Chapter 1

The Accountant’s Role in the Organization

Management Accounting

• Management accounting measures and reports financial and non-financial information that helps managers make decisions to fulfill the goals of an organization

• Managers use management accounting information to– choose, communicate and implement strategy– coordinate product design, production and marketing

decisions

• Management accounting focuses on internal reporting

• Management accounting is future oriented

Pages 2-3

Financial Accounting• Financial accounting measures and records business

transactions and provides financial statements that are based on generally accepted accounting principles (GAAP)

• Managers are responsible for the financial statements issued to investors, government regulators, and other parties outside the organization

• Financial accounting focuses on external parties

• Financial accounting reports on what happened in the past

Pages 2-3

Cost Accounting and Cost Management

• Cost accounting measures and reports information relating to the cost of acquiring and utilizing resources

• Cost accounting provides information for management and financial accounting

• Cost management describes the approaches and activities of managers in short-run and long-run planning and control decisions

• These decisions increase value of customers and lower costs of products and services

• Cost management is an integral part of a company’s strategy

Pages 3-4

Management Accountants and Strategy

• Strategy specifies how an organization matches its own capabilities with opportunities in the marketplace to accomplish its objectives

• Strategy examples– Quality products or services at low prices (WestJet)– Unique products or services at higher prices (Clublink)

• Management accountants provide information to management such as– Who are our customers and suppliers– Sensitivity of market to price, quality and service– Industry characteristics (size, growth)

Pages 4-6

Planning and ControlManagement ManagementDecisions Accounting System

Pages 6-8

PLANNING• increase advertising

rates

Budgets• pages sold, rates per

page, revenue

CONTROLAction

• implement rate increase

Accounting System• invoices / receipts

recorded in ledger

PerformanceEvaluation

• comparison of actual and budgeted revenues

PerformanceReports

• pages sold, rate per page, revenue

Fe

edb

ack

Financialrepresentation

of plans

Recordingtransactionsin accounts

Comparingbudgeted andactual results

Key Management Accounting Guidelines

Cost-Benefit Approach• spend resources if they promote decision making that

better attains the organization’s goals in relation to the cost of these resources

Pages 8 - 9

Behavioural and Technical Considerations• systems are not confined exclusively to technical

matters• always consider the influences of human activity

Different Costs for Different Purposes• define”cost” depending on the situation under

consideration

Line and Staff Relationships

• Line management is directly responsible for attaining the objectives of the organization– manager in a manufacturing division

Pages 9 - 10

• Staff management exists to provide advice and assistance to line management• management accountant

• Chief financial officer (CFO) oversees• Controllership, Treasury, Tax, and Internal

Audit functions in the organization

Functions of Management Accounting

• Management accountants perform three functions

Attention-directing• make visible opportunities and problems on

which managers need to focus

Problem-solving• conduct comparative analysis to identify the best

alternatives in relation to the organization’s goals

Page 11

Scorekeeping• accumulate data and report reliable results to all

levels of management

Four Themes of Value Enhancement

1. Customer Focus• attract and retain profitable customers

3. Key success factors (KSFs)• keep attention focused on critical factors relative to

our competitors

4. Continuous improvement and benchmarking• never-ending search for higher levels of

performance

Page 12 - 15

2. Value-chain and supply-chain analysis• manage these critical functions

Key Themes in Management Decision Making

Customer Focus

Key Success Factors• Cost and Efficiency• Quality• Time • Innovation

ContinuousImprovement

AndBenchmarking

Page 13

Value-Chainand

Supply-ChainAnalysis

The Value Chain

• Sequence of business functions in which utility (usefulness) is added to the products or services of an organization

• Management accounting helps managers to administer each of these business functions

Researchand

Development

Product, ServiceProcess Design

Production Marketing DistributionCustomer

Service

Management Accounting

Page 14

E-Business Value Matrix

BusinessCriticality(Importance of the application

to the success of the business)

Page 16

High

Low

OperationalExcellence

RationalExperimentation

NewFundamentals

BreakthroughStrategies

Low High

Practice Innovation(Creating new markets or new

ways of doing business)

Ethical Guidelines

• Professional accounting organizations play an important role in promoting high standards of ethics in the accounting profession

Pages 15 - 20

• Code of Professional Ethics• Society of Management Accountants of Canada (SMAC)

• Act in a responsible manner • Maintain independence• Maintain confidentiality of information• Serve with courtesy and good faith• Maintain standards of competence