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Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

MANAGEMENT ACCOUNTING CONCEPTS


Accounting 142

THE CONCEPTS AND FUNCTIONS OF MANAGEMENT


The work of managers can be usefully classified as
planning, directing and motivating and controlling. All of
these activities involve making decisions.

A. Planning involves carrying out the following


activities:
Setting of immediate, as well as long-range
goals for the organization.
Predicting future conditions that are expected
to prevail.
Considering the different means or strategies
by which the goals set may be achieved.
Deciding which of the strategies should be
used to attain such goals.
Goals are outcome statements that define what
an organization is trying to accomplish both
programmatically and organizationally. They are
meant to provide a sense of direction and are
normally expressed in general, abstract statements.

B.

Objectives are precise, time-based and


measurable actions that support the completion of
a goal. They are more specific expressions of
actions and things to be done. When objectives
are set, specific plans are made.
Strategic objectives and plans are
company-wide plans with a long planning
horizon.
Tactical objectives and plansthese plans
translate overall strategy into shorter range
specifics for each division or department. They
contain more details and are more actionoriented.
Operational objectives and plans these
plans are very detailed implementation of the
companys strategy. They are annual plans
with specific objectives for individual
operating units.
Contingency plans also called disaster
recovery plans, these are plans implemented
in case of fire, flood, power outages or other
fortuitous events.
To be more useful, objectives should be specific,
measurable, attainable, realistic and timebounded. Moreover, objectives need to be
communicated and documented.
Directing and motivating involves overseeing the
day to day activities, seeing to it that the
organization is functioning smoothly and the
members of the organization are mobilized to carry
out plans. This management function include the
following activities:
Employee work assignments.
Routine problem solving.
Conflict resolution.
Effective communications.

C. Controlling involves checking the performance of


activities against the plan or standards set and
deciding what corrective actions to take should
there be any deviation between the actual and
planned performance. Feedback in the form of
performance reports that compare actual results
with the budget are an essential part of the control
function. Controls employed by management are
generally classified into three as follows:
Preliminary or feedforward controls used to
control input resources prior to the
organizational transition process and designed
to prevent problems from occurring.
Screening or concurrent controls used to
monitor the ongoing transformation process to
ensure that organizational standards and
goals are being met.
Post-action or feedback controls used after
completion of the transformation process to
determine if and where corrective action
needs to be taken.
D. Decision-making is an integral part of the other
three management activities.
Need for Managerial Accounting Information
Accurate and timely accounting information helps
management plan effectively and to focus attention on
deviations from plans. In the planning stage, managers
make decisions concerning which alternatives should be
selected. Financial information is often a vital component
of this decision-making. Once the alternatives have been
selected, detailed planning is possible. These detailed plans
are usually stated in the form of budgets. Further, the
control function of management is aided by performance
reports that compare actual performance to the budget.
This feedback mechanism directs attention to activities
where managerial attention is needed.
MANAGEMENT ACCOUNTING AND ITS SCOPE
The field of accounting that provides economic and
financial information for internal users, particularly the
managers or decision makers in an organization is called
managerial accounting or management accounting. This
field of accounting aims:
A. To provide information for costing services,
products and other objects of interests.
Determining, accumulating and explaining
costs, both manufacturing
and
nonmanufacturing.
Computing or determining product cost or
service cost.
Determining cost behavior.
B. To provide information for planning, controlling,
evaluation and continuous improvement.
Providing assistance to management in profit
planning and budgeting.
Providing bases for cost control with the use of
standards costs and other planned objectives.
C. To provide information for decision making.
Accumulating and presenting data which
may be used by managers in decision
making.
Assisting managers in developing the
companys prices both for external and
internal transactions.
Management accounting concepts apply to both profitoriented organizations and not for profit organizations. It
covers a much broader scope as it goes beyond the
boundaries of traditional accounting.

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY 2013-2014

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Management Accounting and Financial Accounting


Typically, accounting can be divided into financial
accounting and managerial accounting. This division is
made primarily on the grounds of orientation of the reports.
Financial accounting

Managerial accounting

Historical in nature

Deals about the future

Uses or is bound by the


PFRSs

Does not use PFRSs

Reports are holistic

Reports are segmentized

Reports are for general


purpose

Reports are for


management use only

With the unifying equation:


A=L+C

No unifying equation

Focuses on accounting
and finance

Multi-disciplinary

Focuses on the process of


preparing the financial
statement

Concerns with usefulness


of the financial statements

Focus is on precise
information

Focus is on timely
information

Reports cover a year, a


quarter or a month and
tend to be compressed
and simplified

Reports are prepared as


needed and tend to be
more extensive and
detailed

Mandatory

Optional

Though distinct from each other, financial accounting and


management accounting have some similarities. First, both
fields draw information from the same accounting system.
Second, both classifications use cost accounting data in
the preparation of reports.
CONTROLLERSHIP AND TREASURERSHIP
The chief management accounting executive of an
organization is the controller who is mainly responsible for
the accounting aspect of management planning and
control. In some organizations, the controller is called as the
vice president for finance, chief financial officer,
accounting manager, budget director or systems director.
Basically, the controller:
A. Accumulates and reports accounting information
to all levels of management.
B. Directs managements attention to problems and
assists them in solving such problems.
Thus, the controller is responsible for both internal and
external accounting requirements and is responsible for
designing and operating a system through which control
information is collected and reported.
Controllership versus Treasurership
Controllership

Treasurership

Planning and control

Provision of capital

Reporting and interpreting

Investor relations

Evaluating and consulting

Short-term financing

Government reporting

Banking and custody

Protection of assets

Credit and collection

Economic appraisal

Investments

Tax administration

Insurance

A. Planning and control to establish, coordinate and


administer, as an integral part of management, an
adequate plan for the control of operations.
B. Reporting and interpreting to compare
performance with operating plans and standards
and to report and interpret results of operations to
the concerned users of such reports.

