THE PROFESSIONAL ENVIRONMENT OF COST MANAGEMENT

Many of the activities constituting the field of management  accounting are

interrelated and thus must be coordinated, ranked and implemented by the
management accountant is such a fashion as to meet the objectives of the
organization as perceived by him or her.

A major function of the management accountant is that of tailoring the

application of the process to the organization so that the organization’s objectives,
short-term and long-term, are achieved effectively.

Management accounting in intended to include persons involved is such

functions as controllership, treasury, financial analysis, planning and budgeting, cost
accounting, internal audit, systems, and general accounting.

Management accountants thus may have titles as controller, treasurer, budget

analyst, cost analyst, and accountant among others.

The accounting function is usually “staff”, with responsibility for providing line
managers, and also other staff managers, with specialized services. This includes
advice and help in the areas of budgeting, controlling, pricing and special decisions

Line Authority is the authority to command action or give orders to

subordinates .

Line managers are directly responsible for attaining the objectives of the
business firm as efficiently as possible. (Sales and production managers typically
have line authority)

Staff Authority - is the authority to advise but not command others

Staff managers give support, advice and service to line departments.

Except for exercising line authority over his department, the chief accounting
officer usually the controller generally fills the staff role in his company as
contrasted with the line roles of sales production executives. Theoretically, the
controller transmit the best accounting procedures to be followed by the line people
to the President who will communicate such through a manual of instructions.

In practice however, the controller holds delegated authority from top line
management to direct the line people on how to apply these procedures. This  is
known as functional authority which is the right to command action, laterally or
downwards, with regard to a specific function or specialty.

THE CHIEF FINANCIAL OFFICER AND THE CONTROLLER

 The Chief Financial Officer (CFO) - also called the finance director in many
countries - is the executive responsible for overseeing the financial operations of an
organization. The responsibilities of the CFO vary among organizations, but they
usually include the following areas: 

 Controllership - includes providing financial information for reports to

managers and reports to shareholders and overseeing  the overall operations
of the accounting system.
 Treasury - includes banking and short-term and long-term financing,
investments, and management of cash.
 Risk management - includes managing the financial risk of interest-rate and
exchange-rate changes and derivative management.

 Risk management - includes managing the financial risk of interest-rate and

exchange-rate changes and derivative management.
 Taxation - includes income taxes, sales taxes, and international tax planning
 Internal Audit - includes reviewing and analyzing financial and other records to
attest to the integrity of the organization’s financial reports and to adherence
to its policies and procedures.

The Controller (also called the chief accounting officer) is the financial executive
primarily responsible for management accounting and financial accounting

Figure 2-1: Reporting Relationship for the Chief Financial Officer (CFO) and the
Corporate Controller

The Controller as the Top Management Accountant

Controllership is the practice of the established science of control which is the
process by which management assures itself that the resources are procured and
utilized according to plans in order to achieve the company’s objectives.

The Controller provides reports for planning  and evaluating company’s activities
(e.g., budgets and performance reports) and provides the information needed to
make management decisions (e.g. decisions related to construction of a new factory
or decisions related to adding or dropping a product).

The controller also has responsibility for all financial accounting reports and
tax filings with the BIR and other taxing agencies, as well as coordinating the
activities of the firm’s external auditors.

One of the areas reporting to the controller is cost accounting. Most medium-sized
and larged manufacturing companies have such a department. Cost accountants
estimate cost to facilitate management decisions and develop cost information for
purposes of valuing inventory.

The controller is an integral part of the top management team. If one has
wants a high level career in management accounting, he/she will need not only
strong accounting skills but also skills required of all high-level executives. This
skills include excellent written and oral communication skills, solid interpersonal
skills and a deep knowledge of the industry in which the firm competes. 

The controller’s authority is basically staff authority in that the controller’s

office gives advice and service to other departments. However in his own
department, he has a line authority.
Basic Functions of Controllership

