Managerial Accounting:

An Overview
PROLOGUE

Managerial
Accounting
Eighteenth edition
 P-2

Financial and Managerial

Accounting: Seven Key Differences
Financial Accounting Managerial Accounting
Users External persons who Managers who plan for
make financial decisions and control an organization

Time focus Historical perspective Future emphasis

Verifiability Emphasis on Emphasis on

objectivity and verifiability relevance

Precision Emphasis on Emphasis on

precision timeliness

Subject Primary focus is on Focus on

companywide reports segment reports

Rules Must follow GAAP / IFRS Not bound by GAAP / IFRS

and prescribed formats or any prescribed format
Requirement Mandatory for Not
external reports Mandatory

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 P-3

Work of Management

Planning

Controlling

Decision
Making

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 P-4

Planning

Establish Goals.

Specify How Goals

Will Be Achieved.

Develop Budgets.

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 P-5

Controlling

The control function gathers feedback to

ensure that plans are being followed.

Feedback in the form of performance reports

that compare actual results with the budget
are an essential part of the control function.

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 P-6

Decision Making

Decision making involves making a

selection among competing alternatives.

What should
we be selling?
Who should
we be serving?
How should
we execute?

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 P-7

Planning: Marketing Majors

Planning

How much should we budget for TV,

print, and internet advertising?

How many salespeople should we

plan to hire to serve a new territory?

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 P-8

Controlling: Marketing Majors

Controlling

Is the budgeted price cut increasing

unit sales as expected?

Are we accumulating too much

inventory during the holiday
shopping season?
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Decision Making: Marketing
P-9

Majors

Decision
Making

Should we sell our services as

one bundle or sell them
separately?

Should we sell directly to

customers or use a distributor?
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 P-10

Planning: Supply Chain

Management Majors

Planning

How many units should we plan to

produce next period?

How much should we budget for

next period’s utility expense?

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 P-11

Controlling: Supply Chain

Management Majors

Controlling

Did we spend more or less than

expected for the units we actually
produced?

Are we achieving our goal of

reducing the number of defective
units produced?
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 P-12

Decision Making: Supply Chain

Management Majors

Decision
Making

Should we transfer production of a

component part to an overseas
supplier?
Should we redesign our manufacturing
process to lower inventory levels?

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 P-13

Planning: Human Resource

Management Majors

Planning

How much should we plan to

spend for occupational safety
training?

How much should we plan to

spend on employee recruitment
advertising?
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 P-14

Controlling: Human Resource

Management Majors

Controlling

Is our employee retention rate

exceeding our goals?

Are we meeting our goal of

completing timely performance
appraisals?
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 P-15

Decision Making: Human

Resource Management Majors

Decision
Making

Should we hire an on-site medical

staff to lower our healthcare costs?

Should we hire temporary workers or

full-time employees?
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 P-16

Accounting Majors
A large portion of accounting majors will
engage in nonpublic accounting employment
at some point throughout their careers.

Employers expect accounting majors to

have strong financial accounting skills, but
they also expect application of the planning,
controlling, and decision making skills that
are the foundation of managerial accounting.

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 P-17

Certified Management
Accountant (CMA)

To become a CMA
requires membership in the
Institute of Management Accountants,
a bachelor’s degree from an accredited
college, two continuous years of relevant
professional experience, and passage
of the CMA exam.

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 CMA Exam Content
P-18

Specifications
Part 1 Financial Reporting, Planning, Performance, and Control
External financial reporting decisions
Planning, budgeting, and forecasting
Performance management
Cost management
Internal controls
Technology and analytics

Part 2 Financial Decision Making

Financial statement analysis
Corporate finance
Decision analysis
Risk management
Investment decisions
Professional ethics
Information about becoming a CMA and the CMA program can be accessed on the
IMA’s website (www.imanet.org) or by calling 1-800-638-4427.

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 P-19

Chartered Global Management

Accountant (CGMA)

The CGMA designation is co-sponsored by the American

Institute of Certified Public Accountants (AICPA) and the
Chartered Institute of Management Accountants (CIMA). One
pathway to the CGMA requires a bachelor’s degree in
accounting (accompanied by a total of 150 college credit-hours),
passage of the Certified Public Accountant (CPA) exam,
membership in the AICPA, three years of relevant management
accounting work experience, and passage of the CGMA exam—
which is a case-based exam that focuses on technical skills,
business skills, leadership skills, people skills, and ethics,
integrity, and professionalism.

