Management Accounting and Its Useful Information

The evolving landscape of management processes

The challenge of delivering goods and services to more than satisfy

customer's wants and needs has made managers radically creative and
innovative in their approaches. This phenomenon led to new business
philosophies and practices compelling professionals in the information
business, including management accountants, to provide more accurate and
precise information This has paved the shift from traditional management
accounting services to strategic management accounting services

Business environment dynamically compels.

Management accounting evolution

The IFAC Handbook 1999 Technical Pronouncements reports the evolution of

management accounting prior to 1950s until 1995 and the ensuing
developments from 2005 onwards, are as follows:

Management Accounting continuously evolves

Table 2.1. Timeline Evolution of Management Accounting

Timeline Focus Techniques

Before 1950 Cost determination and Budgeting and cost

financial control accounting techniques

1965 Information for Responsibility

planning and control accounting and
decision analysis

1985 Reduction of waste in Process analysis and

business processes cost management
techniques

1995 Creation of value Driver analysis of

through effective customer value,
resource use shareholder value and
organizational
innovation

2005 onwards Sustainability and Balanced scorecard and

growth environmental
accounting
Managers need relevant and timely information to make reasonable
economic decisions. On top of the traditional information supplied by the
financial accountant and cost accountant, managers ask for more detailed,
exhaustive, and factual information for a mullti-intelligence appraisal of
business operations. This dawns the professional services of management
accountant

Management Accounting, defined

The Financial and Management Accounting Committee of the International

Federation of Accountants (IFAC) issued a statement of Management
Accounting Concepts in February 1989 and clearly identifies management
accounting as an integral part of the management process. It defines
management accounting "as the process of identification, measurement,
accumulation, analysis, preparation, interpretation, and communication of
information (both financial and operating) used by management to plan,
evaluate, and control within an organization and to assure use of and
accountability for its resources"

According to the Chartered Institute of Management Accountants (CIMA),

Management Accounting is “the process of identification, measurement,
accumulation, analysis preparation, interpretation and communication of
information used by management to plan evaluate and control within an
entity and to assure appropriate use of and accountability for resources.
Management accounting also comprises the preparation of financial reports
counting shareholders, creditors, regulatory agencies and tax authorities
(CIMA Official Terminology)

The Institute of Management Accountants (IMA) recently updated its

definition as follows management accounting is a profession that involves
partnering in management decision making, devising planning and
performance management systems, and providing expertise in financial
reporting and control to assist management in the formulation and
implementation of an organization's strategy

The American Institute of Certified Public Accountants (AICPA) states that

management accounting as practice extends to the following three areas:
Strategic Management - advancing the role of the management accountant
as a strategic partner in the organization.

Performance Management - developing the practice of business decision-

making and managing the performance of the organization

Risk Management contributing to frameworks and practices for identifying,

measuring, managing and reporting risks to the achievement of the
objectives of the organization.

The Institute of Certified Management Accountants (ICMA), states "A

management accountant applies his or her professional knowledge and skill
in the preparation and presentation of financial and other decision-oriented
information in such a way as to assist management in the formulation of
policies and in the planning and control of the operation of the undertaking."
Management accounting provides information for profit management.

Management Accountants therefore are seen as the "value-creators amongst

the accountants. They are much more interested in providing informaiton to
serve as a basis for management decisions affecting the future of the
organization, than in the historical recording and compliance (score keeping)
aspects of the profession. Management accounting knowledge and
experience can therefore be obtained from varied fields and functions within
an organization, such as information management, treasury, auditing,
marketing, valuation, pricing, logistics, engineering, legal, and others.

The management accounting concepts are based on the qualitative criteria

of accountability, controllability, reliability, interdependence, and relevance.
The traditional role of the management accountant in the management
process is the staff function of controllership The contemporary disruptions
and changes in management practices and philosophies have forestalled
management accountant in a more active role in the executive processes.
The systems used to gather, process and present data to provide specific
and useful quantitative information to management is management
accounting. The organizational head of the management accounting group is
called the Management Accountant in practice, he serves in various positions
as Vice-President for Finance, Chief Financial Officer, Accounting Manager,
Budget Director, Chief Information Officer, or Financial Systems
Administrator. Traditionally, a management accountant is called Controller
(or Comptroller)

A Certified Public Accountant who renders public practice in management

advisory services is traditionally engaged in, but is not exclusive to,
management accounting services

Information and management

The business of accounting is information. And the business of management

accounting is to provide information to management on a timely, detailed,
and flexible manner.

Accounting information

Information is used in making a decision. Information is a processed data

that are captured and reported to serve as a basis in making reasoned
decisions.

Just like any resource in an organization, data should be managed. Data

management depends on the vision, mission, strategy, and structure of an
enterprise. Strategy defines the unique model applied by an enterprise to
beat competition, optimize stakeholders' value, and survive in the business
place.

Managernier Information Accouriting provides managers

Structure follows strategy. Structure is the internal and control environment
by which the enterprise desires to carry on its strategy. It defines the manner
on how resources are allocated, on how people are grouped, and on how
performances are evaluated. It shows the segments of an organization for
people membership (or grouping), motivation, monitoring, mentoring and
movements. Organizational structures vary from an enterprise to another
due to the effects of external and internal business factors. External business
factors include the potential level of buyers in the market, government
regulation and laws, sources of supply, changes in technology, competition,
and important social demograpics. Internal business factors include the
enterprise vision, mission, objectives, level of management skills and
preparation, process efficiency, and productivity and organizational culture.

