Strategic Cost Management Chapter 2 PDF

The Professional Environment of Cost Management Chapter 2  Organization Structure and The Management Accountant  LineAuthority is the authority to command action or give orders to subordinates.  StaffAuthority is the authority to advise but not command othe...

The Professional Environment of Cost Management Chapter 2  Organization Structure and The Management Accountant  LineAuthority is the authority to command action or give orders to subordinates.  StaffAuthority is the authority to advise but not command others; it is exercised laterally or upward.  Functional Authority is the right to command action, laterally or downward, with regard to a specific function or specialty.  The Chief Financial Officer and The Controller  Chief Financial Officer (CFO) – is the executive responsible for overseeing the financial operations of an organization.  Controllership – includes providing financial information for reports to managers and reports to shareholders and overseeing the overall operations of the accounting system.  Treasury – includes banking, short and long- term financing, investments and management of cash.  Risk management – includes managing the financial risk of interest-rate and exchange- rate changes and derivatives management.  Taxation – includes income taxes, sales taxes, and international tax planning.  Internal Audit- reviewing and analyzing financial and other records to attest to the integrity of the organization’s financial reports and to adherence to its policies and procedures.  The Chief Financial Officer and The Controller The Controller – is the financial executive primarily responsible for management accounting and financial accounting.  Reporting Relationships for the CFO and the Corporate Controller  The Controller as the Top Management Accountant  Controllership is the process by which management assures itself that the resources are procured and utilized according to plans in order to achieve the company’s objectives.  Controller provides reports for planning and evaluating company activities and to make management decisions. A Typical Organization Chart Showing the Functions of the Controller  Basic Functions of Controllership  Planning – Establish and maintain an integrated plan of operation consistent with the company’s goals and objectives.  Control – Develop and revise standards against which to measure performance and provide guidance and assistance to other members of management in insuring conformance of actual result to standards.  Basic Functions of Controllership  Accounting – Design, establish and maintain general and cost accounting systems at all company levels and record all financial transactions in the books of accounts.  Other Primary Responsibilities – Manage and supervise taxes and agents; maintain appropriate relationship with internal and external auditors; develop and maintain systems and procedures; develop record retention programs  Qualifications of the Controller  Anexcellent technical foundation in accounting and finance with an understanding and through knowledge of accounting principles.  Anunderstanding of the principles of planning, organizing and control. A general understading of industry which the company competes and the social, economic, and political forces involved. A thorough understanding of the company including its technologies, products, policies, objectives, history, organization and environment.  Theability to communicate with all levels of management and a basic understanding of the other functional problems related to engineering, production, procurement, industrial relations and marketing. The ability to express ideas clearly in writing or in making informative presentations. The ability to motivate others to achieve positive action and results.  The Chief Financial Officer and the Treasurer  The role of finance is assigned to the Chief of Financial Officer (CFO) or the Vice President-Finance who reports to the president. The key subordinates of the financial vice- president are the TREASURER & the CONTROLLER. TREASURERSHIP Concerned mostly with the acquisition, financing and management of assets of a business concern to maximize the wealth of the firm for its owners. In short, it’s mostly about receipt, care and disbursements of funds such as public revenues. TREASURER Aside from money management duties, the treasurer is responsible for maintaining relationships with investors, banks, and other creditors. Major role includes: (1)managing cash & marketable resources, (2)preparing cash forecasts and (3)obtaining financing from banks & other lenders. RESPONSIBILITIES  FUNDS PROCUREMENT – obtaining or raising funds in accordance with the firms planned capital structure. Requires negotiating for loans (short-term or long term)  Banking & Custody of Funds – management of company’s cash & cash equivalents and maintenance of good relations with banks and non-bank institution. Investment of Funds – purchase of debt or equity instruments like ordinary share or preference shares in other corporate entities. This responsibility include analysis of decisions related to invested in PPE. Operating Responsibilities: a) Credit and Collection b) Inventory Management c) Corporate pension and retirement fund d) Investor Relation e) Insurance f) Compliance with legal & regulatory provisions relating to funds procurement  ETHICAL STANDARDS FOR MANAGEMENT ACCOOUNTANTS The Institute of Management