CHAPTER 1 – INTRODUCTION TO MANAGEMENT ACCOUNTING
Defining Managerial Accounting
- Who is it for?
o Internal users, e.g. managers, supervisors, CEO
- What is it for?
o Planning, Directing, & Controlling
o I.e.; Develop your strategy, choose your objectives, plan to achieve them;
direct & motivate personnel to achieve set goals, control your progress,
then make the necessary adjustments when actual results deviate from
- Communicating company goals( Set goals and objectives, determine strategy to
- Financial plans = “Budgets”
o E.g. Cash Flow Budget, Production Budget
- Planning involves selecting a course of action and how the action will be
- How do we choose our course of action?
o SWOT Analysis – Strengths, Weaknesses, Opportunities, Threats
o Situational/Context specific – depends when & where you are now
- Overseeing the company’s day-to-day operations (using any type of reports
such as sales report cost reports)
- Managerial info is used to evaluate manager performance and the performance of
their department (the operations they are in charge of)
- Leads to serious behavioural implications
o Managers are evaluated to determine if their performance should be
rewarded or punished.
o Operations are evaluated to determine if they should be changed.
- How do we evaluate?
o Budget or “Performance” Reports: presents actual vs. budget and
identifies differences (called “variances”) o Feedback from budget reports is used to take corrective actions Decision Making
- Managerial accounting gathers, summarizes and reports relevant data to aid in
o Decisions are made to reward or punish managers.
o Decisions are made to change operations or revise plans.
- Examples of decision making that managerial accounting aids in making
o Make vs. buy
- N.B.: Strategizing, planning, directing and motivating, and controlling is a
continuous process. A strategy may be changed less frequently than a plan,
however. Hence, we have a planning & control cycle:
- Within the organizational structure of a company, the managerial accountant may
work with many functional units
- Often they will work as part of cross-functional teams
- Skills needed of management accountants include:
o Knowledge of financial and managerial accounting
o Problem solving and decision-making skills
o Oral and written communication skills
o Professionalism and ethical standards
- Certified Management Accountants (CMAs) are governed by the Society of
Management Accountants (SMA) (CPA)
- Management accountants are expected to behave ethically and must follow a code
of conduct directed by their governing body Managerial vs. Financial Accounting Modern Issues in Managerial Accounting
A. Regulatory Environment
a. Businesses must work under increased scrutiny
b. Sarbanes-Oxley Act of 2002 (SOX): enhances internal control and
financial reporting requirements
i. CEO and CFO must assume responsibility for internal control
system and sign off on financial statements
c. New regulations by Canadian Securities Administrators provide similar
new requirements for Canadian publicly-traded companies
B. The Competitive Environment
a. Advances in information technology have redefined intense competition.
b. Information technology has impacted management of the value chain.
c. The value chain comprises a company’s internal operations and its
relationships with suppliers and customers in order to maximize value at
the least possible cost.
d. Software systems that impact value chain management:
i. Enterprise Resource Planning Systems (ERP): integrated systems
dealing with computerized inventory control and production
planning. The ERP system feeds data into software for all business
ii. Supply Chain Management Systems (SCM): support the planning
of the best way to fill orders and help tracking of products and
components among companies in the supply chain.