In each organizational segment, a manager is held in-charge. He is given the

appropriate amount and value of authority to lead his men, produce results
and be evaluated on his performance. It is in this act of performing his duty
that a manager needs information.

In simplistic terms, managers may be classified as those belonging in the top

management, middle management, and supervisory management. Top
management needs information for its strategic decisions. Middle
management needs information in planning and controlling tactical
decisions. Operational (ie, supervisory) management needs information to
execute strategic and tactical policies, monitor performance and keep on tab
with the daily operational results. Information requirements depend on the
manager needing the information.

Objectives of management accounting information

mformation should be more detailed and forward-looking. They are

presented and erialyzed differently to sun the unique informational needs of
management. To meet these Menagering supplies the informational needs of
management. These requirements managment accounting information
should have the following purposes:
Profit measurement

Business performance should be measured, In the short-run, business

performance is normally expressed in terms of profitability

Managers plan to ensure that organizational resources and systems fit with
what is needed in the future to deliver profitability and sustainable growth. 2.
Guide for planning

3. Standards for controlling the very start Deviations or planning gap that are
encountered while things are put Actions are to be made in accordance with
the plan. Errors should be prevented from into action should be immediately
remedied or corrected to execute plans as intended

4. Basis for decision making.

The primary tool of management in getting its job done is decision making. A
decision that is based on inadequate information may lead to inferior or even
damaging outcome. A rational or intelligent decision based on quality
information would mostly likely lead to increased shareholders' value.

Attributes and principles of management accounting information

With its indispensable usefulness in the process of arriving at a rational

business decision, relevant management accounting information should have
the following attributes:

1. Completeness

A manager should be informed of all the available information on hand to

avoid unnecessary errors which may lead to increase in costs or damaged
reputation. A credit and collection manager may erroneously send a strongly
worded demand letter to a customer without being informed of the existence
of a special credit term agreement with customer.

2. Accuracy

Information should be accurate enough to serve its purpose and there is no

need to go into unnecessary detail for pointless accuracy.

Clerks need to account for the balarices up to the last centavo. Middle
managers may round their information to the nearest thousand and still treat
the information as equally useful. Senior mangers may want figures
hundredths, thousandths, or even in millions.

3. Clarity

Lack of clarity creates 'noise" in information system theory that further

causes miscommunication or breakdown in communication. The choice of
the night channel of communication, of presentation medium, would be of
utmost importance in the Information business

4. Confidence

Users should have confidence on the information provided to them. One

ingredient of developing confidence on the information is the existence of an
error free informational processing systems involving past events. Strategic
information, such as long-term forecasts, involves a lot of uncertainty as to
timing and amount because of the time span involved and the non-
controllable, sometimes disrupting, variables affecting it. Confidence on
strategic forecasts may increase by clearly stating the underlying
assumptions used in arriving at the forecasts.
5. Communication

Sending right information to the wrong person may make the information
useless, even how potent and powerful such information if correctly sent.

Managers should be given the right information at the right time to act
precisely for better and expected results in accordance with plans and
expectations.

6. Volume

Precise and concise information do not only lessen the cost of absorbing the
right message of the information but could also immediately impact direct
users to the occurrence of exceptional cases where actions are needed right
away.

7. Timing

The frequency of giving information depends on the need of the manager

using it. Information that arrives after the decision is already made may find
no usefulness but only to the limits of comparative analysis and long-term
control. Information that is prepared too frequently may be too expensive to
outweigh its benefits.

8. Channel of communication

Written communication is not always the best channel of sending

information. It may be effectively channeled through email, telephoning,
teleconferencing, word-of-mouth, face-to-face talk, formal talk, informal talk
or thru modern communication apps.
Written communication could be done through inter-office memorandum,
publication in an in-house journal, professional and other magazines, local or
national newspapers, or other online posting centers.

9. Cost

The information should be cost-effective, where the benefits derived from

that information exceeds the costs used in getting and processing it.

30

CHAPTER 2

MANAGERINT ACCOUNTING ENVIRONMENT

Other attributes of management accounting information

Other attribot of good management socoumming Information are as follows

If they be outfitative of quentative The focus of business is still the

maximization of shareholders' value. This could be

way of communicating with the shareholders and other stakeholders in

business entsily assessed by reporting financial information as an easy and
understandable details of information Although monetary Information has
been regarded as the "lingua franca" in affecting those presented in the
financial reports. In wages, for example, they are now looking for the number
of labor hours used in relation to the wages paid. in the production plesse
sow They are interested in productivity ratios, efficiency In materials,
managers now like to know the number of kilograms or units used cycles,
number of repeat orders, frequency of customer returns, and, even non-
quantitative effects of business decisions such as those relating to
environmental Issues and displacement of communities.

It should be free from bias.

Bias may be manifested in different forms and stages. A report may indicate
that the profit margin of a division is 12% in 20CY without showing or
mentioning that the same division reported a profit margin of 120% last year.
Comparative and relative data should be reported to maintain the integrity of
the information. In other cases, the independence of the data heightens its
neutrality and objectivity and therefore should be maintained to avoid bias.

It is generally forward looking

Management accounting information should have predictive value. It must

be forward looking to relate with the decisions to be made. Managers cannot
change the past anymore, and so they do not decide for the past but rather
to get involved in shaping the future.

It should have the inherent attributes of an accounting process.

Management accounting information should be useful for recordkeeping,

attention directing, and problem solving.

