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Basic Framework of Management Accounting

Management accounting provides economic information for internal users like managers. It helps with planning, directing, controlling, and decision-making. Management accounting determines costs, assists with budgeting, and provides data for decisions. It differs from financial accounting in its internal focus, use of estimates, and flexible reporting standards. Management accountants must maintain competence, confidentiality, integrity, and credibility.

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915 views4 pages

Basic Framework of Management Accounting

Management accounting provides economic information for internal users like managers. It helps with planning, directing, controlling, and decision-making. Management accounting determines costs, assists with budgeting, and provides data for decisions. It differs from financial accounting in its internal focus, use of estimates, and flexible reporting standards. Management accountants must maintain competence, confidentiality, integrity, and credibility.

Uploaded by

ABStract001
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Basic Framework of Management Accounting

MANAGEMENT ACCOUNTING (also called Managerial Accounting or Internal


Accounting)
– a field of accounting that provides economic and financial information for
internal users, particularly the managers or decision-makers in an
organization.

MANAGEMENT FUNCTIONS AND THE NEED FOR MANAGEMENT


ACCOUNTING INFORMATION

1. PLANNING
– involves:
a. setting of immediate, as well as long-range goals for the organization;
b. predicting future conditions that are expected to prevail;
c. considering the different means or strategies by which the goals set may be
achieved; n and;
d. deciding which of the strategies should be used to attain such goals:

2. DIRECTING AND MOTIVATING


– involves overseeing the day-to-day activities, seeing to it that the
organization is functioning smoothly and the members of the organization are
mobilized to carry out plans.

3. CONTROLLING
– involves checking the performance of activities against the plan or
standards set and deciding what corrective actions to take should there be
any deviation between the actual and planned/standard performance.

 All the aforementioned management functions involve decision-


making. In performing the decision-making function, managers need
information. Such information is provided by management accountants.

ACTIVITIES INVOLVED IN MANAGEMENT ACCOUNTING

1. Determining, accumulating, and explaining costs – both manufacturing and


non-manufacturing costs
2. Computing or determining product cost/service cost
3. Determining cost behavior
4. Providing assistance to management in profit planning/budgeting
5. Accumulating and presenting data which may be used by managers in
decision-making
6. Providing bases for cost control with the use of standard costs and other
planned objectives
7. Assisting managers in developing the company’s prices both for external and
internal transactions

APPLICATION OF MANAGERIAL ACCOUNTING

1. BUSINESS
– managerial accounting provides the economic information needed by the
businesses’ managers so they can attain their profit/other economic goals

2. NON-PROFIT ORGANIZATIONS
– these organizations likewise need the economic information provided by
management accountants in attaining their organization’s objectives

PRINCIPLES GOVERNING THE DESIGN OF MANAGEMENT ACCOUNTING


SYSTEMS

1. The system should help to establish the decision-making authority over the
organization’s assets.
2. The information generated by the system should support planning and
decision-making.
3. The reports should provide a means for performance monitoring and
evaluation.

DISTINCTIONS AMONG MANAGEMENT ACCOUNTING, COST ACCOUNTING,


AND FINANCIAL ACCOUNTING

The accounting system is part of the organization’s management information system


(MIS).

The cost accounting system, which accumulates data about the costs of producing
goods and services, is part of the organization’s overall accounting system. It
accumulates cost information for both management accounting and financial
accounting.

MANAGEMENT ACCOUNTING vs. FINANCIAL ACCOUNTING

MANAGEMENT FINANCIAL ACCOUNTING


ACCOUNTING
USERS OF Internal users: officers and External users: stockholders;
REPORT managers creditors, concerned
government agencies
PURPOSE To provide internal users with To provide external users with
information that may be used information about the
by managers in carrying out the organization’s financial position
functions of planning, and results of operation.
controlling, decision-making,
and performance evaluation.
TYPES OF Different types of reports, such Primarily financial statements
REPORTS as budgets, financial and the accompanying notes to
projections, cost analyses, etc., such statements.
depending on the specific
needs of management.
BASIS OF Reports are based on a Reports are based almost
REPORTS combination of historical, exclusively on historical data.
estimated, and projected data.
STANDARDS In preparing reports, the Reports are prepared in
OF management of a company can accordance with generally
PRESENTATION set rules to produce information accepted accounting principles
most relevant to its specific and other pronouncements of
needs. authoritative accounting
bodies.
REPORTING Focus of reports is on the Financial reports relate to the
ENTITY company’s value chain, such business as a whole.
as a business segment,
product-line, supplier, or
customer.
PERIOD Reports may cover any time Reports usually cover a year,
COVERED period – year, quarter, month, quarter, or month.
week, day, etc. Reports may be
required as frequently as
needed.

STANDARDS OF ETHICAL CONDUCT FOR MANAGEMENT ACCOUNTANTS


(From the American Institute of Management Accountants)

Management accountants have an obligation to the organizations they serve, their


profession, the public, and themselves to maintain the highest standards of ethical
conduct. In recognition of this obligation, the Institute of Management Accountants,
formerly the National Association of Accountants, has promulgated the following
standards of ethical conduct for management accountants. Adherence to these
standards is integral to achieving the Objectives of Management Accounting.
Management accountants shall not commit acts contrary to these standards nor shall
they condone the commission of such acts by others within their organizations.

COMPETENCE
– Management accountants have the responsibility to:
 maintain an appropriate level of professional expertise by continually
developing knowledge and skills.
 perform their 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.

CONFIDENTIALITY
– Management accountants have the responsibility to:
 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.
INTEGRITY
– Management accountants have the responsibility to:
 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.

CREDIBILITY
– Management accountants have the responsibility to:
 communicate information fairly and objectively.
 disclose all relevant information that could reasonably be expected to
influence an intended user’s understanding of the reports, 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 conduct, management accountants may


encounter problems in identifying unethical behavior or in resolving an ethical
conflict. When faced with significant ethical issues, management accountants should
follow the established policies of the organization bearing on the resolution of such
conflict. If these policies do not resolve the ethical conflict, management accountants
should consider the following courses of action:

 Discuss such problems with the immediate superior except when it appears
that the superior is involved, in which case, the problem should be presented
to the next higher managerial level. If satisfactory resolution cannot be
achieved when the problem is initially presented, submit the issues to the next
higher managerial level.

If the 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 the
superior’s knowledge, assuming the superior 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 confidential discussion with an 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.

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