Managerial Accounting

Session 1
Managerial Accounting
– An Overview

Ng Eng Wan
FCPA CIA ACMA CGMA
Learning Objectives
•
1.1 Identify managers’ three primary responsibilities
•
1.2 Distinguish financial accounting from managerial
accounting
•
1.3 Describe the roles and skills required of
management accountants within the organization
•
1.4 Describe the role of the Institute of Management
Accountants (IMA) and apply its ethical standards
•
1.5 Discuss the business trends and regulations
affecting management accounting
What Is Managerial Accounting?

Management accounting involves:

• partnering in management decision making
• devising planning and performance
management systems
• providing expertise in financial reporting and
control
Learning Objective 1

Identify managers’ three primary

responsibilities
Managers’ Three Primary
Responsibilities (1 of 2)
Managers’ Three Primary
Responsibilities (2 of 2)
• Planning: setting goals and objectives and how to
achieve them
(budgeting)
• Directing: overseeing the company’s day-to-day
operations
(business partnering)
• Controlling: evaluating the results of business
operations and making adjustments as needed
(reporting, business partnering)
Role of Management
Accounting
• Management accounting building block
• Determining unit cost
• Making decisions
• Planning
• Controlling & evaluating
Learning Objective 2

Distinguish financial accounting from

managerial accounting
Managerial Versus Financial Accounting
(1 of 3)
Managerial Versus Financial Accounting
(2 of 3)
Managerial Versus Financial Accounting
(3 of 3)
Learning Objective 3

Describe the role and skills required

of management accountants within
the organization
Role of Management Accountants

• Use immense critical thinking, insight, and

judgment
• Valued financial advisors
• Assist with making critical business decisions
Skills Required of Management
Accountants
CGMA/CIMA
Competency
Framework
Managerial Accounting Is Important
to All Careers
• Entrepreneurs
• Business Management
• Marketing and Sales
• Nonbusiness Majors
Typical Organizational Structure
Learning Objective 4

Describe the role of the Institute of

Management Accountants (IMA) and
apply its ethical standards
Leading Global Professional Finance
Qualifications

• CPA Australia, Australia

• ICAEW, UK
• ACCA, UK
• CIMA/CGMA, UK/USA ( management accountants)
• CMA, USA (management accountants)
• CIA, USA
• CFA, USA
Institute of Management
Accountants (IMA)
• Professional association for management
accountants in the United States
• Mission: provide a forum for research,
practice development, education, knowledge
sharing, and advocacy of the highest ethical
and best practices in management
accounting and finance
• Issues the Certified Management Accountant
(CMA) certification
IMA’s Statement of Ethical
Professional Practice
 IMA Guidelines for Ethical
Behavior
Recognize
Recognize and
and communicate
communicate
professional
professional limitations
limitations that
that
preclude
preclude responsible
responsible judgment.
judgment.

Maintain
Maintain Follow
Follow applicable
applicable
professional
professional Competence laws,
laws, regulations
regulations
competence.
competence. and
and standards.
standards.

Provide
Provide accurate,
accurate, clear,
clear, concise,
concise,
and
and timely
timely decision
decision support
support
information.
information.
 IMA Guidelines for Ethical
Behavior
Do
Do not
not disclose
disclose confidential
confidential
information
information unless
unless legally
legally
obligated
obligated to
to do
do so.
so.

Do
Do not
not use
use
confidential
confidential
information
information forfor Confidentiality
Confidentiality
unethical
unethical or
or illegal
illegal
advantage.
advantage.

Ensure
Ensure that
that subordinates
subordinates do
do not
not
disclose
disclose confidential
confidential
information.
information.
IMA Guidelines for Ethical
Behavior
Mitigate
Mitigate conflicts
conflicts of
of interest
interest
and
and advise
advise others
others of
of potential
potential
conflicts.
conflicts.
Refrain
Refrain from
from
conduct
conduct that
that would
would
prejudice
prejudice carrying
carrying Integrity
out
out duties
duties ethically.
ethically.

Abstain
Abstain from
from activities
activities that
that
might
might discredit
discredit the
the profession.
profession.
IMA Guidelines for Ethical
Behavior
Communicate
Communicate information
information
fairly
fairly and
and objectively.
objectively.

Disclose
Disclose delays
delays or
or deficiencies
deficiencies
in
in information
information timeliness,
timeliness,
Credibility
Credibility processing,
processing, or
or internal
internal
controls.
controls.