Management Processes

A peal model of managing tirganizations include the [Link]

Fig. 2.1. Basic Model in Managing Business Organizations

PROCESS

VISION/MISSION CORE COMPETENCY

STRATEGIES

STRUCTURES

STANDARDS

SYSTEMS
ACTIONS

REPORTS

EVALUATIONS

LEARNINGS

EXPLANATION

First, set the organization vision and mission. This is an act of

governance to set the ultimate goals and destination of an enterprise. It
defines the purpose of its creation and how it sees itself in the long run. It
should also identify its "core competency" in what it does best to
differentiate itself from others

Second, develop organizational strategy. This is a holistic plan on how to

reasonably assure that commitments and resources are best utilized to
deliver the goals of the organization. standarde lesarming

Third, design the organizational structure. The organizational structure

follows the strategy. This relates on how men are distributed and deployed in
various organizational segments with powers to fulfill their assigned duties.

Fourth, set the standards. These are expectations agreed upon or understood
by the management and personnel. The standards are the bases for
evaluating performance resulting to rewards, recognition, or adverse actions.

Fifth, formulate and execute systems. These are forms, processes, rules and
regulations, manuals, schedules, action plans, antudes and other details
aimed in simplifying work processes, shaping altitudes, translating
expectations into a clearly understandable pieces of doable tasks and set-up
a motivational workplace..

Sixth, gether reports. This feedback system should impress managers the
details on what is happening on the organization for better actions.

Seventh, make performance evaluation and give rewards This bridges the
critical connection between the plans and actions to rate individual and
organizational processes and to value commendable performances

Eighth, Itemize, analyze and validate the learning points. Learnings are
derived from actions and results that must be inteligently documented as
basis of analysis to improve organizational performance. And lastly make the
necessary adjustments from the learnings of such experiences.
CHAPTER 2

MANAGEMENT ACCOUNTING ENVIRONIAUNT

Management Processes

A peal model of managing tirganizations include the [Link]

Fig. 2.1. Basic Model in Managing Business Organizations

PROCESS

VISION/MISSION

COME COMPETENCY

STRATEGIES

STRUCTURES

STANDARDS

SYSTEMS

ACTIONS

REPORTS
EVALUATIONS

LEARNINGS

EXPLANATION

First, set the organization vision and mission. Thee an act of goes to set the
ultimate goals and destination of an enterprise I defines the purpo of its
creation and how it sees itself in the long run. It should also identify an "core
competency" in what it does best to differentiate it self from others

Second, develop organizational strategy. This is a holistic plan on how to

reasonably assure that commitments and resources are best utilized to
deliver the goals of the organization.

standarde lesarming

Third, design the organizational structure. The organizational structure

follows the strategy. This relates on how men are distributed and deployed in
various organizational segments with powers to fulfill their assigned duties.

Fourth, set the standards. These are expectations agreed upon or understood
by the management and personnel. The standards are the bases for
evaluating performance resulting to rewards, recognition, or adverse actions.

Fifth, formulate and execute systems. These are forms, processes, rules and
regulations, manuals, schedules, action plans, antudes and other details
aimed in simplifying work processes, shaping altitudes, translating
expectations into a clearly understandable pieces of doable tasks and set-up
a motivational workplace..
Sixth, gether reports. This feedback system should impress managers the
details on what is happening on the organization for better actions.

Seventh, make performance evaluation and give rewards This bridges the
critical connection between the plans and actions to rate individual and
organizational processes and to value commendable performances

Eighth, Itemize, analyze and validate the learning points. Learnings are
derived from actions and results that must be inteligently documented as
basis of analysis to improve organizational performance. And lastly make the
necessary adjustments from the learnings of such experiences.

Controllership (1960s and before)

Controllership covers both the intelligent and behavioral aspects of

management.

ents the managing

As the top manager heads the organization in creating wealth, he must deal
with people attolligen duty, a manager most unify his personnel's mind and
actions to a common purpose. Their Contralatan imbued with diverse beliels
values, standards, orientations, and beliefs. To perform his actions produce
results which are gathered and measured to give recognition and rewards
identify arees needing improvements and to value learnings from
experiences Clearly, and style of communicating organizational standards
and processes and encouraging the minds of organizational men bears
scientific and intelligent processes. The manner management is managing
organizational men. The management aspect of influencing men to conform
with those standards and processes relate to the behavioral aspect of
management.
Managers make decisions in all levels of managerial authority and areas of
managerial functions. Managerial authrority relates to organizational
structure and may be classified as upper managerial authority ranagement,
and supervisory mangement. The general functions of management applied
in all levels of managerial powers are planning, organizing, staffing, directing
and controlling, as follows:

Fig. 2.2. Decision Hierarchy and Management Functions

Decision levels and functions of management

DECISION HIERARCHY

MANAGEMENT FUNCTIONS

TOP Management

PLANNING

MIDDLE Management

DECISION MAKING

SUPERVISORY Managerment

CONTROLLING

ORGANIZING DIRECTING, STAFFING

In line with the need for information in the planning and controlling cycle, the
field of controllership has developed its seven (7) basic functions as
enumerated below.

Planning and controlling

Reporting

Evaluation

Government relations and reporting

Protection of assets

Economic appraisal

Tax administration

The planning and controlling cycle

The planning and controlling cycle sums up the pioneering areas of

management accounting. The diagram in Fig. 2.3 below depicts the
relationship of planning and controlling and its relevance to management.

