Chapter 1 Notes: The Manager and Management Accounting

Management accounting measures, analyzes, and reports financial and nonfinancial information that helps managers make decisions to fulfill organizational goals.
Management accounting need not be GAAP compliant.
Managers use management accounting information to:
- Develop, communicate and implement strategies
- Coordinate product design, production, and marketing decisions and evaluate a company’s performance
Financial accounting focuses on reporting financial information to external parties such as investors, governmental agencies, banks, and suppliers, based on GAAP.
Cost accounting measures, analyzes and reports financial and nonfinancial information related to the costs of acquiring or using resources in an organization.
Today, most accounting professionals take the perspective that cost information is part of the information collected to make management decisions; therefore the distinction between the two is not clear-cut and in the book and these PowerPoint presentations, the terms are often used interchangeably.

Exhibit 1.1 Major Difference Between Management and Financial Accounting (referenced; specific differences are not spelled out in the transcript).
Key idea: management accounting serves internal decision making, planning and control; financial accounting serves external reporting under GAAP.

Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace.
There are two broad strategies: cost leadership and product differentiation.
Strategic cost management describes cost management that specifically focuses on strategic issues.
Management accounting information helps managers formulate strategy by answering questions such as:
- Who are our most important customers and what critical capability do we have to be competitive and deliver value to our customers?
- What is the bargaining power of our customers?
- What is the bargaining power of our suppliers?
- What substitute products exist in the marketplace and how do they differ from our product in terms of features, price, cost and quality?
- Will adequate cash be available to fund the strategy, or will additional funds need to be raised?

Creating value is an important part of planning and implementing strategy.
Value is the usefulness a customer gains from a company’s product or service. The entire customer experience determines the value a customer derives from a product.

The value chain is the sequence of business functions by which a product is made progressively more useful to customers.
The value chain consists of:
- Research & Development
- Design of Products and Processes
- Production
- Marketing (including Sales)
- Distribution
- Customer Service
EXHIBIT 1.2 Different Parts of the Value Chain

CRM is a strategy that integrates people and technology in all business functions to deepen relationships with customers, partners and distributors.
CRM initiatives use technology to coordinate all customer-facing activities and design and production activities necessary to the products to customers.

Production and Distribution are the parts of the value chain associated with producing and delivering a product or service.
These two functions together are known as the Supply Chain.
The supply chain describes the flow of goods, services and information from the initial sources of materials, services and information to their delivery regardless of whether the activities occur in one organization or in multiple organizations.
EXHIBIT 1.3 Supply Chain for a Cola Bottling Company

The four standards of ethical conduct for management accountants as advanced by the Institute of Management Accountants (IMA) are:
- Competence
- Confidentiality
- Integrity
- Credibility

The Sarbanes-Oxley legislation was passed in 2002 in response to a series of corporate scandals.
The act focuses on improving:
- Internal controls
- Corporate governance
- Monitoring of managers
- Disclosure practices of public companies