Introduction/Overview

This module compares financial and management accounting, stresses the importance of professional ethics,
and introduces the organizational setting and environment in which the management accountant must operate.

Learning Outcomes
After completing this module, you should be able to answer the following questions:

1. What are the differences between financial and management accounting?

2. What are the sources of ethical standards for management accountants?
3. What are the basic management functions and concepts?
4. What are the roles and activities of controller and treasurer?

Lesson 1
What are the differences between financial and management accounting?

Accounting information addresses three different functions like (1) providing information to external parties
for investment and credit decisions (2) estimating the cost of products produced and services provided by the
organization; and (3) providing information useful to internal managers who are responsible for planning,
controlling, decision making, and evaluating performance.

Financial accounting is designed to meet external information needs and to comply with generally accepted
accounting principles. Financial accounting information is typically historical, quantitative, monetary, and
verifiable and usually reflects the activities of the whole organization.

Management accounting attempts to satisfy internal information needs and to provide product costing
information for external financial statements. It comprises the financial and nonfinancial information needed
by internal users. Management accounting information is not required to adhere to GAAP and thus can provide
both historical and forward-looking information to managers. This information commonly addresses individual
or divisional concerns rather than those of the firm as a whole.

Click the links below to watch videos about:

1. Introduction to Management Accounting

2. Financial vs. Management Accounting

Lesson 2
What are the sources of ethical standards for management accountants?

Certified Management Accountants (CMA) must adhere to the standards of ethical conduct published in the
Statement of Ethical Professional Practice issued by the Institute of Management Accountants (IMA). The
IMA’s Code of Ethics has four standards: Competence, Confidentiality, Integrity and Credibility.

Refer to the link below for more information about IMA.

https://www.imanet.org/-/media/b6fbeeb74d964e6c9fe654c48456e61f.ashx
Lesson 3
What are the basic management functions and concepts?

Basic Management Function

• Planning requires management to look ahead and to establish objectives and strategies to meet the
mission and vision of the company.
• Organizing involves the determination of activities that need to be done in order to reach the company
goals, assigning these activities to the proper personnel, and delegating the necessary authority to carry
out these activities in a coordinated and cohesive manner.
• Staffing involves the process of recruiting, training, developing, compensating and evaluating
employees and maintaining this workforce with proper incentives and motivations.
• Directing involves articulating a vision, energizing employees, inspiring and motivating people using
vision, influence, persuasion, and effective communication skills.
• Controlling is the process of keeping the activities on track. It means comparing the actual results to the
budget and making corrective actions to the when goals are not met.

Lesson 4
What are the basic management concepts and what the roles and activities of controller and treasurer?

The organizational mission and strategy are important to management accountants because such statements
help to:

• indicate appropriate measures of accomplishment.

• define the development, implementation, and monitoring
• processes for the organizational information systems.

Organizational strategy may be constrained by

• monetary capital, intellectual capital, and/or technology.

• external cultural, fiscal, legal/regulatory, or political situations.
• competitive market structures.

An organization is composed of people, resources other than people, and commitments that are acquired and
arranged to achieve organizational strategy and goals. Organizational structure reflects the way in which
authority and responsibility for making decisions are distributed in an organization. Authority refers to the right
(usually by virtue of position or rank) to use resources to accomplish a task or achieve an objective.
Responsibility is the obligation to accomplish a task or achieve an objective.

Work in organizations is directed by line personnel who work directly toward attaining organizational goals,
and staff personnel who give assistance and advice to line managers.

a. The treasurer is generally responsible for achieving short- and long-term financing, investing, and cash
management goals.
b. The controller is responsible for delivering to management financial reports in conformity with GAAP.
Management style, the way managers interact with the entity’s stakeholders, especially employees, impacts
the organization’s decision-making processes, risk taking, willingness to encourage change, and employee
development.

Organizational culture refers to the basic manner in which the organization interacts with its business
environment, the way in which employees interact with each other and with management, and the underlying
beliefs and attitudes held by employees about the organization.

The value chain is a set of value-adding functions or processes that convert inputs into products and services
for the organization’s customers.
It includes Research and Development, Design, Supply, Production, Marketing, Distribution, Customer Service

The balanced scorecard (BSC) is a framework that restates an organization’s strategy into clear and objective
performance measures focused on customers, internal business processes, employees, and shareholders. The
BSC includes long-term and short-term, internal and external, financial and nonfinancial measures to balance
management’s view and execution of strategy. The balanced scorecard has four perspectives: learning and
growth, internal business perspective, customer value perspective, financial perspective.

Lesson 5
International certification in management accounting.

IMA® (Institute of Management Accountants) is the worldwide association of accountants and financial
professionals in business. Founded in 1919, we are one of the largest and most respected associations focused
exclusively on advancing the management accounting profession.

Click the link to see the IMA’s website for more discussion about International Certification in Management
Accounting.

https://www.imanet.org/?ssopc=1
Exercises

1. Select the incorrect comparison between financial and management accounting:

Financial Accounting Management Accounting

a. Primary focus External Internal

b. Overriding criteria Verifiability GAAP
c. Information timeframe Historical Current/future
d. Recordkeeping Formal Formal and informal

2. Statements on Management Accounting (SMA) are directives on the practice of management and cost
accounting. Select the incorrect statement concerning SMAs from the following.

a. SMAs are issued by the Cost Accounting Standards Board.

b. SMAs are not legally binding.

c. SMAs go through a rigorous developmental and exposure process.

d. SMAs describe high-quality or best practices in management accounting.

3. A management accountant who fails to perform professional duties in accordance with relevant
standards is acting contrary to which of thefollowing standards?

a. Competency

b. Integrity

c. Objectivity

d. Confidentiality

4. The IMA Code of Ethics requires a management accountant to follow the established policies of the
organization when facing an ethicalconflict. When management accountants fail to resolve an ethical conflict
by talking with their immediate supervisor, they should

a. communicate the problem to authorities outside the organization.

b. contact the next higher managerial level.

c. notify the audit committee of the board of directors.

d. contact the chief financial officer.

5. According to the IMA Code of Ethics a practitioner has the responsibility to recognize professional
limitations. Under which standard ofethical conduct would this responsibility be included?

a. Competency

b. Confidentiality
 c. Integrity

d. Objectivity

6. Strategic planning includes all of the following except:

a. top-level management participation.

b. a long-term focus.

c. analysis of the current month’s actual variances from budget.

d. identification of long-term key variables including external influences.

7. The strategy that is being used by a company that seeks to provide superior quality products or more
unique services than its competitors is

a. cost leadership strategy.

b. differentiation strategy.

c. customer value strategy.

d. value chain strategy.

8. All of the following are staff personnel except:

a. production supervisor.

b. cost accountant.

c. corporate controller.

d. tax accountant.

9. An organization’s collection of knowledge, skills, and information is referred to as its

a. political capital.

b. qualitative capital.

c. intangible capital.

d. intellectual capital.

10. All of the following are examples of upstream functions in the value chain except

a. supply.

b. research and development.

c. production.

d. design.
11. Which balanced scorecard perspective focuses on those things that the organization must do well to
meet customer needs and expectations?

a. Customer perspective

b. Learning and growth perspective

c. Financial perspective

d. Internal business perspective

Answer:

1. b

2. a

3. a

4. b

5. c

6. c

7. b

8. a

9. d

10. c

11. d

Reference/s

Kinney, M. R., & Raiborn, C. A. Cost Accounting: Foundations and Evolutions, Eighth Edition.

www.imanet.org