Planning and controlling ayc

Fig. 2.3. Planning and Controlling Cycle

Goals

Objectives

Plans

Budgets

Actions

Revisions

Results

Feedback

Standards

Management Accounting techniques in the planning and controlling cycle

Responsibility accounting

Standard costing

Variable costing

Cost-volume-profit analysis
Short-term budgeting

Variance analysis

Product pricing

Special operating decisions

Others

In everything that we do, we begin with an end in mind. "Goals" must be

established to define the purpose, directions and activities that need to be
accomplished. However, goals are normally expressed in general, abstract
statements. The statement of goals should be translated into a more specific
statement of matters to be accomplished known as "objectives". Objectives
are more specific expressions of actions and things to be done.

Goals and objectives are sometimes interchanged. The use of the words
goals and objectives in this text follows their new international usage.

To illustrate, let us consider the following simplified statements of XY

Corporation:

Table 2.3. Examples of Statement of Goals and

To have a 25% rerum on equity in 20NY

Mecrease sales to P50 billion and expenses to P30 billion

measurable, attainable, realistic and time-bounded) Plans answer the basic
questions why. When objectives are set specifie "plans are made Plans must
be SMART (specific unit or in whatever way the organization is segmentized.
These segmented what, who where, when how and how much. There are
plans in a department, division. plans are consolidated to become
organizational plans. All of these plans become basic guidelines for actions

Plans must be expressed in monetary terms, to be objective and

understandable. Plans that are be pretend in monney are called "budgets".
Over and above, plans must be put into action to achieve results and results
should be compared with standards for control purposes. Standards are
developed because budgets are revised to conform with actual results.
Budgets are estimated costs based on estimated units produced and sold
Standards, as technically used in management accounting, are estimated
costs based on certain level of units of production and sales other than the
master budget level of activity.

Data on actual and standard costs have differences. This difference is simply
called a "planning gap or technically referred to as the "variance". A variance
may be normal or exceptional. Normal variances are expected and are within
the range of defined expectations. Such variances are closely monitored and
explained by the supervisory management and explained to the middle
management, and the middle mangement to the top management.

menit tion

Exceptional variances are material, unusual, and are beyond normal

expectations. Such variances are of material interest to, and closely handled
by, the top management. This process of managing material variances
conforms to the doctrine of "management by exception. These material,
exceptional, variances need quick, precise, and strategic actions to plug their
recurrence into having lasting adverse impact to organizational performance.

Sample Problem 2.1 - Normal and Exceptional Variances

Say, the planned sales of a company is P50 billion. The management
estimated that the normal deviation between the plan and the actual is + or
- 5%. This means that the normal and upper estimates in sales is P52.5
billions (P50 billions x 1.05) and the normal and lower estimates in sales 47.5
billons (P50 billions x 95%). Therefore, the normal range of estimated sales is
P47.5 billions to P52.5 billions. If the amount of actual sales falls within
outside the normal range of estimates, the variance is exceptional. Check
the table the amount of actual sales falls below for reinforced understanding:

Table 2.4. Examples of Normal and Exceptional Variances

Maximum estimate P52.5 bilttomR ↑ Average estimate P-500 billions ↓ -5%

Minimum estimate P47.5 billions F = Favorable UFUnfavorable

In the process of completing the planning and controlling cycle, the following
management accounting techniques have been developed:

Managemen by exception variable costing, standard costing, profit

planning and cost-volume-profit analysis, responsibility accounting,
short-term budgeting (i.e., operational budgeting), segment reporting,
variance analysis, product pricing, and non-routine operating decitions.

These techniques are discussed extensively in Chapters 3 to 9 of this book.

Internal controls and controllership

One of the major elements of controllership is internal controls. They are the
predefined values and skills of the organization.

Internal controls comprise the plan of an organization and all its

coordinate methods and measures in order to protect the assets, check
the accuracy and reliability of accounting data, promote operational
efficiency, and encourage adherence to prescribed managerial policies.

The components and purposes of internal controls are tabulated below.

Table 2.5. Internal Controls Components and Purposes

Internal controls are organizatione plans and methods Internal Controls

Components Structure (plan of organization) Policies (methods and
measures) Purposes 1. Protection of assets 2. Accuracy and reliability of
accounting data 3. Operational efficiency 4. Adherence to policies
of mergeraction strategies, corporate values, work ethics, mamall
commander admavatrative or accounting. Administrative Allting stimule that
forma records, systems and reports that relate to the and atlatter rules that
are ribt directly related to accounting systems. Procesering af bemand are
basically concerned with the safeguarding of assets and made that prodice a
reliable and accurate accounting information.

Potok

hot allowed to enter for official use only", and "wear your uniforms Mondays
thru Fridays" Statement of epeating policies such as the 'no ID, no-entry",
"unauthorized persons are we intermat control mechanisms. In accounting,
each account title has a set of policies Phat are to be implemented to meet
the objectives of internal controls. However, there are These cardinal
principles are classified into three-general organizational controls, leven (11)
carinal principles of internal controls that should be followed for good
managing. personnel controls, and management controls as shown in Fig. 1.4
below.

Fig. 2.4. The Eleven (11) Cardinal Principles of Internal Controls

General Organizational Controls

(plan of organization)

1. Responsibilities must be fixed

2 Functional responsibilities must be segregated.

3. No one person should be in complete charge of a business transaction.

4. Use of all available proof of accuracy, if possible.

Personnel Controls

5 Employees should be carefully selected and trained

6. Employees should be rotated.

those in a position of trust. 7. Employees should be conded, especially

Management Controls

8. Operating instructions should be in writing.

9. 10.

