MODULE 1

Managerial Accounting: An Overview

Prologue

• Managerial Accounting overview provided as part of the 18th edition by McGraw-Hill Education.

Differences between Financial and Managerial Accounting

• Seven key differences highlighted, emphasizing the distinct functions and information requirements of each discipline.

Work of Management

• Management encompasses three primary functions:

  • Planning

  • Establishing organizational goals.

  • Specifying how these goals will be achieved.

  • Developing budgets to allocate resources effectively.

  • Decision Making

  • Involves selecting from competing alternatives regarding operational matters.

  • Examples include:

    • What products to sell?

    • Who to serve in the market?

    • How to implement strategies?

  • Controlling

  • Gathering feedback to ensure compliance with planned objectives.

  • Utilizing performance reports comparing actual outcomes with budgeted figures as an essential control tool.

Planning Processes by Discipline:

1. Marketing Majors

   • Questions to address:

     • How many salespeople to hire for new territories?

     • How much to budget for advertising across various media (TV, print, internet)?

2. Supply Chain Management Majors

   • Key planning queries:

     • What budget is required for utility expenses in the upcoming period?

     • What production levels should be set for the next period?

3. Human Resource Management Majors

   • Planning considerations include:

     • Budgeting for employee recruitment advertising.

     • Allocating funds for occupational safety training.

Controlling Processes by Discipline:

1. Marketing Majors

   • Management must assess:

     • Inventory accumulation during peak shopping seasons.

     • The impact of budgeted price cuts on sales performance.

2. Supply Chain Management Majors

   • Focus on:

     • Achieving objectives related to reducing defective units.

     • Cost analysis regarding units produced against expectations.

3. Human Resource Management Majors

   • Monitoring includes:

     • Timeliness in completing performance appraisals.

     • Ensuring employee retention rates meet target goals.

Decision Making Processes by Discipline:

1. Marketing Majors

   • Key decisions to be made include:

     • Direct selling to customers vs. using distributors.

     • Choosing between bundling services or selling them individually.

2. Supply Chain Management Majors

   • Decision points involve:

     • Redesigning processes to minimize inventory levels.

     • Considering overseas suppliers for component manufacturing.

3. Human Resource Management Majors

   • Critical decisions include:

     • Hiring temporary versus full-time employees.

     • Whether to hire on-site medical staff for cost reduction in healthcare.

Expectations for Accounting Majors

• Strong competence in financial accounting is expected alongside managerial accounting skills in planning, controlling, and decision-making processes.

• Many accounting majors will eventually work in non-public accounting roles throughout their careers.

Certified Management Accountant (CMA)

• Requirements to achieve CMA designation include:

  • Membership in the Institute of Management Accountants.

  • Holding a bachelor’s degree from an accredited institution.

  • Accumulating two consecutive years of relevant professional experience.

  • Successfully passing the CMA examination.

CMA Exam Content Specifications

Part 1:

• Financial Reporting, Planning, Performance, and Control

  • External financial reporting decisions.

  • Planning, budgeting, and forecasting.

  • Performance management and cost management.

  • Internal controls and the use of technology and analytics.

Part 2:

• Financial Decision Making

  • Financial statement analysis and corporate finance.

  • Decision analysis and risk management.

  • Investment decisions and professional ethics.

  • CMA program information available through IMA resources.

Chartered Global Management Accountant (CGMA)

• The CGMA designation is co-sponsored by AICPA and CIMA.

• Pathway to CGMA involves:

  • A bachelor’s degree in accounting plus 150 college credits.

  • Passing the CPA exam and becoming an AICPA member.

  • Three years of relevant management accounting experience.

  • Successful completion of the CGMA exam, which focuses on technical, business, leadership skills, and ethics.

Core Functions of Managerial Accounting

• Key themes of managerial accounting are:

  • Planning: Facilitates the creation of financial plans.

  • Controlling: Enhances performance measurement.

  • Decision Making: Supports informed business choices.

