Current Focus of Managerial

Accounting
The business environment in which companies
operate has changed
Effective managerial accounting systems provide
information that helps improve companies planning,
control, and decision-making activities.
Important uses of managerial accounting:
1. New methods of estimating product and service cost and
profitability
2. Understanding customer orientation
3. Evaluating the business from a cross-functional perspective
4. Providing information useful in improving total quality
management.

New Methods of Costing

Products and Services
Todays companies need focused, accurate information on
the cost of products and services produced.
Activity-based costing (ABC) is a more
detailed approach to determine the cost of
goods and services.
Process-value analysis focuses on the
way in which companies create value
for customers.
Find ways to perform necessary
activities more efficiently and
eliminate those that do not create
customer value.

Customer Orientation
Customer value is a key focus
Firms can establish a competitive
advantage by creating better customer
value for the same or lower cost than
competitors

Strategic Positioning
Cost Leadership: Provide the same or better value to customers at a lower cost
than competitors.
Superior products through differentiation: Increase customer value by
providing something to customers not provided by competitors.

Value Chain
Set of activities required to design,
develop, produce, market, and deliver
products and services, and provide
support services to customers.

In managing the value chain, a managerial accountant must understand and

measure many functions of the business.

Total Quality Management

Continuous improvement is the continual search for
ways to increase the overall efficiency and
productivity of activities by reducing waste,
increasing quality, and managing costs.
Has created a demand for a managerial accounting system
that provides information about quality.
This has led to a change in accounting, referred to as lean
accounting, which organizes costs according to the value chain
and collects both financial and nonfinancial information.
A more recent charge of managerial accountants is to help carry out the
companys enterprise risk management (ERM) approach.
ERM is a formal way for managerial accountants to identify and respond to the
most important threats and business opportunities facing the organization.

Time as a Competitive Element

Time is a crucial element in all phases of
the value chain
Firms reduce time to market by
compressing design, implementation, and
production cycles.

Efficiency
For efficiency measures to be of value, costs
must be properly defined, measured, and
assigned

Role of Managerial
Accountant
Assist those who are responsible for
carrying out an organizations basic
objectives.
Positions that have direct responsibility for the
basic objectives of an organization are line
positions
Positions that are supportive in nature and
have only indirect responsibility for an
organizations basic objectives are staff
positions
The controller supervises all accounting
functions and reports directly to the general
manager and chief operating officer.

Managerial Accounting and Ethical

Conduct
Ethical behavior involves choosing actions
that are right, proper, and just.
To promote ethical behavior by managers and employees,
organizations commonly establish standards of conduct
referred to as Company Codes of Conduct.
Important parts of corporate codes of conduct are integrity,
performance of duties, and compliance with the rule of law.
They also uniformly prohibit the acceptance of kickbacks
and improper gifts, insider trading, and misappropriation
of corporate information and assets.

Certification
Three major forms of certification for managerial accountants:
o Certificate in Management Accounting
o Certificate in Public Accounting
o Certificate in Internal Auditing
Each certification offers particular advantages to a managerial accountant.
All three certifications offer proof of achievement at a minimum level of
professional competence.

The Certified Management

Accountant (CMA)
The Certificate in Management Accounting is designed to meet the specific
needs of managerial accountants.
Four areas are emphasized in the qualifying examination for the CMA. They
are:
o economics, finance, and management;
o financial accounting and reporting;
o management reporting, analysis, and behavioral issues; and
o decision analysis and information systems

The Certified Public Accountant

(CPA)
The Certificate in Public Accounting is the oldest and most well-known
certification in accounting.
The purpose of the certificate is to provide minimal professional qualification
for external auditors.

Only a Certified Public Accountant (CPA) is permitted (by law) to serve as an

external auditor.

The Certified Internal

Auditor (CIA)
Internal auditing differs from external auditing and managerial accounting,
and many internal auditors felt a need for a specialized certification.
The Certified Internal Auditor (CIA) has passed a comprehensive examination
designed to ensure technical competence and has two years experience.

Questions!