Controlling accounts should be used.

The advantages of double-entry accounting should not be overemphasized.

equipment, if feasible. 11. Use of mechanical and/or electronic

General controls

General contice an organizan controls

of the organizational design and are meant to prevent ur reduce errors,
inefficiencies, General controls are organizational controls. These are
developed during the formulation irregularities, and illegal acts. In designing
organizational structures, transactional basic functions in transactional
responsibilities are diagrammed on the following page:

Fig. 2.5. The Five (5) Elements of Transactional Responsibilites

Transactional Responsibilities Authorization Execution Recording Periodic

Accountability Custodianship Eleven (11) Cardinal Principles of Intermal
ControlsS

Ideally, separate personnel should be assigned in each of these functional

responsibilities. Meaning, somebody must authorize a transaction, another
should execute the authorized transaction, then another to do the recording,
another to keep the assets and special records, and somebody to do the
checking of the entire process (i.e., periodic accountability). Any two of the
five functions if combined would reduce the effectiveness of the internal
controls. This would result to unsafeguarded assets, unrellable and
inaccurate accounting records, wrongly or misapplied policies, and
operational inefficiency.

Application controls

Application controls relate to the details of forms, rules, regulations.

standards, schedules, reports, accountabilities, commitments, and other
operating policies to complement the general controls of an enterprise.

Application controls are operating controls This covers the manner, timing,
and level of transactional approval, the processes and procedures in
executing a transaction, the technical details of forms, files, and recording
process, the strength of safekeeping and security of contracts, records, files,
and reports, and the effectiveness and efficiencies of the internal auditing
Some of these are mentioned in the preceding page.

The internal controls of an organization are designed within the constraining

criterion of cost/benefit relationship. If the costs of implementing an ideal
internal control system axceed the benefits that are expected from it, the
idealism in the intemal control principles is compromised. This puts under
pressure the principles of organizational independence, interdependence,
and reliability that may lead to errors, irregularitles, and illegal acts.

Treasurership
Controllership and treasurership constitute corporate finance. Controllership
deals with records, systems, and processes to attain the objectives of
internal controls and good managing.

CHAPTER 2

MANAGEMENT ACCOUNTING ENVIRONMENT

46

Fig. 2.5. The Five (5) Elements of Transactional Responsibilites

Transactional Responsibilities

Authorization

Execution

Recording

Periodic Accountability

Custodianship

Eleven (11)

Cardinal Principles of Intermal ControlsS

Ideally, separate personnel should be assigned in each of these functional
responsibilities. Meaning, somebody must authorize a transaction, another
should execute the authorized transaction, then another to do the recording,
another to keep the assets and special records, and somebody to do the
checking of the entire process (i.e., periodic accountability). Any two of the
five functions if combined would reduce the effectiveness of the internal
controls. This would result to unsafeguarded assets, unrellable and
inaccurate accounting records, wrongly or misapplied policies, and
operational inefficiency.

Application controls

Application controls relate to the details of forms, rules, regulations.

standards, schedules, reports, accountabilities, commitments, and other
operating policies to complement the general controls of an enterprise.

Application controls are operating controls

This covers the manner, timing, and level of transactional approval, the
processes and procedures in executing a transaction, the technical details of
forms, files, and recording process, the strength of safekeeping and security
of contracts, records, files, and reports, and the effectiveness and efficiencies
of the internal auditing Some of these are mentioned in the preceding page.

The internal controls of an organization are designed within the constraining

criterion of cost/benefit relationship. If the costs of implementing an ideal
internal control system axceed the benefits that are expected from it, the
idealism in the intemal control principles is compromised. This puts under
pressure the principles of organizational independence, interdependence,
and reliability that may lead to errors, irregularitles, and illegal acts.

Treasurership
Controllership and treasurership constitute corporate finance. Controllership
deals with records, systems, and processes to attain the objectives of
internal controls and good managing.

Operating funds come Treasurership deals with the management of the

wealth of organizations. It includes renourome. There are basically three (3)
sources of funda-financing operating, and investing mastering the sources of
fonds and the exercise of prudence in using organizational Long term funds
came from the owners and long-term creditors. from aistomers and short
term fund providers Investing fund comes from the disposal of non-citrent
estets The functions of a treasurer are listed below

Table 2.6. The Functions of Treasurership

Functions of treasurership

Proveem for Lap

Banking and custodisnuhan

Cresin and collection

mentiments

Insurance

Area of concerns

Financing
Emanong

Emancing

Finaricing

Strategic Investing

Misk management

Financial Accounting and Management Accounting

Mariagement accounting is significantly different from financial accounting.

Their distinction relates to their orientation, emphasis, demographics of
customer being served, and body of knowledge applied. Below are the basic
differences between financial accounting and management accounting.

FA V MA

Table 2.7. Financial Accounting v. Management Accounting

FINANCIAL ACCOUNTING

Historical in nature.

Uses IFRSs (International Financial Reporting Standards).

Reports are holistic.

Reports are for general-purpose.

With unifying equation, A = L + C.

Focuses on accounting and finance.

Focuses on the process of preparing the financial staternents.

Precision.

MANAGEMENT ACCOUNTING

Based on forecasts and estimates.

Does not use IFRSs.

Reports are segmentized.

Reports are for management use only.

No unifying equation.

Multi-disciplinary, also deals with ther areas of knowledge and disci-plines.

Concerns with the usefulness of financial statements.