C. Evaluating and consulting to consult with all levels


of management responsible for policy or action
concerning any phase of the operation of the
business as it relates to the attainment of objectives
and effectiveness of policies, organizational
structures and procedures.
D. Tax administration to establish or coordinate the
preparation of reports to government agencies.
E. Government reporting to establish or coordinate
the preparation of reports to government agencies.
F. Protection of assets to assure protection for the
assets of business through internal control, internal
auditing and assuring proper insurance coverage.
G. Economic appraisal to continuously appraise
economic and social forces and government
influences and to interpret their effect upon the
business.
Management accountants, regardless of their title, occupy
a staff position and not a line position. A person in a line
position is directly involved in achieving the basic
objectives of the organization. On the other hand, a person
in a staff position is indirectly involved in achieving those
basic objectives. Staff positions support line positions, but
they do not have direct authority over line positions.
ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS
Management accountants have an obligation to the
organizations they serve, their profession, the public and
themselves to maintain the highest standards of ethical
conduct. In recognition of this obligation, the Institute of
Management Accountants has promulgated the ethical
standards below. Adherence to these standards is integral
in achieving the objectives of management accounting.
A. Competence management accountants have a
responsibility to:
Maintain an appropriate level of professional
competence by on-going development of
their knowledge and skills.
Perform
their
professional
duties
in
accordance with relevant laws, regulations
and technical standards.
Prepare complete and clear reports and
recommendations after appropriate analyses
of relevant and reliable information.
B.

Confidentiality management accountants have


a responsibility to:
Refrain
from
disclosing
confidential
information acquired in the course of their
work except when authorized or legally
obligated to do so.
Inform subordinates as appropriate regarding
the confidentiality of information acquired in
the course of their work and monitor their
activities to assure the maintenance of that
confidentiality.
Refrain from using or appearing to use
confidential information acquired in the
course of their work for unethical or illegal
advantage either personally or through third
parties.

C. Integrity management accountants have a


responsibility to:
Avoid actual or apparent conflict of interest
and advise all appropriate parties of any
potential conflict.
Refrain from engaging in any activity that
would prejudice their ability to carry out their
duties ethically.
Refuse any gift, favor or hospitality that would
influence or would appear to influence their
actions.
Refrain from either actively or passively
subverting attainment of the organizations
legitimate and ethical objectives.
Recognize and communicate professional
limitations or other constraints that would

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY 2013-2014

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preclude responsible judgment or successful


performance of an activity.
Communicate unfavorable, as well as
favorable information and professional
judgments or opinions.
Refrain from engaging in or supporting any
activity that would discredit the profession.

D. Objectivity management accountants have the


responsibility to:
Communicate
information
fairly
and
objectively.
Disclose fully all relevant information that
could reasonably be expected to influence
an intended users understanding of the
reports, comments and recommendations
presented.
RESOLUTION OF ETHICAL CONFLICTS
In applying the standards of ethical conduct, management
accountants may encounter problems in identifying
unethical behavior or in resolving an ethical conflict. When
faced with significant ethical issues, management
accountants should follow the organizations established
policies for resolving ethical conflict. If this does not work
the following guidelines should be considered:
A. Discuss such problem with the immediate superior
except when it appears that the superior is
involved, in which case the problem should be
presented initially to the next higher managerial
level. If a satisfactory resolution cannot be

achieved when the problem is initially presented,


submit the issues to the next higher managerial
level.
B. If the immediate superior is the chief executive
officer or its equivalent, the acceptable reviewing
authority may be a group such as the audit
committee, executive committee, board of
directors, board of trustees or owners.
C. Contact with levels above the immediate supervisor
should be initiated only with the superiors
knowledge assuming the superior is not involved.
D. Except when legally prescribed, communication of
such problems to authorities or individuals not
employed or engaged by the organization is not
considered
appropriate.
Thus,
maintain
confidentiality except where legally required.
E. Clarify issues in a confidential discussion with an
objective advisor to obtain a better understanding
of possible courses of action.
F. Consult an attorney as to any legal obligations and
rights concerning the ethical conduct.
G. If the ethical conflict still exists after exhausting all
levels of internal review, there may be no other
recourse on significant matters than to resign from
the organization and to submit an informative
memorandum to an appropriate representative of
the organization.
H. After resignation, depending on the nature of the
ethical conflict, it may also be appropriate to notify
other parties.

Prepared by: Mohammad Muariff S. Balang, CPA, First Semester, AY 2013-2014

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