1. Planning - Establish and maintain an integrated plan of operation consistent

with the company’s goals and objectives, both short and long term, analyzed
and revised, as required, communicated to all levels of management, with
appropriate systems and procedures installed.
2. Control - Develop and revise standards against which to measure performance
and provide guidance and assistance to other members of management in
insuring conformance of actual results to standards
3. Basic Functions of Controllership
4. 3.    Reporting - Prepare, analyze, and interpret financial results for utilization
by           management in the decision-making process, evaluate the data with
reference to company and unit objectives; prepare and file external reports as
required to satisfy to satisfy government regulatory bodies, shareholders,
financial institution, customers, and the general public
5. 4.   Accounting - Design, establish, and maintain general and cost accounting
systems at all company levels, including corporate, divisional, plant, and unit
to properly record all financial transactions in the books of accounts and
records in accordance with sound accounting principles with adequate
internal control. 
6. Basic Functions of Controllership
7. 5.   Other Primary Responsibilities - Manage and supervise such functions as
taxes, including interface with the respective taxing authorities and agents;
maintain appropriate relationships with internal and external auditors; develop
and maintain systems and procedures; develop record retention programs;
supervise assigned treasury functions; institute investor and financial public
relations programs; office management; and direct other assigned functions.
8. The financial planning and control functions are too important to the
success of the business enterprise to burden the controller with activities that
others can perform.
9. Basic Functions of Controllership
10. 5.   Other Primary Responsibilities - Manage and supervise such functions as
taxes, including interface with the respective taxing authorities and agents;
maintain appropriate relationships with internal and external auditors; develop
and maintain systems and procedures; develop record retention programs;
supervise assigned treasury functions; institute investor and financial public
relations programs; office management; and direct other assigned functions.
11. The financial planning and control functions are too important to the
success of the business enterprise to burden the controller with activities that
others can perform.

Qualifications of the Controller

1. An excellent technical foundation in accounting and finance with an

understanding and thorough knowledge of accounting principles.
 2. An understanding of the principles of planning, organizing, and control
3. A general understanding of the industry in which the company competes, and
the social, economic, and political forces involved.
4. A thorough understanding of the company, including its technologies,
products, policies, objectives, history, organization, and environment.
5. The ability to communicate with all levels of management and a basic
understanding of the other functional problems related to engineering,
production, procurement, industrial relations, and marketing
6. Ability to express ideas clearly in writing or in making informative
presentations.
7. The ability to motivate others to achieve positive action and results.
8. The controller may have the technical capability and be able to aly out the
assigned tasks as well as supervise and direct his personnel, but he must also
have integrity and the ability to communicate if he is to succeed. He must be
fair, reasonable, and sincere with all concerned if he is to be recognized for
the importance of the controllership function.
9. As in any executive position, the controller must be able to work with
people at all levels, have respect to the ideas and opinions of others, and have
the resourcefulness, to meet all challenges.

THE CHIEF FINANCIAL OFFICER AND THE TREASURER

Although organizational structures vary from firm to firm, the role of
finance is assigned to the Chief of Financial Officer (CFO) or the Vice
President-Finance who reports to the President.
The financial vice-president’s key subordinates are the Treasurer and
the Controller

Treasurership

Treasurership is concerned with the acquisition, financing and management of

assets of a business concern to maximize the wealth of the firms for its
owners

THE CHIEF FINANCIAL OFFICER AND THE TREASURER

The Treasurer has custody of cash and funds invested in various marketable
securities. In addition to money management duties, the treasurer is generally
responsible for maintaining relationships with investors, banks,and other creditors.
Thus, the treasurer plays a major role in managing cash and marketable securities,
preparing cash forecasts and obtaining financing from banks and other lenders. Both
the controller and the treasurer report to the chief financial officer (CFO) who is the
senior executive responsible for both accounting and financial operations.

THE CHIEF FINANCIAL OFFICER AND THE TREASURER

 In most firms the treasurer has the following responsibilities:

 Funds Procurement

This involves raising of funds in accordance with the firms planned capital
structure. This responsibility may require negotiating for loans, short-term or
long-term, issuing equity of debt instruments at the best terms and conditions
possible.

 Banking and Custody of Funds

This involves direct management of cash and cash equivalents and

maintenance of good relations with bank and other non-bank institution.

THE CHIEF FINANCIAL OFFICER AND THE TREASURER

 Investment of Funds

This involves management of the company’s placements and securities or

purchase of debt or equity instruments such as ordinary or preference shares
in other corporate entities.This responsibility also includes analysis of
decisions related to investment in property, plant and equipment.

 Operating Responsibilities related to

a. Credit and Collection
b. Inventory Management
c. Corporate pension and retirement fund
d. Investor Relations
e. THE CHIEF FINANCIAL OFFICER AND THE TREASURER
f. (e)   Insurance
g. (f)    Compliance with legal and regulatory provisions relating to funds      
procurement, use and distribution as well as coordination of the finance
function with accounting function.
h. ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS
i. In recent years, many concerns have been raised regarding ethical
behavior in business and in public life.
j. It is important to have an appreciation of what is and is not acceptable
behavior in business and why. Fortunately, the Institute of Management
Accountants (IMA) of the United States has developed a very useful ethical
code called the Standards of Ethical Conduct for Practitioners of Management
Accounting and Financial Management.
ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS

There are two parts to the standards. The first part provides general general
guidelines for ethical behavior. In a nutshell, the management accountant has
ethical responsibilities in four broad areas namely:

1. to maintain a high level of professional competence

2. to treat sensitive matters with confidentiality
3. to maintain personal integrity, and 
4. to be objective in all disclosing 

The second part of the standards gives specific guidance concerning what
should be done if an individual finds evidence of ethical misconduct within an
organization.

ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS

The ethical standards provide sound, practical advice for management

accountants and managers. They require professional behavior, especially in
avoiding conflicts of interest, They require  management accountants to bring bad
news to the attention of their supervisors, and to work competently.

Most of the rules in the ethical standards are motivated by a very practical
consideration - if these rules were not generally followed in business, then the
economy could come to a halt. The following are examples of the consequences of
not abiding by the standards:

ETHICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS

1. Suppose employees could not be trusted with confidential information. Top

managers would therefore be reluctant to distribute confidential information
within the company, This could result to decisions being made based on
incomplete information and could lead to deterioration of operations.
2. Suppose employees accept bribes from suppliers. Then contracts would tend
to go to suppliers who pay the highest bribe rather than to the most
competent suppliers. Would you like to fly in an airplane whose wings were
made by the subcontractor who was willing to pay the highest bribe to a
purchasing agent?
3. THICAL STANDARDS FOR MANAGEMENT ACCOUNTANTS
4. 3.  Suppose the CEOs or presidents of companies routinely lied in their annual
reports to shareholders and grossly distorted financial statements. If the basic
integrity of the company’s financial statement could not be relied on,
investors and creditors would have a little basis for making informed
decisions. Rational investors would suspect the worst and would pay less for
 securities issued by companies. As a result, less funds would be available for
productive investments and many firms might be unable to raise any funds at
all. This ultimately, would lead to slower economic growth, fewer goods and
services, and higher prices.
5. As this example suggest, if ethical standards were not generally
adhered to, there would be undesirable consequences for everyone. 
6. COMPANY CODE OF CONDUCT
7. A former president of CMA emphasizes the importance of ethics in
business:
8. “Employees like to work for a company that they can trust. Customers
like to deal with an ethically reliable business. Suppliers like to sell to firms
with which they can have a real partnership. Communities are more likely to
cooperate with organizations that deal honestly and fairly with them. If the
business community is to function effectively, all of the players need to act
ethically.”
9. It is unfortunate though, that some companies place so much emphasis
on short-term profits that they may make it seems like the only way to get
ahead is to act unethically.

COMPANY CODE OF CONDUCT

Those who engage in an unethical behavior often justify their actions with one
or more of the following reasons:

1. The organization expects unethical behavior,

2. Everyone else is unethical, and/or
3. Behaving unethically is the only way to get ahead

To counter the first justification for unethical behavior, many companies have
adopted formal ethical codes of conduct. Companies with a strong code of ethics
can create strong customer and employee loyalty. While liars and cheats may win on
occasion, their victories are often short-term. Companies in business for the long
term find that it pays to treat all of their constituents honestly and loyalty.

INTERNATIONAL CERTIFICATIONS

The three certifications available to management accountants are as follows:

 Certificate of Management Accounting (CMA)

 Certificate in Public Accounting (CPA)
 Certificate in Internal Auditing (CIA)
CMA - is the one who has passed the rigorous qualifying examination, he met an
experience requirement, and participates in continuing educations. The CMA
Certificate is granted by the Institute Management Accountants (IMA).

INTERNATIONAL CERTIFICATIONS

CPA - is the one who has met the pre-qualification educational requirements. passed
the CPA licensure examinations given by the Professional REgulatory Board of
Accountancy and satisfied all other legal and regulatory requirements of a Public
Accountant. The CPAs main responsibility is to provide assurance concerning the
reliability of the information contain in the firm’s financial statements.

INTERNATIONAL CERTIFICATIONS

CIA - Since one of the management control responsibilities of the management

accountant is to develop effective systems to detect and prevent errors and fraud in
the accounting records, it is common for the management accountant to have strong
ties to the control-oriented organization such as the Institute of Internal Auditors
(IIA) granting Certification in Internal Auditing (CIA). To attain the status of Certified
Internal Auditor an individual must pass a comprehensive examination designed to
ensure technical competence and have the required number of years of work
experience.

INSTITUTE OF MANAGEMENT ACCOUNTANTS (IMA)

Management accountants  have gained status in recent years as they now spend
more time analyzing a company’s operation and less with the problems of recording
and computing costs of products. The IMA, the principal organization of management
accountant in the United States, has instituted a program to provide certifications
for management accountants and financial managers. The Certified Management
Accountant  (CMA) examination was first given in 1972. The Certified in Financial
Management  (CFM) examination was first given in 1996.