Timeliness

Traditionally, financial accounting is primarily concerned with historical and

estimated data Its reports are based on external standards, e.g., IFRSs,
intended primarily for externally

Interested parties in business such as, primarily, investors and creditors, and,
secondarily, customers, government regulatory agencies, stock exchanges,
trade associations, financial analyst and the general public. Financial reports
known as "financial statements are representative of the company's
operations, changes, and conditions and are prepared holistically The
scientific knowledge, approaches, and processes in financial accounting are
covered by the equation "Assets = Liabilities + Equity" This equation
captures the essence of finance and accounting. Financial accounting deals
with the methods and systema of creating and reporting relevant and
faithfully representing financial statements.

Management accounting fundamentally deals about the future and the

events that shape it. It applies assumpitons and techniques in forecasting
and estimating activities and analyzes the best schedule and portfolio in
preparing organizational resources in order to best maximize benefits and
minimize business risk. To this, general standards such as the International
Financial Reporting Standards do not serve as the primary threshold of
performance.

Management accounting dwells on details and specifics. Reports prepared for

management are more detailed, segmentized, and frequent. In the process
of producing reports, modern approaches are adopted from other areas of
knowledge such as statistics, mathematics, economics, marketing,
engineering, operations research, psychology, physics, geometry, logic,
ethics, information technology, and many more. Management accounting
deals with helping management in its task of making decisions by providing
reliable, relevant and timely quantitative information as a comprehensive
supplement to the basic financial statements and in relation to the various
areas of managing organizations.

Strategic Management Accounting, circa 1985 onwards

Management accounting information within the management accounting

system
In the most recent years the systems comprising the field of business
information have been strategically coordinated and linked. The popularity of
the management information systems powered by the amazing advances in
technology has made information processing more precise and timely. The
traditional accounting information systems have been absorbed and made
one of the components of the management information system due to a
dynamic managerial craving for reliable and useful information. Despite the
redefinition of information systems, the central importance of financial data
in the planning exercise is indelible. This makes management accounting
information still an important input in managing the affairs of an enterprise

The stability of the demand for useful financial information makes the
business of management accounting relevant and sustainable. However, the
disrupting massive developments in information technology would
incessantly bring great impacts on the meaning and delivery of management
accounting services. Some of these are discussed below.

CHAPTER 2

MANAGEMENT ACCOUNTING ENVIRONMENT

48

Interested parties in business such as, primarily, investors and creditors, and,
secondarily, customers, government regulatory agencies, stock exchanges,
trade associations, financial analyst and the general public. Financial reports
known as "financial statements are representative of the company's
operations, changes, and conditions and are prepared holistically The
scientific knowledge, approaches, and processes in financial accounting are
covered by the equation "Assets = Liabilities + Equity" This equation
captures the essence of finance and accounting. Financial accounting deals
with the methods and systema of creating and reporting relevant and
faithfully representing financial statements.

Management accounting fundamentally deals about the future and the

events that shape it. It applies assumpitons and techniques in forecasting
and estimating activities and analyzes the best schedule and portfolio in
preparing organizational resources in order to best maximize benefits and
minimize business risk. To this, general standards such as the International
Financial Reporting Standards do not serve as the primary threshold of
performance.

Management accounting dwells on details and specifics. Reports prepared for

management are more detailed, segmentized, and frequent. In the process
of producing reports, modern approaches are adopted from other areas of
knowledge such as statistics, mathematics, economics, marketing,
engineering, operations research, psychology, physics, geometry, logic,
ethics, information technology, and many more. Management accounting
deals with helping management in its task of making decisions by providing
reliable, relevant and timely quantitative information as a comprehensive
supplement to the basic financial statements and in relation to the various
areas of managing organizations.

Strategic Management Accounting, circa 1985 onwards

Management accounting information within the management accounting

system

In the most recent years the systems comprising the field of business
information have been strategically coordinated and linked. The popularity of
the management information systems powered by the amazing advances in
technology has made information processing more precise and timely. The
traditional accounting information systems have been absorbed and made
one of the components of the management information system due to a
dynamic managerial craving for reliable and useful information. Despite the
redefinition of information systems, the central importance of financial data
in the planning exercise is indelible. This makes management accounting
information still an important input in managing the affairs of an enterprise

The stability of the demand for useful financial information makes the
business of management accounting relevant and sustainable. However, the
disrupting massive developments in information technology would
incessantly bring great impacts on the meaning and delivery of management
accounting services. Some of these are discussed below.

Open and closed systems

A systemconnects theme ver to acomplish something. There is always a loop

that is normally cowtected to a Terger loop Management accounting is a
subsystem of a bigger enterprise Systern, which tubsystem of a much bigger
social system. The enterprise could elthet choose to solute teelf from the
influences of its external relations (eg, closed systern) or be an active player
on the rangaing changes in a bigger environment (eg, open system)

Management acitounting is a system in an enterprise, An enterprise is a

member of a social regulators, investors, analysts, and internal parties like
employees and associations. It is organization As such, it deals with external
parties like suppliers, customers, government also driven by changes in
techology and regulations. It receives input from various sources would
always be a driving factor to mangement and accounting. Inversely, it may
also opt and gives output as well. The dynamism of the social world cannot
be overemphasized and to influence its environment to impress its values
and processes, and to stay relevant

Contingent factors

to business environment, A contingent factor is one whose existence or

application may not happen depending on eorgistence olal structure. The
dynamism of the business environment creates the fretenzionagency in
managing business organizations. If the business operates in a highly
competitive market where there is a high degree of uncertainty and intense
price competition, it has to control costs very closely. If the strategy is on
product differentiation, it has to ermphasize its information systems on
quality processes. If the business strategy is to introduce new products
continuously, it has to meet the sophistication of a credible forecasting
capability.

