Module I

MANAGEMENT ACCOUNTING ENVIRONMENT

Learning Objectives
1. Expound on the importance of management accounting in relation to management
processes.
2. Explain the evolutionary developments in management accounting.
3. Understand the powers, duties, and responsibilities of a ‘ controller.
4. Discuss the basic functions of controllership: Illustrate the planning and controlling cycle.
Summarize the basic principles of internal controls.
5. Describe the basic functions of treasurership. Differentiate financial accounting from
management accounting.
6. Apply the basic ethical considerations governing the practice of management accounting.
Understand the directions and compelling dynamism in management accounting.

MANAGEMENT SERVICES (MS) refers to that practice of professional accountant concerned

with providing advice and technical assistance to help management improve the use of
resources in achieving organizational goals.

Management Accounting defined as:

a. As a process of identification, measurement, accumulation, analysis, preparation,
interpretation, and communication of information (both financial and operating) used by
management to plan, evaluate and control within an organization and to assure use of and
accountability of its resources.
b. The process of identification, measurement, accumulation, analysis, preparation,
interpretation, and communication of information used by management to plan, evaluate
and control within an organization and to assure use of and accountability of its resources.
Management accounting also comprises the preparation of financial reports for non-
management groups such as shareholders, creditors, regulatory agencies and tax
authorities.
c. Management accounting is a profession that involves partnering in management decision
making, devising planning and performance management systems, and providing
expertise in financial reporting and control to assist management in the formulation and
implementation of an organization’s strategy.

Areas of MS Practice
• Operational Advice – counselling management in its analysis, planning, organizing,
operating and controlling functions.
• Special Studies – Conducting social studies, proposing plans and programs and providing
guidance and technical assistance in their implementation.
• Organizational Analysis – renewing and suggesting improvement of policies,
procedures, systems, methods, and organizational relationships.
• Innovations- introducing new approached, methods, techniques, and concepts to
management.

Management accounting as practice extend to three areas:

a. Strategic Management – advancing the role of the management accountant as a
strategic partner in the organization.
 b. Performance Management – developing the practice of business decision-making and
managing the performance of the organization.
c. Risk Management – contributing to frameworks and practices for identifying, measuring,
managing and reporting risks to the achievement of the objectives of the organization.
A management accountant applies his or her knowledge and skill in the preparation and
presentation of financial and other decision-oriented information in such a way as to assist
management in the formulation of polices and in the planning and control of the operation of
the undertaking.

The management accounting concepts are based on the qualitative criteria of accountability,
controllability, reliability, interdependence, and relevance. The system used to gather, process
and present data to provide specific and useful quantitative information to management is
management accounting.

The organizational head of the management accounting group is called the Management
Accountant or traditionally called Controller (or Comptroller). The business of accounting is
information. And the business of management accounting is to provide information to
management on a timely, detailed and flexible manne

BASIC MODEL IN MANAGING BUSINESS ORGANIZATIONS

Controllership

It covers both the intelligent and behavioral aspects of management. Managers make decisions
in all levels of managerial authority and areas of managerial functions.
 Functions of Controllership

• Planning and Controlling • Protection of

• Reporting Assets
• Evaluation • Economic
• Government relations and reporting Appraisal
• Tax
Administrati
on

MANAGEMENT FUNCTIONS

Decision
Hierarchy

Planning and Controlling Cycle

Internal Control and Controllership

Internal control is one of the major elements of controllership. They are the predefined values
and skills of the organization. It comprises the plan of the organization and all its coordinate
methods and measures to protect the assets, check the accuracy and reliability of accounting
data, promote operational efficiency, and encourage adherence to prescribed managerial
policies.

Internal Control Components and Purposes

• Structure (plan of the organization) – Protection of assets, and accuracy and reliability of
accounting data
• Policies (methods and measures) – Operation efficiency, and adherence to policies

General Controls
General controls are organizational controls. These are developed during the formulation of the
organizational design and re meant to prevent or reduce errors, inefficiencies, irregularities, and
illegal acts. In designing organizational structures, transactional responsibilities must be
segregated.

Application Controls
Controls that relates to the details of forms, rules, regulations, standards, schedules, reports,
accountabilities, commitments, and other operating policies to complement. Application controls
are operating controls.

The internal controls of an organization are designed within the constraining criterion of
cost/benefit relationship. If the costs of implementing an ideal internal control system exceed the
benefits that are expected from it, the idealism in the internal control principles is compromised
The Eleven (11) Cardinal Principles of Internal Controls
The Five (5) Elements of Transactional Responsibilities

Treasurership
Controllership and treasurership constitute corporate finance. Controllership deals with records,
systems, and processes to attain the objectives of internal controls and good managing while
Treasurership deals with the management of wealth of the organizations. It includes mastering
the sources of funds and the exercise of prudence in using organizational resources. The three
basic source of funds – financing, operating and investing.

Financial Accounting and Management Accounting

Distinction of management accounting from financial accounting relates to their orientation,
emphasis, demographics of customers being served and body of knowledge applied.

