The Professional

Environment of Cost
Management
Chapter 2
 Organization Structure and The
Management Accountant

 Line Authority is the authority to command action

or give orders to subordinates.
 Staff Authority is the authority to advise but not
command others; it is exercised laterally or upward.
 Funcional 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

 TheController – 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

 Controllershipis 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.
 Controllerprovides 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
 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.
 The ability 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
 Therole 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.
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. Responsibilities
2. Public Interest
3. Integrity
4. Objectivity & Independence
5. 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
 Wasestablished in 1972 as National
Associations of Accountants (NAA) Philippine
Chapter, INC.
 Foundedprimarily 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.