Technology is a disrupting variable affecting businesses. The application of

advanced manufacturing technology, for example, has redefined the
accounting processes and the quality of its information.

Organizational structure defines the manner in which the strategy of the

business is executed.

It determines the grouping of people who are tasked to accomplish an

assigned organizational job. Essentially, the organizational design and the
distribution of people in an organization may be viewed social activities. It
creates the environment of the different relationships that can exist among
the various parts of the organization and the people within them. As the
structure changes, the motivational environment changes as well which may
have direct impact on the productivity of men and efficiency of using
materials, machines and other precious resources

Human behaviour and management accounting

Management accounting system involves people. They receive data and

provide information. information they have different ways of handling data
and give various meanings to the data simply because they are people.
People do not necessarily send information they ought to send. All of these
may result to misinformation, miscommunication, and misfortune.

Information and responsibility accounting

A responsibility center is a segment of an enterprise headed by a manager

who is responsible for its performance. Responsibility accounting Identifies
the investment, profit, revenues and expenses assigned and controlled by a
manager in a segment to monitor and assess the performance of each
organization parts.

If a manager is to be held answerable (l.e., accountable) on the performance

of the segment. then such manager should be given the right information to
make decisions accordingly.

The content of the information should be correlated with the level of details,
sphere of influenced and frequency of report to be provided within the
overriding, principle of cost-benefit analysis.

Emerging trends in management accounting

Strategic management accounting has been emerging as the new and

vibrant field of management accounting. Strategic Management Accounting
(SMA) considers external and internal influences in its information systems,
as well as financial and son-financial data, in order to arrive at the most
meaningful basis of decisions. It also emphasizes future orientation and goal
congruence.

The explosion of information triggered by databases. bid data, artificial

intelligence and machine learning, to name a few, have made knowledge
management more as a strategy than as a cost. As new observations are
made and discovered, managerial thoughts and actions flexibly confluenced
to enter a new market of services enabling the professional accountant to
emerge as a team player or to sustain organizational leadership all because
of new developments and information sytems that are made available.

The SMA has re-engineered management accounting to provide a variety of

informational needs such as product profitability, customer profitability,
pricing decisions, market and industry analysis, capacity expansion,
capability building, branding, competiton and competitor's analysis, financial
valuaton and corporate wealth analysis, cash flows, acquisitions and
mergers, introduction of new technology, and decisions to leave or enter a
business, among others.

These needs for management accounting have been driven by the

continuing changes in management philosophy, processes and techniques
which were in turn disrupted by technological changes affecting the business
environment. Total quality management, activity-based management,
process reengineering, supply-chain analysis, value-chain analysis, balanced
scorecard, continuous improvement, product life-cycle costing and analysis,
learning curve analysis, enterprise resources planning, materials resources
planning, computer-aided manufacturing, flexible manufacturing systems,
lean accounting, resource consumption accounting, throughput accounting,
and many more are now totally considered In redefining the meaning and
usefulness of the new management accounting. These topics

are discussed more extensively in chapters 12 and 13.

Listed below are the primary tasks/services performed by management
accountants. The degree of complexity relative to these activities is
dependent on the experience level and abilities of an individual

Rate & Volume Analysis

Business Metrics Development

Price Modeling

Product Profitability

Geographic vs. Industry or Client Segment Reporting

Sales Management Scorecards

Cost Analysis

Cost Benefit Analysis

Cost-Volume-Profit Analysis

Life cycle cost analysis

Client Profitability Analysis

IT Cost Transparency

Capital Budgeting Buy vs. Lease Analysis Strategic Planning Strategic

Management Advise Internal Financial Presentation and Communication
Sales and Financial Forecasting Annual Budgeting Cost Allocation

The 4G, 5G, and IOT

The Interet Things ( The Internet of Things (IOT), the 4th Generation (4G),
and the 5th Generation (5G) dawn of the capability of machines to be
intelligently interconnected resulting to outcomes and IOL) possibilities
challenging the basic comprehension and rationality of men. Some of its new
features are cloud computing, mobile learning, artificial intelligence, brain
mapping, 3d printing, blockchain, wearable technology, gamification,
advanced robotics, autonomous transport, biotechnology, and genomics,

As billions of machines are interconnected globally and knowledge exploding

to an immeasurable quantum of scale never thought of before, the power of
individuals to create things and inspire innovations have fostered a new
world order so powerful and so dedicated to uphold the entrepreneurial
purpose of ushering happiness and delight to men. These massive
disruptions driven by the unkown impact of the 5th Generation would make
the future of managing highly uncertain and provocative. To this, a new and
adapting standard of decorum for professional accountants would be gamely
put in use.

Truly, management accounting has now approached a new level of

framework and intellegence to sustain its relevance and serviceability.

CHAPTER 2

MANAGEMENT ACCOUNTING ENVIRONMENT

are discussed more extensively in chapters 12 and 13.

