MANAGEMENT ACCOUNTING & SERVICES (MAS)

MTIM 3rd year – Nov. 15, 2019

Lecturer: Ivan N. Chiu

Management
- the process of planning, organizing, and controlling tasks to realize the objectives of an organization

Basic Functions of Management

Planning involves
- setting immediate and long-term objectives
- deciding which alternative is best suited to attain the set objectives

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

Controlling involves
- comparing actual performance with set plans or standards
- deciding what corrective actions to take should there be any deviation (variance)

Note: decision-making is an inherent function of management; all management functions would require certain amount
of decision-making

Management by Objectives vs. Management by Exception

Management by Objectives is a procedure in which a subordinate and a supervisor agree on goals and the
methods of achieving them and develop a plan in accordance with that agreement. The subordinate is then
evaluated with reference to the agreed plan at the end of the period.

Management by Exception is a technique of highlighting those which vary significantly from plans and standards
in line with the management principle that executive time should be spent on items that are non-routine and are
identified as top priority.

Management Accounting
- also called Managerial Accounting or Internal Accounting
- a field of accounting that provides economic and financial information for internal users, particularly the
managers or decision-makers in an organization
- the process of identifying, measuring, analyzing, interpreting, and communicating information in pursuit of an
organization’s goals

MANAGEMENT ACCOUNTING vs. FINANCIAL ACCOUNTING

Basis Management Accounting Financial Accounting

1. User of Information
2. Guiding principles
3. Necessity
4. Type of information
5. Emphasis of reports
Exclusively for internal users
Management wants and needs
Discretionary or optional
Monetary and non-monetary
Relevance (timeliness of data)
Primarily for external users
Generally Accepted Accounting
Principles
Mandatory (especially for public
entities)
Primarily monetary (financial) in
nature
Reliability (precision of data)

6. Purpose of reports Decision-making Financial reporting and compliance

7. Source of data From internal and external sources From company’s (internal) info system

8. Amount of detail Extensive and detailed Compressed and simplified

Focus on segments and business as a
9. Focus of information Focus mainly on business as a whole
whole
10. Frequency As frequent as need arises Periodic (annually, quarterly)

Future-oriented using current and past

11. Time Orientation Mainly historical (past) data
data

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 12. Unifying model No unifying model or equation Assets = Liabilities + Equity
Controllership
- the practice of the established science of control, which is the process by which management assures itself that
company resources are obtained are utilized according to plans that are in line with the company’s set objectives

Controller
- an officer of an organization who has responsibility for the accounting aspect of management control; it is the
title given to a person holding the position of a chief management accounting executive of a business enterprise;
in many accounting texts and business literatures, the controller is often referred to as the chief accountant

Line Function vs. Staff Function

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

STAFF function is 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

Note: 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 that is
headed by the controller, the controller has a line authority over subordinates.

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
1. Planning and control 1. Provision of capital
2. Reporting and interpreting 2. Investor relations
3. Evaluating and consulting 3. Short-term financing
4. Tax administration 4. Banking and custody
5. Government reporting 5. Credit and collections
6. Protection of assets 6. Investments
7. Economic appraisal 7. Insurance

EXERCISES

1. The discipline of accounting concerned with providing both financial and nonfinancial information to internal
decision makers about business operations.
a. Cost accounting c. Government accounting
b. Financial accounting d. Management accounting

2. Which of these information characteristics are deemed most important to management accounting?
a. Verifiability and accuracy c. Relevance, flexibility, and timeliness
b. Relevance, comparability, and full disclosure d. Conservatism and substance over form

3. Management accounting includes the following processes, except

a. Measurement c. Interpretation
b. Communication d. Delegation

4. Which of the following statements is true?

a. Financial accounting is a subset of cost accounting.
b. Management accounting is a subset of cost accounting.
c. Cost accounting is a subset of both management and financial accounting.
d. Management accounting is a subset of both cost and financial accounting.

5. Managerial accounting differs from financial accounting in that financial accounting is

a. Involved more heavily in decision analysis
b. Future-oriented
c. Concerned primarily with external financial reporting

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 d. Concerned with qualitative information

6. Following are the principles governing the design of management accounting system, except
a. The system should help to establish the decision-making authority over the organization’s assets.
b. The information generated by the system should support planning and decision-making.
c. The reports should provide a means for performance monitoring and evaluation.
d. None of the above

7. Financial and managerial accounting differs in a number of ways. In contrast to financial accounting, managerial
accounting
a. Focuses on providing data for external users
b. Obtains data from company’s (internal) info system
c. Emphasizes relevance and flexibility rather than precision
d. Is primarily for internal users (management)

8. Decision-making is required in which of the following management function(s)?

a. Planning c. Planning and organizing
b. Planning and controlling d. Planning, organizing, and controlling

9. Which of the following statements is/are correct?

a. Managers carry out their decision-making function by obtaining feedback to ensure that the plans are
being followed.
b. The manager’s planning function involves setting of the organization’s goals and
identifying alternatives and selecting the alternative that best furthers such goals set for
the organization.
c. Managers carry out their controlling function by mobilizing the organization’s resources and
overseeing day-to-day operations.
d. The planning, organizing, and controlling functions of a manager are kept separated from such
manager’s decision-making activities.

10. Management accounting is similar to financial accounting in that

a. Both classify reported information in the same way c. Both deal with economic events
b. Both concentrate with historical costs d. Both are governed by GAAP

11. Management accounting is used by a company’s management for a multitude of purposes which are as follows,
except
a. Evaluation b. Planning c. Marketing d. Reporting
12. What is the function of management that compares planned results against actual results?
a. Planning c. Organizing
b. Controlling d. Decision-making

13. The management control process contains the following four sequential steps, including
A) Implementing a program of corrective action
B) Comparing actual performance with standards
C) Establishing standards of performance
D) Measuring actual performance

What is the proper sequence of these activities?

a. C, D, A, B c. D, C, B, A
b. D, B, C, A d. C, D, B, A

14. A staff position

a. Is the primary function of a company’s treasurer
b. Is exercised downward in doing the command function
c. Is directly involved in the provision of goods and services
d. Is supportive in nature since it provides assistance to other company segments

15. In comparing management and financial accounting, which of the following more accurately describes
management accounting information?
a. Comparable, verifiable, monetary c. Required, estimated, internal
b. Budgeted, informative, adaptable d. Historical, precise, useful

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16. Which of the following is most likely a line position?
a. VP for Research of a conglomerate firm
b. Chief financial officer of a merchandising company
c. Store manager of a retail convenience outlet
d. Human resources manager for an educational institution

17. True or False. Managerial control and engineering control are synonymous.

18. True or False. Control from the viewpoint of management accounting is defined as the process of setting
maximum limits on financial expenditures.

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