Managerial vs Financial Accounting

• Managerial accounting and financial accounting should be distinguished
• It is important to understand the following key aspects of managerial accounting:
• Managers’ vital activities
• Business strategies
• Business risks and strategies to reduce risk
• Value chain and process management
• Theory of Constraints
• Key Managerial Skills
• Ethics in business

Key Differences - Financial Accounting vs. Managerial Accounting

• Users:
• Financial accounting is for external persons making financial decisions
• Managerial Accounting is for managers who plan for and control an organization
• Time focus:
• Financial accounting has an historical perspective
• Managerial accounting has future emphasis
• Verifiability versus relevance -
• Financial accounting emphasizes objectivity and verifiability
• Managerial accounting emphasizes relevance
• Precision versus timeliness:
• Financial accounting emphasizes precision
• Managerial accounting emphasizes timelineess
• Subject:
• Financial accounting has a primary focus on companywide reports
• Managerial accounting focuses on segment reports
• Rules:
• Financial accounting must follow GAAP/IFRS and prescribed formats
• Managerial accounting is not bound by GAAP/IFRS or any prescribed format
• Requirement
• Financial accounting is mandatory for external reports
• Managerial accounting is not mandatory

Work of Management

• Planning involves:
• Establishing goals
• Specifying how goals will be achieved
• Developing budgets
• Controlling involves gathering feedback to ensure that plans are being followed
• Feedback comes in performance reports that compare actual results with the budget
• Essential part of the control function
• Decision making involves making a selection among competing alternatives

Managerial Accounting Activities

• Marketing Majors are involved with:
• Planning for budgets for TV, print, and internet advertising
• Planning how many salespeople should be hired to serve a new territory
• Controlling whether a budgeted price cut is increasing unit sales as expected
• Controlling whether the business is accumulating too much inventory during the holiday shopping season
• Decision making about bundling services
• Decision making on selling directly to customers or using a distributor
• Operations Management Majors are involved with:
• Planning how many units should be produced next period
• Planning how much should be budgeted for next period’s utility expense
• Controlling whether there are over or under spending for the units actually produced
• Controlling goals for reducing the number of units produced
• Deciding on buying a new piece of equipment or upgrading the existing machine
• Deciding on redesigning the manufacturing process to lower inventory levels
• Human Resource Management Majors are involved with:
• Planning how much to spend for occupational safety training
• Planning how much to spend on employee recruitment advertising
• Controlling employee retention rate exceeding goals
• Controlling timely performance appraisals
• Deciding on hiring an on-site medical staff to lower healthcare costs
• Deciding on hiring temporary workers or full-time employees

Accounting Majors and CMA's

• Accounting graduates begin working for public accounting firms, and most leave to work in outside organizations
• The IMA estimates 80% of professional accountants in the USA work in non-public enviornments
• A Certified Management Accountants (CMA) is a management accountant who has the necessary qualifications and passes a rigorous professional exam
• The CMA exam is split into two parts
• Part 1 examines financial planning, performance and control
• Part 2 tests on financial decision making

Strategic Management Skills

• A strategy, or "game plan” enables a company to attract customers by distinguishing itself from competitors
• The focal point of a company's strategy is the target customers

Customer Value Propositions

• Customer Intimacy Strategy
• Understand and respond to individual customer needs
• Operational Excellence Strategy
• Deliver products and services faster, more conveniently, and at lower prices
• Product Leadership Strategy - Offer higher quality products

Enterprise Risk Management

• Companies use a process to proactively identify and manage risk
• Once a company identities its risks, the most common risk management tactic is to reduce risks by implementing specific controls

Examples of Business Risks and Controls to Reduce Them

• Products harming customers can be controlled via formal rigorous new product testing program
• Losing market share due to unforeseen actions of competitors can be managed by legally gathering information about competitor's plans and practices
• Poor weather conditions shutting down operations can be offset with contingency plans for overcoming weather-related disruptions
• Website malfunction can be resolved by testing the website before going "live"
• Supplier strike halting the flow of raw materials can be resolved by establishing a relationship with two companies capable of providing raw materials
• Financial statements unfairly reporting the value of inventory can be resolved by counting the physical inventory on hand to ensure it agrees with accounting records
• An employee accessing unauthorized information can be prevented with password-protected barriers that prohibit employees from obtaining unnecessary information

Process Management

• A business process is a series of steps that are followed to carry out some task in a business
• Business functions making up the value chain include (but are not limited to):
• Research & Development
• Product Design
• Manufacturing
• Marketing
• Distribution
• Customer Service

Manufacturing Processes

• Lean production, also called Just-In-Time (JIT) production
• Customers place order that leads to the production order
• Production begins as parts arrive and components are ordered
• Eventually, components are ordered and goods are delivered when needed
• Traditional manufacturing produces goods in anticipation of sales and stores inventory

Effects of Lean Production

• 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.

