Handouts in Strategic Cost Management

By C. Israel

Chapter 2- The Professional Environment of cost Management

Organization Structure and the Management
Many of the activities constituting the field of management accounting are interrelated
and thus must be coordinated, ranked and implemented by management accountant in such a
fashion as to meet the objectives of the organization as perceived by him or by her. A major
function of management accountant is that of tailoring the application of the process to the
organization so that the organization’s objectives , shorter and long-term, are achieved
effectively.

Management accounting is intended to include persons involved in 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.

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, it is exercised laterally or upward. Staff managers
give support, advise and service to line departments. Examples of staff authority are found in
personnel, purchasing, engineering and accounting.
Except for exercising line authority over his department , the chief accounting officer
usually the controller generally fills the staff role in his company as contrast with the line roles of
sales and production executives. Theoretically, the controller transmits the best accounting
procedures to be followed by the line people to the President who will communicate such
through a manual 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 downward, which 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 vary among organizations, but they usually include the following areas:
1. Controllership - includes providing financial information for reports to
managers and reports to shareholders and overseeing the
overall operations of the accounting system.
2. Treasury - includes banking and short and long-term financing
investments, and management of cash .
3. Risk management - includes managing the financial risk of interest-rate and
 exchange rate changes and derivatives management.
4. Taxation - includes income taxes, sales taxes and international tax
planning.
5. Internal audit - includes reviewing and analyzing, financial and other
records to
attest to the integrity of the organization’s financial reports
and adherence to its policies and procedures.
In some organizations, the CFO is also responsible for information systems. In other
organizations, an offer of equivalent rank to the CFO- is called the chief information officer-
responsible for information systems.

The controller(also called the chief accounting officer) is the financial executive primarily
responsible for management accounting and financial accounting. In this, chapter it focuses on
the controller as the chief management accounting executive. Modern controllers do not do any
controlling in terms of line authority except over their own departments . yet the modern concept
of controllership maintains that the controller does control in special sense. That is, by reporting
and interpreting relevant data (problem solving and attention-directing roles), the controller
exerts a force or influence that impels management toward making better-informed decisions.

Fig.2.1 –Reporting Relationships for CFO and 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.
 In most organizations, the top managerial accounting position is held by the controller. The
controller provides reports for planning and evaluating company activities. (e.g. budgets and
performance reports) and provides the information needed to make management decisions
related to adding or dropping a product. ). The controller also has the 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.

Controller

Financial Budgeting and Systems Financial Taxation Cost

reporting perperformance development analysis and reporting management
reporting special studies

Fig. 2.1 A typical Organizational Chart showing the functions of the controller

Basic functions of a controller

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. 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 government regulatory bodies,
shareholders, financial institutions, customers and general public.
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 soud accounting
principles with adequate internal control.
 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
and record retention programs; supervise assigned treasury
functions; institute investor and financial public relations
programs; supervise assigned treasury functions ; institute investor
and financial public relations program; office management; and
direct assigned other functions.

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 production ,
procurement, industrial relations, and marketing
6. The ability to express ideas clearly in writing or in making informative presentations.
7. The ability to motivate others to achieve positive actions and results.

Treasurership – is concerned with the acquisition, financing and management of assets of a

business concern to maximize the wealth of the firm for its owners.
Treasurer has the custody of cash and funds invested in various marketable securities . in
addition to money management duties, the treasurer is generally responsible for maintaining
relationships to investors, banks, and other lenders

Responsibilities of the treasurer

1. Funds procurement
This involves the raising of the funds in accordance with the firms planned capital
structure. The responsibility may require negotiating for loans, short-term and long-term,
issuing equity of debt instruments at the best terms and conditions possible.
2. Banking and custody of funds
This involves direct management of cash and cash equivalents and maintenance of good
relations with banks and other non-bank institution.
3. Investment of funds
This involves of the companies placements and securities or purchase of debt or equity
instruments such as ordinary or preference shares in other corporate entities. This
responsibility also includes the analysis of decisions related to investment in property,
plant and equipment.
4. Operating responsibilities related to
a. Credit and collection
b. Inventory management
 c. Corporate pension and retirement fund
d. Investor relations
e. Insurance
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.

Code of Conduct for Management Accountants

The Institute of Management Accountant (IMA) issued the standard of Ethical Conduct
of Practitioners of Management Accounting and Financial Management. There are two parts to
the standards
First part provides general guidelines for ethical behavior (ethical responsibilities) in
following broad areas:
1. To maintain a high level of professional competence
2. To treat sensitive matters with confidentiality
3. To maintain personal integrity
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 the organization.
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.

Standards of Ethical Conduct for Management Accountants

Management accountants should behave ethically. They have an obligation to follow the highest
standards of ethical responsibility and maintain good professional image.
The Institute of Management Accountants (IMA) has developed four standards of ethical
professional conduct.
The IMA Statement of Ethical Professional Practice has been revered as the central code of
ethics for management accountants.
1. Competence
 Maintain an appropriate level of professional expertise by continually developing
knowledge and skills.
 Perform professional duties in accordance with relevant laws, regulations, and technical
standards.
 Provide decision support information and recommendations that are accurate, clear,
concise, and timely.
 Recognize and communicate professional limitations or other constraints that would
preclude responsible judgment or successful performance of an activity.
2. Confidentiality
 Keep information confidential except when disclosure is authorized or legally required.
 Inform all relevant parties regarding appropriate use of confidential information. Monitor
subordinates' activities to ensure compliance.
 Refrain from using confidential information for unethical or illegal advantage.
3. Integrity
 Mitigate actual conflicts of interest; regularly communicate with business associates to
avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
 Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
 Abstain from engaging in or supporting any activity that might discredit the profession.
4. Credibility
 Communicate information fairly and objectively.
 Disclose all relevant information that could reasonably be expected to influence an
intended user's understanding of the reports, analyses, or recommendations.
 Disclose delays or deficiencies in information, timeliness, processing, or internal controls
in conformance with organization policy and/or applicable law
Resolution of Ethical Conflict
In applying the Standards of Ethical Professional Practice, you may encounter problems
identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues,
you should follow your organization's established policies on the resolution of such conflict. If
these policies do not resolve the ethical conflict, you should consider the following courses of
action:
 Discuss the issue with your immediate supervisor except when it appears that the
supervisor is involved. In that case, present the issue to the next level.
 If you cannot achieve a satisfactory resolution, submit the issue to the next management
level. If your immediate superior is the chief executive officer or equivalent, the acceptable
reviewing authority may be a group such as the audit committee, executive committee, board
of directors, board of trustees, or owners. Contact with levels above the immediate superior
should be initiated only with your superior's knowledge, assuming he or she is not involved.
Communication of such problems to authorities or individuals not employed or engaged by the
organization is not considered appropriate, unless you believe there is a clear violation of the
law.
 Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics
Counselor or other impartial advisor to obtain a better understanding of possible courses of
action.
 Consult your own attorney as to legal obligations and rights concerning the ethical
conflict.
(https://www.accountingverse.com/managerial-accounting/introduction/code-of-ethics.html)

Company Code of Conduct

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