Disclose
Disclose all
all relevant
relevant
information
information that
that could
could
influence
influence aa user’s
user’s
understanding
understanding of of reports
reports
and
and recommendations.
recommendations.
Steps to Resolve Ethical Dilemmas
• First, follow company’s established policies
• If still unresolved,
• Discuss with immediate supervisor or next
higher up
• If discussing the CEO, notify the audit committee or
board of directors
• Discuss with objective advisor
• IMA ethics counselor, Ethics Hotline, and so on
• Consult an attorney
Unethical Versus Illegal Behavior

• Not all unethical behavior is illegal, but

all illegal behavior is unethical
• The IMA’s ethical principles include
honesty, fairness, objectivity, and
responsibility—much broader than
what is considered illegal
Learning Objective 5

Discuss the business trends and

regulations affecting management
accounting
Big Data, Data Analytics, and
Critical Thinking (1 of 3)
• Big, unstructured data has changed the way
businesses operate.
• Companies are using data visualization
software and predictive modeling.
• More cost-efficient
• Better target sales markets
• Uncover fraud
• Innovation
Big Data, Data Analytics, and
Critical Thinking (2 of 3)
• Small businesses use ready-to-use
accounting software.
• Ex: QuickBooks and Sage 50
• Large companies use enterprise resource
planning (ERP) systems.
• Integrate all of a company’s worldwide
functions, departments, and data
• Ex: SAP and Oracle
Big Data, Data Analytics, and
Critical Thinking (3 of 3)
• Data cannot stand on its own, requires
critical thinking
• Improving quality of thought by skillfully
analyzing, assessing, and reconstructing
it
Shifting Economy and Globalization

• A “knowledge economy”
• Barriers to international trade have fallen
• Globalization implications for managerial
accounting:
• Need more accurate and timely information
• Decide to expand into foreign countries or not
• New management techniques from
international competitors
Lean Thinking and Focus on Quality

• Philosophy and business strategy of

operating without waste
• Less waste = lower costs
• Less wasted time = faster customer response
time
• Six Sigma: goal of producing near perfection
 “Sustainable development is development
Sustainabili that meets the needs of the present without
compromising the ability of future generations
ty to meet their own needs.”
developme - Brundtland (1987)
nt
Brundtland, G 1987, Our Common Future: Report of the World Commission on Environment
and Development, Oxford University Press, Oxford.

34
Sustainability
• Ability to meet the needs of the present
without compromising the ability of future
generations to meet their own needs
• Three pillars: Social, Environmental, and
Economic
• Triple Bottom Line: Recognizes a company’s
performance should be viewed in terms of
profit, people, and planet
 Corporate Social Responsibility &
Sustainability
Corporate social responsibility (CSR) is a concept
whereby organizations consider the needs
of all stakeholders when making decisions.

Environmental
Customers Employees Suppliers Communities Stockholders & Human Rights
Advocates

CSR extends beyond legal compliance

to include voluntary actions that satisfy
stakeholder expectations.
36
 Corporate Social Responsibility & Sustainability
Examples of Corporate Social Responsibility
Companies should provide customers with: Companies and their suppliers should provide
● Safe, high quality products that are fairly employees with:
priced ● Safe and humane working conditions
● Competent, courteous, and rapid delivery ● Non-discriminatory treatments and the
of products and services right to organize and file grievances
● Full disclosure of product-related risks ● Fair compensation
● Easy to use information systems for ● Opportunities for training, promotion,
shopping and tracking orders and personal development
Companies should provide suppliers with: Companies should provide communities with:
● Fair contract terms and prompt payments ● Payment of fair taxes
● Reasonable time to prepare orders ● Honest information about plans such as
● Hassle-free acceptance of timely and plant closings
complete deliveries ● Resources that support charities, schools,
● Cooperative rather than unilateral and civic activities
actions ● Reasonable access to media sources
Companies should provide stockholders with: Companies should provide environmental
● Competent management and human rights advocates with:
● Easy access to complete and accurate ● Greenhouse gas emissions data
financial information ● Recycling and resource conservation data
● Full disclosure of enterprise risks ● Child labor transparency
● Honest answers to knowledgeable ● Full disclosure of suppliers located in
questions developing countries 37
Corporate Social Responsibility & Sustainability
Sustainability
Global Reporting Initiative (GRI)
• promotes a systematic and standardized approach
o to corporate social responsibility and embed it in corporate culture;
o to stimulate demand for sustainability information;
thus benefitting both reporting organizations and report users.