Measurement Skills in Managerial Accounting

• Managers utilize measurement skills to answer critical questions such as:

  • Creating financial plans for the upcoming year.

  • Evaluating performance relative to established plans.

Understanding the Broader Context

• Measurement skills are essential for effective managerial performance and should be applied in a wide-ranging business context, including:

  • Big Data

  • Ethics

  • Strategic Management

  • Enterprise Risk Management

  • Environmental, Social, and Governance (ESG) Responsibility

  • Process Management

  • Leadership

Big Data Characteristics

• Big Data is described using the 5 Vs:

  • Variety: Different formats for storing information.

  • Volume: Increasing quantities of data to be managed.

  • Velocity: Speed at which data is received and processed.

  • Value: Cost-effectiveness of analyzing Big Data.

  • Veracity: Assurance of accuracy and trustworthiness of data.

• Big Data encompasses extensive data collections aimed at aiding ongoing reporting and analysis.

Data Analytics

• Definition: The analysis of data through specialized systems to derive insights.

• Techniques involve:

  • Descriptive: Summarizes past data.

  • Diagnostic: Identifies causes of past outcomes.

  • Predictive: Forecasts future outcomes based on historical data.

  • Prescriptive: Recommends actions based on data analysis.

Ethical Standards in Managerial Accounting

Competence

• Adhere to applicable laws and maintain professional competence, providing timely, accurate, and relevant information, and acknowledging professional limitations.

Confidentiality

• Maintain confidentiality of information, disclosing only when legally bound.

Integrity

• Manage conflicts of interest, maintain discredit-free conduct, and contribute positively to the ethical culture.

Credibility

• Communicate information fairly, disclose pertinent information impacting understanding, and report any deficiencies fairly.

Resolving Ethical Conflicts

• Part 1: Steps for Ethical Conflict Resolution

  • Adhere to company policies.

  • Discuss with supervisors, striving for transparency.

  • Contact higher management only with the supervisor's knowledge if they are not involved.

• Part 2: Additional Steps

  • Maintain confidentiality throughout the process where legally permissible.

  • Seek clarification through confidential discussions with unbiased advisors.

  • Consult legal advisors regarding obligations if necessary.

Importance of Ethical Standards

• Maintaining ethical business standards is vital for preserving quality of goods and services and ensuring a stable economy where jobs and services can thrive.

Strategic Planning in Business

• Strategy: A defined game plan to differentiate and attract customers.

• Focus on target customers as a pivotal element of company strategy.

Customer Value Propositions

• Strategies to enhance customer engagement:

  • Customer Intimacy: Understanding unique customer needs.

  • Operational Excellence: Striving for convenience and low prices.

  • Product Leadership: Delivering high-quality offerings.

Enterprise Risk Management

• A process of identifying and managing potential business risks through techniques that may involve avoiding, accepting, or reducing risks.

• Proactive risk management through implementation of controls after risk identification is crucial.

Types of Internal Controls for Financial Reporting

Environmental, Social, and Governance Responsibility Perspective

• ESG entails consideration of stakeholder needs beyond legal compliance, requiring a balance between environmental, social, and governance factors in decision making.

Business Functions and Process Management

• Business processes are organized series of steps for task execution covering functions like R&D, product design, and customer service.

Lean Production

• A method characterized by producing goods strictly based on customer orders, reflected in a Just-In-Time (JIT) approach that reduces excess inventory.

Lean Production vs. Traditional Manufacturing

• Lean Production: Focused on making production align closely with actual sales; responding to customer demand directly.

• Traditional Manufacturing: Predictive production based on sales forecasts, resulting in excess finished goods inventory.

Benefits of Lean Production

• Producing in response to demand results in:

  • Fewer defects and reduced waste.

  • Quicker response times to customer needs compared to traditional methods.

Leadership in Organizations

• Effective leadership aligns employee behavior with company goals through motivational factors:

  • Intrinsic Motivation: Internal drive to succeed.

  • Extrinsic Incentives: External rewards and recognitions.

  • Cognitive Bias: Mental shortcuts influencing decision-making.