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CHAPTER 1

The Accountants Role in the Organization

Accounting Disciplines
Financial Accounting focus on external

users and GAAP rules Managerial Accounting focus on internal users and is not necessarily GAAP-driven. Also provides data for financial accounting. This includes:

Cost Accounting Cost Management

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Some Major Differences between Financial and Managerial Accounting


Managerial
Purpose Help Managers Help Managers Make Decisions Make Decisions

Financial
Communicate Financial Position

Internal Managers Primary Users Internal Managers Focus Rules Time Span Future Oriented Cost-benefit Varies

External Stakeholders
Past Oriented GAAP Annual/Quarter
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To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

contd
Managerial
Type of Information

Financial

Financial, plus operational and Financial measurements physical measurements on only processes, technologies, suppliers, customers, and competitors

Nature Of Information Scope

More subjective and judgmental; valid, relevant, accurate Disaggregate; inform local decisions and actions

Objective, auditable, reliable, consistent, precise

Highly aggregate; report on entire organization

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Strategy and Management Accounting


Strategy specifies how an organization

matches its own capabilities with the opportunities in the marketplace to accomplish its objectives Strategic Cost Management focuses specifically on the cost dimension within the overall strategy

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Strategy and Management Accounting


Management accounting helps answer

questions such as:


Who are our most important customers? What substitute products exist? What is our critical resource? Will we have enough cash to support our strategy?

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Management Accounting and Value


Creating value is an important part of

planning and implementing strategy Value is the usefulness a customer gains from a companys product or service Value Chain is the sequence of business functions in which customer usefulness is added to products or services

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Management Accounting and Value


The Value Chain consists of all activities associated with

providing a product or service, its include: Research and Development Design Production Marketing Distribution Customer Service Management accounting can provide information in each of these areas Analysis can also include the supply chain Supply chain consists of all activities from receipt of an order to product or service delivery
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Value Chain and Supply Management


Managing the value chain and supply chain requires:

Technological changes such as enterprise resource planning (ERP) to centralize and integrate information Just-in-time inventory methods to deliver goods just in time for use, lowering inventory costs

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Value Chain and Supply Management


Managing the value chain and supply chain requires (continued):

Total Quality Management (TQM) to reduce defects in finished products Activity Based Costing (ABC) to focus on activities that produce costs, and to then scrutinize and control those costs

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Key Success Factors


The dimensions of performance that

customers expect, and that are key to the success of a company include:

Cost and efficiency Quality Time Innovation

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Planning and Control Systems


Planning selects goals, predicts results,

decides how to attain goals, and communicates this to the organization

Budget the most important planning tool

Control takes actions that implement the

planning decision, decides how to evaluate performance, and provides feedback to the organization

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Management Accounting Roles


Problem Solver

Scorekeeper
Attention Director

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Management Accounting Guidelines


Cost benefit approach is commonly used:

benefits generally must exceed costs as a basic decision rule Behavioral and Technical Considerations people are involved in decisions, not just dollars and cents Different definitions of cost may be used for different applications

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Organizational Structure and the Management Accountant


A typical structure might include:

CEO

CFO
Controller responsible for managerial and financial accounting Treasury Risk Management Taxation Internal Audit

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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COST MANAGEMENT : AN OVERVIEW


A Typical Organization Chart, Showing the Function of the Controller
Chief Executive Officer

Chief Financial Officer

Vice President for Marketing

Vice President for Operations

Controller

Treasurer

Chief Information Officer

Functions of the Controller

Cost Management Financial Reporting Financial Systems

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

Other Reporting Obligations

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Professional Ethics
The four standards of ethical conduct for

management accountants as advanced by the Institute of Management Accountants:


Competence Confidentiality Integrity Objectivity

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Competence
Practitioners of management accounting and financial management have responsibility to : Maintain an appropriate level of professional competence by ongoing 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 analysis of relevant and reliable information
To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Beliefs System

the explicit set of statements, communicated to employees, of the basic values, purposes, and direction of the organization
Boundary Systems

prescribe organization behaviors that are unacceptable and usually state the consequence of unacceptable behavior

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Confidentiality
Practitioners of management accounting and financial management have a responsibility to : Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless 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 the 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

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Integrity
Practitioners of management accounting and financial management have a responsibility to : Avoid actual or apparent 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 actively or passively subverting the attainment of the organizations legitimate and ethical objectives Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity Communicate unfavorable as well favorable information and professional judgments or opinions Refrain from engaging in or supporting any activity that would discredit the profession

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Objectivity
Practitioners of management accounting and financial management have a 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

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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Emerging Themes of Management Accounting


Customer Orientation
Cross Function Perspective Global Competition Total Quality Management Activity- Based Management Time as a Competitive Element Advances in Information Technology Advances in the Manufacturing Environment Growth and Deregulation in the Service Industry

MANAGEMENT ACCOUNTING

To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.

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DEFINITION OF MANAGEMENT ACCOUNTING


A value-adding continuous improvement

process of planning, designing, measuring, and operating both nonfinancial information systems and financial information systems that guides management action, motivates behavior, and supports and creates the cultural values necessary to achieve an organizations strategic, tactical, and operating objectives
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To accompany Cost Accounting 12e, by Horngren/Datar/Foster. Copyright 2006 by Pearson Education. All rights reserved.