International Federation of Accountants (IFAC) Sustainability Framework

• Organizations should
o achieve a “Triple Bottom-Line”
 Economic, environmental and social goals
(or 3Ps: Profit, Planet, and People)
 promote a sound corporate governance and ethical responsibility to
ensure financial success through ethical operations and transactions;
 promote cultural diversity and equality;
 provide opportunities for social and economic development of the
communities; and
 minimize environmental damages and provide a safe working and living
environment for the communities.
38
Definition of ESG
ESG
- short for Environmental, Social and Governance
- is a set of standards for measuring a business's impact on society
and the environment, as well as its transparency and accountability.
(Cambridge Dictionary)

ESG is a framework that helps stakeholders understand how an

organization is managing risks and opportunities related to
environmental, social, and governance criteria (sometimes called ESG
factors)
(Corporate Finance Institute)

39
ESG (Environmental, Social, & Governance) (corporatefinanceinstitute.com
)
ESG

40
ESG
ESG Information is about companies’ environment,
social and governance matters that affect financial
performance but are not captured in financial
reports.

Financial returns can be sustained only if companies

are well governed and the social and environment
assets underlying those returns are not depleted.
UN Sustainable
Development Goals (SDGs)

42
Key global sustainability reporting
standard/framework

Copyright Eng Wan Ng FCPA 43

Sarbanes-Oxley Act of 2002 (SOX)

• Response to corporate accounting scandals,

such as Enron and WorldCom
• Purpose: to restore trust in publicly traded
corporations, management, financial
statements, and auditors
• Enhances internal control, financial
reporting, and regulations
Important Features of SOX
Enterprise Risk Management
Should I try to avoid the risk,
share the risk, accept the
risk, or reduce the risk?
A process used
by a company to
proactively identify
and manage risk.

Once
Once aa company
company identifies
identifies its
its risks,
risks, perhaps
perhaps the
the
most
most common
common riskrisk management
management tactic
tactic is
is to
to reduce
reduce
risks
risks by
by implementing
implementing specific
specific controls.
controls. 46
Enterprise Risk Management
Examples of Controls to
Examples of Business Risks Reduce Business Risks
● 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
● Website malfunction ● Thoroughly test the website
before going "live" on the Internet
● A supplier strike halting the flow ● Establish a relationship with two
of raw materials companies capable of providing
raw materials
● Financial statements unfairly ● Count the physical inventory on
reporting the value of inventory hand to make sure that it agrees
with the accounting records
● An employee accessing ● Create password-protected barriers
unauthorized information that prohibit employees from
obtaining information not needed
to do their jobs
47
Leading global risk management
framework

• COSO’s ERM – Integrating with

Strategy & Performance, 2017
• ISO 31000, 2018
Exercises & Problems
Which of the following management responsibilities
often involves evaluating the results of operations
against the budget?
a. Planning
b. Directing
c. Controlling
d. None of the above
Managerial accounting differs from financial
accounting in that managerial accounting:
a. tends to report on the company as a whole
rather than segments of the company.
b. emphasizes data relevance over data
objectivity.
c. is used primarily by external decision makers.
d. is required by Generally Accepted Accounting
Principles (GAAP).
Of the following skills, which are needed by today’s
management accountants?
a. Strategic thinking
b. Cost management
c. Decision analysis
d. All of the above
Which of the following professional standards requires
management accountants to continually develop their
knowledge and skills?
a. Competence
b. Confidentiality
c. Integrity
d. Credibility
Which of the following professional standards requires
management accountants to not disclose private
information about their organizations?
a. Competence
b. Confidentiality
c. Integrity
d. Credibility
Which of the following requires the company’s CEO
and CFO to assume responsibility for the company’s
financial statements and disclosures?
a. Sarbanes-Oxley Act of 2002 (SOX)
b. Institute of Management Accountants (IMA)
c. Enterprise Resource Planning (ERP)
d. Lean operations
Which of the following is false?
a. Globalization has increased the necessity for
more detailed and accurate cost information.
b. The triple bottom line focuses on three items:
net income, net assets, and return on
investment.
c. ERP systems integrate information from all
company functions into a centralized data
warehouse.
d. Lean operations is a philosophy and business
strategy of operating without waste.
Which of the following are business trends affecting
management accounting?
a. Shifting economy
b. Sustainability
c. big data
d. All of the above