Information about becoming a CGMA is available at www.cgma.org.

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 P-20

Managerial Accounting: Planning,

Controlling, and Decision Making

The primary purpose Planning

of this course is to
teach measurement
skills that managers
Controlling
use to support
planning, controlling,
and decision making
Decision
activities.
Making
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 P-21

Managerial Accounting:
Measurement Skills

Measurement How should I create a financial

skills help plan for next year?
managers
answer
important How well am I performing
questions. relative to my plan?

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 P-22

Managerial Accounting:
Understanding the Broader Context
This book teaches measurement skills that managers use
on the job every day. Managers need to apply these
measurement skills in a broader business context to enable
intelligent planning, control, and decision making. This
context includes topics such as:
1. Big Data
2. Ethics
3. Strategic Management
4. Enterprise Risk Management
5. Environmental, Social, and Governance (ESG)
Responsibility
6. Process Management
7. Leadership
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 P-23

Big Data
Big Data refers to large collections of data that are gathered from inside or
outside a company to provide opportunities for ongoing reporting and
analysis.

The 5 ‘Vs’:
Variety refers to the data formats in which information is stored.
Volume refers to the continuously expanding quantity of data that
companies must gather, cleanse, organize.
Velocity speaks to the rate at which data is received and acted on by
organizations.
Value implies that the time and money organizations expend to analyze Big
Data.
Veracity refers to the fact that users expect their data to be accurate and
trustworthy.

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 P-24

Data Analytics
Data analytics refers to the process of analyzing data with the aid of
specialized systems and software to draw conclusions about the information
they contain.

Managers often communicate the findings from their

data analysis to others through the use of data
visualization techniques, such as graphs, charts, maps,
and diagrams.

Data analytics can be used for descriptive, diagnostic,

predictive, and prescriptive purposes.

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 P-25

Ethics
The Institute of Management Accountant’s (IMA)
Statement of Ethical Professional Practice provides
guidelines for ethical behavior.
Recognize and communicate professional
limitations that preclude responsible judgment.

Maintain Follow applicable

professional Competence laws, regulations,
competence. and standards.

Provide accurate, clear, concise, and

timely decision support information.
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 P-26

IMA Guidelines:
Confidentiality
Do not disclose confidential
information unless legally
obligated to do so.

Do not use
confidential
information for Confidentiality
unethical or illegal
advantage.
Ensure that all relevant
parties do not disclose
confidential information.
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 P-27

IMA Guidelines: Integrity

Mitigate conflicts of interest
and advise others of
potential conflicts.
Refrain from
conduct that
would prejudice Integrity
carrying out
duties ethically,
and work to
contribute to a Abstain from activities that
positive ethical might discredit the
culture. profession.

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 P-28

IMA Guidelines: Credibility

Communicate information
fairly and objectively.
Disclose delays or
deficiencies in
Credibility information timeliness,
processing, or internal
controls.

Disclose all relevant information that could influence

a user’s understanding of reports
and recommendations, and communicate any
professional limitations that would preclude
successful performance of an activity.
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 P-29

IMA Guidelines for Resolution

of an Ethical Conflict – Part 1
Follow employer’s established policies.
If this does not work, consider the following:
◦ Discuss the conflict with immediate supervisor or
next highest uninvolved managerial level.
◦ If immediate supervisor is the CEO, consider the
board of directors or the audit committee.
◦ Contact with levels above the immediate supervisor
should only be initiated with the supervisor’s
knowledge, assuming the supervisor is not
involved.

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 P-30

IMA Guidelines for Resolution

of an Ethical Conflict – Part 2
If following employer’s established policies for
conflict resolution do not work, consider these
additional practices:
◦ Except where legally prescribed, maintain
confidentiality.
◦ Clarify issues in a confidential discussion with an
objective advisor.
◦ Consult an attorney as to legal obligations.

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 P-31

Why Have Ethical Standards?

Ethical standards in business are essential for a
smooth functioning economy.

