management accounting - ch1

management accounting
Chapter 1

Users of accounting information fall into two general categories:
1.internal managers -- use the information for day-to-day operating decisions and for long-range statistic decisions
2.external parties -- use the information for making decisions about the company such as investors and government authorities

Management accounting -- the branch of accounting that produces information for managers within an organization. It is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information that helps managers for fill organizational objectives.
Financial accounting -- the branch of accounting that develops information for external decision-makers such as stockholders, suppliers, banks, and government regulatory agencies.
Score keeping -- the accumulation and classification of data
attention directing -- reporting and interpreting information that helps managers to focus on operating problems, imperfections, inefficiencies, and opportunities
problem-solving -- the aspect of accounting that often involves a special study to assess possible courses of action and recommends the best course to follow
Accounting system -- a formal mechanism for gathering, organizing, and communicating information about an organization's activities
generally accepted accounting principles (GAAP) -- a set of standards to which public companies published financial statements must adhere
Foreign Corrupt Practices Act -- a US law for bidding bribery and other corrupt practices. The law also requires all public companies to maintain their accounting records in reasonable detail and accuracy and have an appropriate system of internal controls
internal controls -- policies to protect and make the most efficient use of an organization's assets
management audits -- a review to determine whether managers are implementing the policies and procedures specified by top management
Sarbanes-Oxley Act -- a 2002 law that requires more top management oversight of a company's accounting policies and procedures
cost benefit balance -- weighing estimated costs against probable benefits, the primary consideration in choosing among accounting systems and methods
behavioral implications -- the accounting systems affect on the behavior, specifically the decisions of managers
decision-making -- the purposeful choice from among a set of alternative courses of action designed to achieve some objective
There are two basic types of decisions with an organization:
1.planning decisions
2.control decisions
Planning -- setting objectives for an organization and outlining how it will attain them
controlling -- implementing plans and using feedback to attain objectives
budget -- a quantitative expression of a plan of action and an aide to coordinating and implementing the plan
performance reports -- feedback provided by comparing results with plans and by highlighting variances
variances -- deviations from plans
Management by exception -- concentrating on areas that deviate from the plan and ignoring areas that are presumed to be running smoothly
Product lifecycle -- the various stages through which a product passes, from conception and development to introduction into the market to maturation and, finally, withdrawal from the market
value chain -- the set of business functions or activities that add value to the products or services of the organization

common value chain:
research and development -- the generation of, and experimentation with, ideas related to new products, services, or processes
design of products, services, or processes -- the detailed design and engineering of products
production -- the coordination and assembly of resources to produce a product or delivery service
marketing -- the manner by which individuals or groups learn about the value in features of products and services
distribution -- the mechanism by which a company delivers products and services to the customer
customer service -- the support activities provided to the customer
support functions -- the support activities provided to other internal business functions such as management information systems, and accounting
Line managers -- managers who are directly involved with making and selling the organization's products or services
staff managers -- managers who are advisory to the line managers. They have no authority over line managers, but they help the line managers by providing information and advice
Chief financial Officer (CFO) -- a top executive who deals with all finance and accounting issues in an organization. The CFO generally oversees the accounting functions
Treasurer -- a manager who is concerned mainly with the company's financial matters such as raising and managing cash
controller (Comptroller) -- the top accounting officer of an organization who deals mainly with operating matters such as aiding management decision-making

Controllership:
planning for control
reporting and interpreting
evaluating and consulting
tax administration
government reporting
protection of assets
economic appraisal

Treasurership:
provision of capital
investor relations
short-term financing
banking and custody
credits and collections
investments
risk management (insurance)

Certified public accountant (CPA) -- in the United States, independent accountants who reassure the public about the reliability of companies published financial statements
chartered accountant (CA) -- the equivalent to a CPA in many countries
certified Management accountant (CMA) -- the Management accountants counterpart to the CPA
Institute of Management Accountants (IMA) -- the largest US professional organization of accountants focused on internal accounting. It oversees the CMA program.

CMA's must pass a four-part examination:
1.economics, finance, and management
2.financial accounting and reporting
3.management reporting, analysis, and behavioral issues
4.decision analysis and information systems

Electronic commerce (e-commerce) -- conducting business online
B2C -- electronic commerce from business to consumer
B2B -- electronic commerce from one business to another business
enterprise resource planning (ERP) systems -- integrated information systems that support all functional areas of a company
XBRL -- an XML-based accounting language that helps communicate financial information electronically
Business process reengineering -- the fundamental rethinking and radical redesign of business processes to improve performance in areas such as cost, quality, service, and speed
just in time (JIT) philosophy -- a philosophy to eliminate waste by reducing the time product spend in the production process and eliminating the time product spend on activities that do not add value
computer integrated manufacturing (CIM) systems -- systems that use computer aided design, computer aided manufacturing, robots, and computer-controlled machines
total quality Management (TQM) -- initiatives that minimize costs by maximizing quality
six Sigma -- a continuous process improvement effort designed to reduce costs by improving quality
Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management (developed by the IMA) -- codes of conduct develop by the Institute of Management Accountants; these codes include competence, confidentiality, integrity, and objectivity
code of conduct -- a document specifying the ethical standards of an organization

Summary
Major users and uses of accounting information.
Internal managers use accounting information for making short-term plan and control decisions, for making nonroutine decisions, and for formulating overall policies and long-range plans.
External users such as investors and regular tour's use published financial statements to make investment decisions, regulatory rulings, and many other decisions.
Managers use accounting information to answer score keeping, Attn: directing, and problem-solving questions.

Managerial accounting ethics.
Integrity is essential to accountants because they provide information that users must trust to be right. Users cannot directly assess the quality of accounting data, and if they cannot rely on accountants to produce unbiased information, the information will have little value to the user.

Cost-benefit and behavioral issues involved in designing and accounting system.
Companies design management accounting information systems for the benefit of managers. These systems should be judged by a cost-benefit criterion -- the benefits of better decisions should exceed the cost of the system. Behavioral factors -- how the system affects managers and their decisions -- greatly affect the benefit of a system.

The role of budgets and performance reports in planning and control.
Budgets and performance reports are essential tools for planning and control. Budgets result from the planning process. Managers use them to translate the organization's goals into action. A performance report compares actual results to the budget. Managers use these reports to monitor, evaluate, and reward performance and thus exercise control.

Accountants in the company's value chain.
Accountants play a key role in planning and control. Throughout the company's value chain, accountants gather and report cost and revenue information for decision-makers.

Controllers and treasurers.
Accountants are staff employees who provide information and advice for the line managers. The head of accounting is often called the controller. Unlike the treasurer, who is concerned mainly with financial matters such as raising capital and investing excess funds, the controller measures and reports on operating performance.

Accounting careers.
Accounting skills are useful in many functional areas of the organization. Management accountants often work with managers throughout the company and learn much from them. This exposure makes Management accountants prime candidates for promotions to operating and executive positions.

Management accounting trends.
Many factors have caused changes in accounting systems in recent years. Most significant are globalization, technology, and changed business processes. Without continuous adaptation and improvement, accounting systems will soon become obsolete.

Professional accountants code of ethical conduct.
Users of accounting information expect both external and internal accountants to adhere to high standards of ethical conduct. Many ethical dilemmas, however, require value judgments, not the simple application of standards.