MODULE 1
INTRODUCTION TO MANAGERIAL ACCOUNTING
Learning Objectives:
1. Define and describe managerial accounting
2. Differentiate managerial accounting and financial accounting
3. Demonstrate the role of managerial accounting to strategic decisions and on the
implementation of strategy
4. Demonstrate the ethical standards that should be observe in managerial accounting
Managerial accounting, or management accounting, is the use of accounting information
by the company managers to make rational economic decisions in performing its function of
planning, organizing and controlling business operations.
Functions of Management
• Planning – involves setting of goals and objectives of the firm, whether short-term or
long-term, evaluation and choosing of best alternatives in meeting the goals.
• Organizing / Directing – these are known as tackling activities. It is a function through
which management instructs, guides, and inspires the employees by communicating
with them.
• Controlling – involves evaluation of actual performance whether it conforms to the
planned results.
• Decision Making – involves determination of predictive information for making important
business decisions.
NOTE: Decision making is inherent in all management functions.
Difference between Management Accounting and Financial Accounting
Strategic Decisions and Managerial Accounting
Key to a company’s success in creating value for customers while differentiating itself from its
competitors through:
• Clear mission and vision statement
a. Mission Statement defines the company’s business, its objectives and its approach
to reach those objectives.
b. Vision Statement describes the desired future position of the company.
• Providing information about the sources of competitive advantage - Michael Porter’s
Three Generic Strategies
a) Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation"
(creating uniquely desirable products and services) and "Focus" (offering a
specialized service in a niche market). He then subdivided the Focus strategy
into two parts: "Cost Focus" and "Differentiation Focus."
b) Role of management accountant: provide managers information in helping
formulate strategy by answering questions such as the following:
i. Who are our most important customers, and what critical capability do we
have to be competitive and deliver value to our customers?
ii. What is the bargaining power of our customers?
iii. What is the bargaining power of our suppliers?
iv. What substitute products exist in the marketplace, and how do they differ
from our product in terms of features, price, cost, and quality?
v. Will adequate cash be available to fund the strategy, or will additional
funds need to be raised?
• Identifying and building resources and capabilities
1. Strategic analysis: matching knowledge of marketplace opportunities and threats
with company’s resources and capabilities – SWOT Analysis
2. Balance sheet information about assets
a. Current resources
i. Cash adequacy
ii. Inventory management
b. Long-term productive assets: important strategic decisions for the right
investments
i. Analyze trends and measure efficiencies
ii. Develop network of relationships with customers and suppliers
iii. Identify financial and nonfinancial costs and benefits
associated with alternative choices
c. Intangible assets
ROLE OF MANAGEMENT ACCOUNTING IN THE IMPLEMENTATION OF STRATEGY
1. Supporting managers by providing information to improve strategic, planning, and control
decisions
Three roles of management accountants for success
a. Problem solving: comparative analysis for decision making
b. Scorekeeping: accumulating data and reporting reliable results
c. Attention directing: helping managers properly focus their attention
2. Goals to assist managers in making better decisions
• Different decisions emphasize roles differently
• Strategy and planning emphasize problem solving
• Control emphasizes scorekeeping and attention directing
• Interaction among types of decisions means activity/roles done simultaneously
• Information must be relevant and timely to be useful
3. Enhancing the value of management accounting systems by guiding managers to focus on
challenges - customer focus
• Customers demand much more than just a fair price; they expect quality products
(goods or services) delivered in a timely way. The entire customer experience
determines the value a customer derives from a product.
• How companies add value?
The value chain is the sequence of business functions by which a product (including
a
service) is made progressively more useful to customers.
1. research and development
2. design of products and processes
3. production
4. marketing
5. distribution
6. customer service
4. Key success factors
a. Cost and efficiency - Management accounting information helps managers calculate a
target cost for a product by subtracting from the “target price” the operating income
per unit of product that the company wants to earn.
b. Quality - Managers use management accounting information to evaluate the costs and
revenue benefits of total quality management.
c. Time - Customer-response time describes the speed at which an organization
responds to customer requests. To increase customer satisfaction, organizations need
to meet promised delivery dates and reduce delivery times.
d. Innovation - A constant flow of innovative products or services is the basis for a
company’s ongoing success. Management accounting information is used to evaluate
the costs and benefits of alternative R& D and investment decisions
e. Sustainability - It is the development and implementation of strategies to achieve long-
term financial, social, and environmental goals improving cost and quality
Ethical Standards
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.
References:
Books:
Kimmel, P. D., Mitchell, J. E., & Weygandt, J.J. (2020). Managerial Accounting: Tools for
Business Decision-Making
Institute of Cost Accountants of India. (2024). Cost Accounting.
Montague, N. (2024). Introduction to Managerial Accounting
Web:
https://asiapac.imanet.org/career-resources/ethics-center/statement