Listed below are the primary tasks/services performed by management

accountants. The degree of complexity relative to these activities is
dependent on the experience level and abilities of an individual

Rate & Volume Analysis

Business Metrics Development

Price Modeling

Product Profitability

Geographic vs. Industry or Client

Segment Reporting

Sales Management Scorecards

Cost Analysis

Cost Benefit Analysis

Cost-Volume-Profit Analysis

Life cycle cost analysis

Client Profitability Analysis

IT Cost Transparency

Capital Budgeting

Buy vs. Lease Analysis

Strategic Planning

Strategic Management Advise

Internal Financial Presentation and Communication

Sales and Financial Forecasting

Annual Budgeting
Cost Allocation

The 4G, 5G, and IOT

The Interet Things (

The Internet of Things (IOT), the 4th Generation (4G), and the 5th Generation
(5G) dawn of the capability of machines to be intelligently interconnected
resulting to outcomes and IOL) possibilities challenging the basic
comprehension and rationality of men. Some of its new features are cloud
computing, mobile learning, artificial intelligence, brain mapping, 3d printing,
blockchain, wearable technology, gamification, advanced robotics,
autonomous transport, biotechnology, and genomics,

As billions of machines are interconnected globally and knowledge exploding

to an immeasurable quantum of scale never thought of before, the power of
individuals to create things and inspire innovations have fostered a new
world order so powerful and so dedicated to uphold the entrepreneurial
purpose of ushering happiness and delight to men. These massive
disruptions driven by the unkown impact of the 5th Generation would make
the future of managing highly uncertain and provocative. To this, a new and
adapting standard of decorum for professional accountants would be gamely
put in use.

Truly, management accounting has now approached a new level of

framework and intellegence to sustain its relevance and serviceability.

Following is the Standards for Ethical Conduct for Practitioners of

Management Accounting and Financial Management published in
1997 by the Institute of Management Accountants, previously
National Association of Accountants.

APPENDIX 2.1

STANDARDS FOR ETHICAL CONDUCT FOR PRACTITIONERS OF MANAGEMENT

ACCOUNTING AND FINANCIAL MANAGEMENT
Practitioners of management accounting and financial management have an
obligation to the organizations they serve, their profession, the public, and
themselves to maintain the highest standards of ethical conduct. In
recognition of this obligation, the Institute of Management Accountants has
promulgated the following standards of ethical conduct for practitioners of
management accounting and financial management. Adherence to these
standards, both domestically and internationally, is integral in achieving the
objectives of Management Accounting. Practitioners of management
accounting and financial management shall not commit acts contrary to
these standards nor shall they condone the commission of such acts by
others within their organizations.

Competence

Practitioners of management accounting and financial management have a

responsibility to:

 Maintain an appropriate level of professional competence by ongoing

development of their knowledge and skills.
 Perform their professional duties in accordance with relevant laws,
regulations, and technical standards.
 Prepare complete and clear reports and recommendations after
appropriate analysis of relevant and reliable information.

Confidentiality

Practitioners of management accounting and financial management have a

responsibility to:

 Refrain from disclosing confidential information acquired in the course

of their work, except when authorized, and legally obligated to do so.
 Inform subordinates as appropriate regarding the confidentiality of
information acquired in the course of their work and monitor their
activities to assure the maintenance of that confidentiality
 Refrain from using or appearing to use confidential information
acquired in the course of their work for unethical or illegal advantage
either personally or through third parties

Integrity

Practioners of marlegerment accounting and financial manitgerrient have a

responsibility to:
  Avold actual o iepperevit conflict of interests and advise all appropriate
parties of any potential conflict
 Artist from engaging in any activity that would prejudice their ability to
carry out Their chimes ethically
 Before any gift, favor, or hospitality that would influence or would
appear to Influence thelt actions
 Refrain front actively or passively subverting the attainment of the
organization's legitimate and ethical objectives
 Recognize and communicate professional limitations or other
constraints that performance of an Communicate unfavorable as well
as favorable information and professional
 Refrain from engaging in or supporting any activity that would discredit
the profession.

Objectivity

Practitioners of management accounting and financial management have a

responsibility to:

 Communicate information fairly and objectively.

 Disclose fully all relevant information that could reasonably be
expected to Influence an intended user's understanding of the reports,
comments, and recommendations presented

Resolution of Ethical Conflict

In applying the standards of ethical conduct, practitioners of management

accounting and financial management may encounter problems in
identifying unethical behavior or in resolving an ethical conduct. When faced
with significant ethical issues, practitioners of management accounting and
financial management should follow the established policies of the
organization bearing on the resolution of such conflict. If these policies do
not resolve the ethical conduct, such practitioner should consider the
following actions:

 Discuss such problem with the immediate superior except when it

appears that the superior is involved, in which case the problem should
be presented initially to the next higher managerial level. If a
satisfactory resolution cannot be achieved when the problem is initially
presented, submit the issues to the next higher managerial level.
 If the immediate superior is the Chief Executive Officer, or equivalent,
the acceptable reviewing authority may be a group, such as the audit
committee, executive committee, board of directors, board of trustees,
or owners. Contact with levels above the immediate superior should be
initiated only with the superior's knowledge assuming the superior is
not involved. Except when legally prescribed, communication of such
problems to authorities or individuals not employed or engaged by the
organization is not considered appropriate.
 Clarify relevant ethical issues by confidential discussion with an
objective advisor (e.g.. IMA Ethics Counseling Service) to obtain a
better understanding of possible courses of action.
 Consult your own attorney as to legal obligations and rights concerning
the ethical conduct.
 If the ethical conflict still exists after exhausting all levels of internal
review, there may be no other recourse on significant matters than to
resign from the organization and to submit an informative
memorandum to an appropriate representative of the organization.
After resignation, depending on the nature of the ethical conflict, it
may also be appropriate to notify other parties.