The Manager and Management Accounting

• Course: ACCT 3005 Cost and Management Accounting I at Hong Kong Baptist University School of Business

• Reference Text: Datar and Rajan (2021), Horngren’s Cost Accounting: A Managerial Emphasis, Global Edition 17th Edition, Pearson

Learning Objectives

Key Learning Goals

1. Distinguish Management Accounting from Financial Accounting

   • Understand the differences in purpose, users, scope, and rules.

2. Role of Management Accountants in Strategic Decisions

   • Recognize how management accountants aid in decision-making processes.

3. Value Chain Analysis

   • Explain business functions contributing to customer value and performance expectations.

4. Decision-Making Process

   • Describe the five-step process of decision-making in management accounting.

5. Guidelines for Management Accountants

   • Review the guiding principles that assist management accountants in their roles.

6. Management Accounting in Organizational Structure

   • Investigate the fit of management accounting within a company's hierarchy.

7. Professional Ethics in Management Accounting

   • Understand the ethical standards expected from management accountants.

Accounting Discipline Overview

Management Accounting

• Involves measuring, analyzing, and reporting information to aid managerial decisions towards organizational goals.

• Not required to conform to GAAP (Generally Accepted Accounting Principles).

• Usages: Strategy development, communication, coordination of decisions, and performance evaluation.

Financial Accounting

• Focused on external reporting to stakeholders such as investors and regulators, strictly following GAAP.

Cost Accounting

• Related to measuring costs associated with resources used in organizations; often interchangeable with management accounting.

Major Differences Between Management and Financial Accounting

Strategic Decisions and the Management Accountant

Strategy Formulation

• Matching organizational capabilities with marketplace opportunities.

• Two types of strategies:

  1. Cost Leadership

  2. Product Differentiation

• Strategic Cost Management focuses costs on strategic issues.

Role of Management Accounting in Strategy

• Essential questions addressed by management accounting include customer importance, market competition, and cash flow management.

Value-Chain Analysis

Understanding Value

• Value derived from products/services by customers; affected by overall customer experience.

Value Chain Components

1. Research & Development

2. Product & Process Design

3. Production

4. Marketing

5. Distribution

6. Customer Service

Customer Relationship Management (CRM)

• Strategy integrating people and technology to enhance relationships with customers and partners.

Supply-Chain Analysis

Definition

• Describes the flow of goods/services and information from initial sources to delivery.

Key Success Factors

Customer Expectations

• Companies should aim to improve in:

  • Cost & Efficiency

  • Quality

  • Time

  • Innovation

  • Sustainability

Importance of Sustainability

• Increasing investor interest and customer preference for companies with strong sustainability practices.

Decision-Making, Planning, and Control: The Five-Step Process

1. Identify the problem/uncertainties

2. Obtain relevant information

3. Make future predictions

4. Choose among alternatives

5. Implement decisions and evaluate performance

• Steps 1-4 relate to Planning; Step 5 relates to Control.

Management Example: Daily News

Decision-Making Approach

• Increase advertising rates to boost revenue without raising newspaper price, using a structured planning and control system.

Planning and Control Systems

Planning

1. Establish organization’s goals and strategies

2. Predict outcomes of alternatives

3. Decide how to achieve goals

4. Communicate goals to the organization

• Budgeting as a key planning tool.

Control

1. Execute planning decisions

2. Evaluate performance

3. Provide feedback for future decision-making.

Management Accounting Guidelines

Adding Value

1. Cost-Benefit Approach: Ensure benefits exceed costs.

2. Behavioral Considerations: Recognize human factors in decision-making.

3. Different Costs for Different Purposes: Use appropriate cost concepts based on context.

Line and Staff Relationships

Organizational Dynamics

• Line Management: Directly achieves organizational goals (e.g., production, marketing).

• Staff Management: Supports line management (e.g., accountants, IT).

• Collaboration between line and staff roles is crucial for decision-making.

Organizational Structure and Management

Hierarchical Overview

• Example of Nike's Organizational Structure:

  • CEO

  • CFO

  • Controllers

  • Various financial and operational functions.

Skills of Successful Management Accountants

1. Cross-functional teamwork

2. Fact-based analysis with critical judgment

3. Leadership and change management

4. Clear communication

5. High integrity and ethical standards

Professional Ethics

Ethical Standards

• Four standards set by the Institute of Management Accountants (IMA):

  1. Competence

  2. Confidentiality

  3. Integrity

  4. Credibility

Accounting Scandals and Regulations

Enron Scandal (2001)

• Covering up debts led to significant losses for shareholders and employees, initiating greater scrutiny of corporate practices.

Sarbanes-Oxley Act (SOX)

• Introduced in 2002 to improve internal controls and corporate governance post-scandals.

Learning Outcomes Summary

1. Distinguishing between management and financial accounting.

2. Understand the role of management accountants in strategic decision-making.

3. Familiarity with value chain functions and performance metrics customers expect.

4. Clear grasp of the five-step decision-making process in management accounting.

5. Knowledge of guidelines aiding management accountants in decision support.

6. Insight into organizational structure and ethics in management accounting.

Q&A and Homework

• Homework: Read Chapter 2 to build on concepts discussed in today's class.