AC

Chapter 1: Introduction to Managerial Accounting

What is Managerial Accounting

  • Provides accounting information for a company’s internal users
  • Not bound by GAAP or IFRS
  • Three broad objectives:
    • 1 Planning: provide information for planning the organization’s actions
    • 2 Controlling: provide information for controlling the organization’s actions
    • 3 Decision Making: provide information for making effective decisions

Information Needs for Planning, Controlling, and Decision Making

  • Focus on supporting planning, controlling, and decision making

Planning

  • Planning is the detailed formulation of action to achieve a particular end
  • Involves setting objectives and identifying methods to achieve them
  • Example: Supplier evaluation program

Controlling

  • Controlling is monitoring a plan’s implementation and taking corrective action as needed
  • Compare actual performance to expected performance

Decision Making

  • Deciding among competing alternatives
  • Involves evaluating alternative courses of action

Differences between Managerial and Financial Accounting

  • Target users: Internal users (managerial) vs External users (financial)
  • Restrictions: Managerial accounting is not required to follow externally imposed guidelines; Financial accounting must follow external guidelines
  • Type of information: Financial accounting provides objective, verifiable financial information; Managerial accounting includes historical events but focuses on future events
  • Time orientation: Financial accounting reports on historical events; Managerial accounting emphasizes future-oriented information
  • Breadth: Financial accounting is self-contained; Managerial accounting covers multiple disciplines (e.g., managerial economics, industrial engineering, management science)
  • Degree of aggregation: Financial accounting focuses on overall firm performance; Managerial accounting focuses on performance of entities, product lines, departments, and managers

Accounting System

  • Needs to be flexible enough to provide both financial and managerial accounting information
  • Key point: flexibility to supply different information for different purposes

Efficiency and Cost Measures

  • Efficiency involves both financial and non-financial measures
  • Cost is a critical measure of efficiency
  • To be effective, cost must be defined, measured, and assigned

Management Accounting for Service and Not-for-Profit Organizations

  • Management accounting concepts were developed for manufacturing but now apply to all organizations, including service and not-for-profit

Role of the Management Accountant

  • Role is to provide support to those responsible for achieving the organization’s objectives
  • Distinguish line positions (direct responsibility for objectives) from staff positions (indirect responsibility)

Role Details: Staff, Controller, and Treasurer

  • Staff position: Controller – internal auditing, cost accounting, financial accounting, systems accounting
  • Treasurer – raises capital and manages cash and investments; responsible for credit, collection, and insurance

Ethical Behaviour

  • Profit maximization should be achieved through legal and ethical means
  • Ethical behaviour = choosing actions that are right, proper, and just
  • Behavior can be right or wrong; decisions can be fair or unfair
  • Long-term success aligns with honesty and loyalty to constituents

Core Values

  • 1 Honesty
  • 2 Integrity
  • 3 Promise keeping
  • 4 Fidelity
  • 5 Fairness
  • 6 Caring for others
  • 7 Respect for others
  • 8 Responsible citizenship
  • 9 Pursuit of excellence
  • 10 Accountability

Company Codes of Ethical Conduct

  • Codes promote ethical behaviour by managers and employees
  • Common elements: integrity, performance of duties, and compliance with the rule of law
  • Prohibit kickbacks, improper gifts, insider trading, and misappropriation of information/assets

Standards of Ethical Conduct for Managerial Accountants

  • Organizations and professional associations (e.g., CPA Canada, IMA) establish ethical standards
  • Emphasize competence, confidentiality, integrity, and credibility/objectivity
  • Professionals are bound by these codes
  • Ethical dilemmas: often unrecognized or unclear about the correct action

Accounting Designations in Canada

  • Certification demonstrates professional competence and ethical behavior
  • Canada restructured professional bodies; CPA Canada formed in 2013 to unite former groups
  • New members receive the Chartered Professional Accountant (CPA) designation; prior group skills retained
  • Three former designations: CMA, CA, CGA
  • These merged into CPA; for a period of 10 years, members use CPA along with their former designation