STANDARDS FOR ETHICAL CONDUCT FOR PRACTITIONERS OF MANAGEMENT

‘ACCOUNTING AND FINANCIAL MANAGEMENT

Competence
Practitioners of management accounting and financial management have a responsibility to:
• Maintain an appropriate level of professional competence by ongoing development of their
knowledge and skills.  Perform their professional duties in accordance. with relevant
laws, regulations, and technical standards.

Reference: Management Services (2021 Edition )by: Franklin T. Agamata

NEGERON-OBELO,CPA,MPA Page|6
 • Prepare complete and clear reports and recommendations after appropriate, analysis of
relevant and reliable information.
Confidentiality
Practitioners of management accounting and financial management have a responsibility to:
• Refrain from disclosing confidential information acquired in the course of their work,
except when authorized, and legally obligated to do so.
• Inform subordinates as appropriate regarding the confidentiality of information acquired in
the course of their work and monitor their activities to assure the maintenance of that
confidentiality.
• Refrain from using or appearing to use confidential information acquired in the course of
their work for unethical or illegal ‘advantage either personally or through third parties.

Integrity
Practitioners of management accounting and financial management have a responsibility to:
• Avoid actual or apparent conflict of interests and advise all appropriate parties of any
potential conflict.
• Refrain from engaging in any activity that would prejudice their ability to carry out their
duties ethically.
• Refuse any gift, favor, or hospitality that would influence or would appear to influence their
actions.
• Refrain from actively or passively subverting the attainment of the organizatior’s
legitimate and ethical objectives.
• Recognize and communicate professional limitations or other constraints that would
prejudice responsible judgment or successful performance of an activity.
• Communicate unfavorable as well as favorable information and professional judgment or
opinion.
• Refrain from engaging in or supporting any activity that would discredit the profession.

Objectivity
Practitioners of management accounting and financial management have a responsibility to:
• Communicate information fairly and objectively.
• Disclose fully all relevant information that could reasonably be expected to influence an
intended user's understanding of the reports, comments, and recommendations
presented.

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MULTIPLE CHOICES
1. Management Accounting is
a. Governed by Generally Accepted Accounting Principles
b. Draws from other disciplines other than accounting
c. Geared primarily to the past rather than the future
d. Places more emphasis on precision of data compared with financial accounting which
does not place more emphasis on accuracy of information.

2. A firm’s statement of broad objectives or mission statement should accomplish all of the
following except:
a. Outlining strategies for technological development, market expansion, and product
differentiation. b. Defining the purpose of the company.
c. Providing an overall guide to those in high-level, decision-making positions.
d. Stating the moral and ethical principles that guide the actions of the firm.

3. Which of the following statements does not describe corporate strategy?

a. The overall scope and direction of a corporation and the way in which its various
business operations work together to achieve particular goals.
b. It defines the purposes, directions, and ways of achieving the corporate goals.
c. It is the direction an organization takes with the objective of achieving business
success in the long term.
d. It comprises the midsight, mindset, techniques, rules, processes, and procedures in
attaining the goals of an organization.

4. Management accounting is an integral part of the management process, provides essential

information for the following objectives: except"
a. Maintaining the current level of’ resource utilization as well as internal and external
communication b. Measuring and evaluating performance.
c. Planning strategies and controlling current activities of the organizations
d. Enhancing objectivity in decision-making.

5. The chief management accountant called “controller” traditionally performs these

functions except:
a. The establishment and implementation of the financial planning process.
b. Financial and management reporting and interpretation.
c. Protection of company’s resources and economic conditions.
d. Preparation of proposals for product promotions.

6. Which of the following is a controller's responsibility?

a. Tax planning and accounting.
b. Custodian of funds.
c. In-charge of credit and collection.
d. Arranging short-term loans and financing.

Reference: Management Services (2021 Edition )by: Franklin T. Agamata

NEGERON-OBELO,CPA,MPA Page|8
7. The following characteristics refer to financial accounting except:
a. Provides information to external users.
b. Emphasizes on objective data.
c. Has no externally imposed standard.
d. Generates general-purpose financial statements.

8. Which of the following is not a function of a treasurer?

a. Signs checks.
b. Keeps cash and financial instruments.
c. Analyze financial statements.
d. Presents financial statements to stakeholders.

9. Sherlock is a management accountant who has discovered that his company is violating
environmental
regulations. If his immediate superior is involved, his appropriate
action is to a. Do nothing because he has a duty of loyalty to the
organization
b. Consult the audit committee
c. Present the matter to the next higher managerial-level.
d. Confront his immediate superior.
10. In accordance with Statements on Management Accounting Number 1C (SMA 1C)
(revised), Standards of Ethical Conduct for Practitioners of Management Accounting and
Financial Management, a management accountant who fails to perform professional duties
in accordance with relevant standards is acting contrary to which one of the following
standards? a. Competency
b. Integrity
c. Confidentiality
d. Objectivity