Without ethical standards in business, the

economy, and all of us who depend on it for
jobs, goods, and services, would suffer.

Abandoning ethical standards in business would

lead to a lower quality of life with less
desirable goods and services at higher prices.

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 P-32

Strategy
A strategy
is a “game plan”
that enables a company
to attract customers
by distinguishing itself
from competitors.

The focal point of a

company’s strategy should
be its target customers.
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 P-33

Customer Value Propositions

Customer
Understand and respond to
Intimacy
individual customer needs.
Strategy

Operational Deliver products and services

Excellence faster, more conveniently,
Strategy and at lower prices.

Product
Leadership Offer higher quality products.
Strategy

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 P-34

Enterprise Risk Management

A process used by a company to proactively

identify and manage risk. This includes
considering whether to avoid the risk,
accept the risk, or reduce the risk?

Once a company identifies its risks, perhaps the

most common risk management tactic is to reduce
risks by implementing specific controls.

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 P-35

Identifying and Controlling

Business Risks
Examples of Controls to
Examples of Business Risks Reduce Business Risks
● Intellectual assets stolen from ● Create firewalls that prohibit com-
computer files puter hackers from corrupting or
stealing intellectual property
● Products harming customers ● Develop a formal and rigorous
new product testing program
● Losing market share due to the ● Develop an approach for legally
unforeseen actions of competitors gathering information about
competitors' plans and practices
● Poor weather conditions shutting ● Develop contingency plans for
down operations overcoming weather-related
disruptions
● A website malfunctioning ● Thoroughly test the website
before going "live" on the Internet
● A supply strike halting the flow of ● Establish a relationship with two
raw materials companies capable of providing
needed materials

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 P-36

Types of Internal Controls for

Financial Reporting
Type of Control Classification Description
Authorizations Preventive Requiring management to formally approve certain types
of transactions.
Reconciliations Detective Relating data sets to one another to identify and resolve
discrepancies.
Segregation of Preventive Separating responsibilities related to authorizing
duties transactions, recording transactions, and maintaining
custody of the related assets.
Physical Preventive Using cameras, locks, and physical barriers to protect
safeguards assets.
Performance Detective Comparing actual performance to various benchmarks to
reviews identify unexpected results.
Maintaining Detective Maintaining written and/or electronic evidence to support
records transactions.
Information Preventive/ Using controls such as passwords and access logs to
systems security Detective ensure appropriate data restrictions.

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 P-37

Environmental, Social, and

Governance Responsibility Perspective

Environmental, social, and governance responsibility

(ESG) is a concept whereby organizations consider
the needs of all stakeholders when making decisions.

Environmental
Customers Employees Suppliers Communities Investors & Human Rights
Advocates

ESG extends beyond legal compliance to include

voluntary actions that satisfy stakeholder expectations.

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 P-38

Examples of Environmental, Social,

and Governance Responsibility

Many of the examples in Exhibit P–9 were drawn from PwC’s website. You can view more examples by visiting
https://www.pwc.com/sk/en/environmental-social-and-corporate-governance-esg/esg-reporting.html.

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A Process Management
P-39

Perspective

A business process
is a series of steps that are
followed in order to carry out some
task in a business.

Product Customer
R&D Manufacturing Marketing Distribution
Design Service

Business functions making up the value chain

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 P-40

Lean Production

Customer Create Generate

places an Production component
order Order requirements

Goods Production
delivered begins as Components
when parts arrive are ordered
needed

Lean Production is often called Just-In-Time (JIT) production.

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 P-41

Lean Production: Traditional

Manufacturing

Traditional Manufacturing

Produce Make Sales

goods in Store from Finished
anticipation of Inventory Goods
Sales Inventory

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 P-42

Lean Production: Benefits

Because lean thinking only allows production in

response to customer orders, the number of units
produced tends to equal the number of units sold.

The lean approach also results in fewer defects,

less wasted effort, and quicker customer response
times than traditional production methods.

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 P-43

Leadership
Organizational leaders unite the behavior
of employees around two common
themes—pursuing strategic goals and
making optimal decisions.

Factors that influence behavior:

• Intrinsic Motivation
• Extrinsic Incentives
• Cognitive Bias

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 P-44

End of Prologue

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