Theory of Constraints

• A constraint, also called a bottleneck, prevents you from getting more of what you want
• The theory of constraints observes that effectively managing the constraint is the key to success
• The constraint in a system is determined by the step that has the smallest capacity

Managing Theory of Constraints Includes...

• Identify the weakest link
• Allowing the weakest link to set the tempo
• Only actions that strengthen the weakest link in the "chain" improves the process.
• Focusing on improving the weakest link
• Recognizing that the weakest link is stronger

Key Managerial Skills

• Measurement Skills
• A manager complements an understanding of strategy, risks, and business processes with data-driven analysis
• To effectively analyze, the question you are addressing defines what you measure and how you analyze the data
• Leadership skills - Six factors of an effective leader
• Technical competence
• High integrity
• Understand how to implement organizational change
• Strong communication skills
• Capable of motivating and mentoring other people
• Effectively manage team-based decision processes

IMA Guidelines for Ethical Behavior

• Consists of two parts that offer guidelines for: Ethical behavior and Resolution for an ethical conflict
• Ethical behavior is described via:
  • Competence
  • Confidentiality
  • Integrity
  • Credibility

IMA Ethical Guidance - Competence

• Maintain professional competence
• Recognize & communicate professional limitations that preclude responsible judgement
• Provide accurate, clear, concise & timely decision support information
• Follow applicable laws, regulations and standards

IMA Ethical Guidance - Confidentiality

• Do not disclose confidential information unless legally obligated to do so
• Ensure that subordinates do not disclose confidential information
• Do not use confidential information for unethical or illegal advantage

IMA Ethical Guidance - Integrity

• Mitigate conflicts of interest and advise others of potential conflicts
• Refrain from conduct that would prejudice carrying out duties ethically
• Abstain from activities that might discredit the profession

IMA Ethical Guidance - Credibility

• Communicate information fairly and objectively
• Disclose delays or deficiencies in timelines, processing, or internal controls
• Disclose all relevant information that could influence a user's understanding of reports and recommendations

Resolution of An Ethical Conflict Requires

• Following employer’s established policies.
• For an unresolved ethical conflict:
  • 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
• For an unresolved ethical conflict:
  • Except where legally prescribed, maintain confidentiality
  • Clarify issues in a confidential discussion with an objective advisor
  • Consult an attorney as to legal obligations

Why Have Ethical Standards?

• Ethical standards in business is essential for a smooth function economy
• Without ethical standards the economy and those who depend on it would suffer
• Abandoning ethical standards would lead to a lower quality of life with lower quality goods and services at higher prices

Corporate Social Responsibility

• Organizations consider the needs of all stakeholders when making decisions
• Stakeholders include customers, employees, suppliers, communities, stockholders, and human rights advocates
• Corporate social responsibility (CSR) extends beyond legal compliance to include voluntary actions that satisfy stakeholder expectations
• Companies should provide and promote CSR by:
• Safe, high quality products at fairly priced costs
• Competent, courteous, and rapid delivery of products and services
• Full disclosure of product-related risks
• Easy to use information systems for shopping and tracking orders
• Fair contract terms and prompt payments
• Reasonable time to prepare orders and hassle-free acceptance of timely deliveries
• Safe and humane working conditions
• Full disclosure of enterprise risks
• Greenhouse gas emissions data
• Recycling and resource conservation data
• Providing honest answers to knowledgeable questions
• Child labor transparency
• Easy access to complete and accurate financial information
• Opportunities for training, promotion, and personal development

Explore key differences between managerial and financial accounting. Understand users, time focus, and emphasis on verifiability versus relevance. Learn about precision, timeliness, and mandatory regulations.