Accountants (IMA) issued the Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management. Code of Conduct for Management Accountants  Thereare two parts to the standards: (1) provides general guidelines for ethical behavior. In a nutshell, MAs has ethical responsibilities in four broad areas: 1. To maintain a high level of professional competence 2. To treat sensitive matter with confidentiality 3. To maintain personal integrity 4. To be objective in all disclosing  (2) gives specific guidance concerning what should be done if an individual finds evidence of ethical misconduct within an organization. Ethical standards require MAs to:  Have professional behavior  Bring bad news to the attention of their supervisor  Work competently  If ethical standards were not generally adhered to, there would be undesirable consequences for everyone. COMPANY CODE OF CONDUCT A former CMA president emphasizes the importance of ethics in business: “Employees like to work for a company that they can trust. Customers like to deal with an ethically reliable business. Suppliers like to sell to firms with which they can have a real partnership. Communities are more likely to cooperate with organizations that deal honestly & fairly with them. If the business community is to function effectively, all of the players need to act ethically,”  Those who engage in unethical behavior often justify their actions with one or more of the following reasons: 1) The organization expects unethical behavior. 2) Everyone else is unethical. 3) Behaving unethically is the only way to get ahead. RESOLUTION OF ETHICAL CONFLICT In applying the Standards of Ethical Profession Practice you may encounter problems identifying unethical behavior or resolving an ethical conflict. When faced with ethical issues, you should follow your organization’s established policies on the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following courses of action: 1. Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that case, present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the next management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with levels above the immediate superior should be initiated only with your superior’s knowledge, assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate unless you believe RESOLUTION OF ETHICAL CONFLICT 2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial advisor to obtain a better understanding of possible courses of action. 3. Consult your own attorney as to legal obligations and rights concerning the ethical conflict. TYPES OF ETHICAL CHALLENGES  Case A involves competence, objectivity and integrity.  Case B involves confidentiality and integrity CODES OF CONDUCT ON THE INTERNATIONAL LEVEL  International Federation of Accountants (IFAC) – issued “Guidelines on Ethics for Professional Acccountants”: governs the activities of all professional accountants throughout the world; regardless if whether they are practicing as independent CPA or employed in government or private practice.  IFAC’s code also outlines the accountant’s ethical responsibilities in matters relating to taxes, fees & commissions, advertising & solicitation, the handling of monies and cross-border activities.  January 1,2016 – BOA of PRC approved implementation of the Revised Code of Ethics for Professional Accountants. INTERNATIONAL CERTIFICATIONS  Certificate of Management Accounting (CMA) – calculates financial projections and assists in planning of future business endeavor. Works closely with upper executives to develop sound financial strategies.  Certificate in Public Accounting (CPA) Maintain and monitor financial records. Handles current financial issues such as tax filings, accounts payable, and balancing the company’s payroll. Ethical Responsibilities: 1. Public Interest 2. Integrity 3. Objectivity & Independence 4. Due care  Certificate in Internal Auditing (CIA) – conducts internal audits and is conferred by Institute of Internal Auditors (IIA). Work is usually in the audit departments of gov’t agencies, financial institutions or corporations. Also reviews financial records to look for deficiencies in internal controls. INSTITUTE OF MANAGEMENT ACCOUNTANTS  The principal org in the USA that instituted a program to provide certifications for management accountants and financial managers  CMA examination was first given in 1972 with four parts: Financial Acctg and Reporting, Management Reporting, Analysis & Behavioral Issues and Decision Analysis & Information Systems  CFM examination was first given in 1996 similar with CMA except that FAR is replaced with Corporate Financial Management PHILIPPINE INSTITUTE OF MANAGEMENT ACCOUNTANTS  Was established in 1972 as National Associations of Accountants (NAA) Philippine Chapter, INC.  Founded primarily to provide its members with educational and professional activities that supplement in the knowledge of MA practices & methods.  To propagate & professionalize MA in the Philippines, PAMA conducts CMA Programs through Philippine Institute of Management Accountants (PIMA) with basic objectives of: 1. Establish MA as a recognized profession by identifying the role of management accountant and by outlining a course of study by which such knowledge is acquired 2. To foster higher educational standards in the field of MA 3. To assist employees, educators, students by establishing an objective measure of an individuals’ knowledge and competence in the field of MA.