Introduction to Management Accounting & Controllership – Key Concepts

These flashcards cover fundamental concepts from the lecture on Introduction to Management Accounting and Controllership, including definitions, management functions, ethical standards, reporting principles, roles of the controller vs. treasurer, and key analytical tools used by management accountants.

What is the primary function of accounting according to the AICPA?

To provide quantitative, primarily financial, information about economic entities that is useful in making economic decisions.

Who are the two broad groups of accounting information users?

Internal users (management at all levels) and external users (stockholders, creditors, government, public, etc.).

Which accounting field arose to meet management’s need for timely, detailed internal information?

Management accounting.

List the four basic management functions.

Planning, Organizing, Directing, Controlling.

How does accounting assist management’s planning function?

By supplying quantitative historical data used to prepare projections such as budgets and feasibility studies.

In management, what does the organizing function involve?

Defining, grouping, and assigning functions and relationships, including staffing with qualified personnel.

How does accounting help in the directing function?

Through progress reports that show accomplishments and costs to date, enabling coordination of activities.

Define the controlling function of management.

Keeping track of operations, comparing actual with planned performance, and taking corrective action for variances.

Name the five-step decision-making process.

1) Define the problem, 2) Analyze facts, 3) Develop alternatives, 4) Evaluate alternatives, 5) Choose the best alternative.

What is Management by Exception?

A practice where management focuses on significant deviations from plans rather than routine operations.

Explain Management by Objectives (MBO).

A system where top management sets company objectives and lower levels formulate congruent goals; it involves participative management.

State the AAA definition of management accounting.

The application of techniques and concepts to process historical and projected data to help management set objectives and make rational decisions.

According to NAA (IMA) Statement No. 1A, what does management accounting encompass?

Identification, measurement, analysis, interpretation, and communication of financial information for planning, evaluation, and control within an organization.

Why must management accountants understand fields beyond accounting?

Because management accounting is broad and dynamic, requiring knowledge of management, economics, marketing, statistics, law, and social sciences.

List the four core ethical standards for management accountants set by the NAA/IMA.

Competence, Confidentiality, Integrity, Objectivity.

What social responsibility does a management accountant have?

To inform management of the societal impacts of decisions and encourage socially beneficial actions.

State one major objective difference between management and financial accounting.

Management accounting aims to aid internal decision making; financial accounting aims to report overall results and position to external users.

Are management accounting reports required to follow GAAP?

No; they focus on relevance and timeliness, not GAAP conformity.

Which reports are prepared for internal planning purposes? Give an example.

Planning reports; e.g., projected cash-flow statements or capital expenditure budgets.

What principle of internal reporting stresses promptness even if some numbers are estimates?

Timeliness.

Define ‘quantifiability’ in internal reports.

Information must be expressed in measurable units such as pesos, pieces, or meters.

Give three common causes of delays in internal reporting.

Poor information systems, poor accounting department organization, inadequate facilities or management indifference.

What position is typically assigned primary responsibility for internal control and accounting systems?

The Controller.

Name two traditional functions of the controller.

Planning for control (budgeting) and reporting/interpreting results of operations.

Which two additional duties elevate the controller to top management status?

Management audit (evaluating objectives & policies) and analyzing external social, political, economic factors.

Differentiate the roles of the Controller and Treasurer in one sentence.

The controller handles internal finance and information (accounting, control, reporting), while the treasurer handles external finance (fund raising, cash custody, investments).

What type of authority does the controller generally exercise over the organization?

Staff authority (advisory), though line authority exists within the controller’s own department.

List four major sections that may exist within a controller’s department.

General Accounting, Cost Accounting, Internal Audit/Systems & Procedures, Taxes & Government Reports, Budgeting, Forward Planning.

What is full cost accounting used for?

Determining total product or service cost (variable and fixed) for pricing and profitability analysis.

Explain differential accounting.

Analyzing changes in revenues, costs, and investments between alternatives to support cost–benefit decisions.

What does cost-volume-profit (CVP) analysis show?

How changes in sales volume affect revenue, cost, and profit.

Under variable costing, how are fixed factory overheads treated?

As period costs, excluded from product cost.

Why is discounted cash-flow analysis important in capital budgeting?

It accounts for the time value of money by comparing present values of cash inflows and outflows.

Define responsibility accounting.

A system that assigns costs, revenues, and resources to responsibility centers to measure managers’ performance.

What internal reporting principle ensures that two accountants working independently get similar results?

Verifiability.

Which internal report principle calls for adapting format and content as user needs change?

Flexibility.

Give an example of a control report for middle management.

Comparison of budgeted versus actual departmental expenses.

What is ‘management by exception’ in reporting terms?

Reports highlight only significant variances requiring managerial attention.