Learning Objectives| After studying Chapter 1, you should be able to: |
| LO1. | Identify the major differences and similarities between financial and managerial accounting. | | LO2. | Understand the role of management accountants in an organization. | | LO3. | Understand the basic concepts underlying Lean Production, the Theory of Constraints (TOC), and Six Sigma. | | LO4. | Understand the importance of upholding ethical standards. |
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LP 1
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The Role of Management AccountingIt is estimated that 95% of all finance professionals work inside corporations, governments, and other organizations, integrating accounting with operations and reporting to the outside world. While some of the effort expended by these people relates to financial accounting, the profession needs to further stress the role management accountants play within organizations supporting decision making, planning, and control. In short, the emphasis in business and the role of accounting should be more about doing business rather than tabulating and reporting historical financial results.  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073526975/nor26975_p0101.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>]]>
Management accounting is undergoing a renaissance in response to technological changes, globalization, and growing risk management concerns. In these challenging times, management accountants help “steady the ship” by acting as their organizations' interpreters, sage advisors, and ethical “keepers of the numbers.” Managers understand that good business results come from dynamic processes, procedures, and practices that are well designed and properly implemented and managed. Certified Management Accountants are qualified to help their fellow managers achieve good business results because they have earned an advanced certification that addresses all important aspects of accounting inside organizations. Source: Conversation with Paul Sharman, CEO of the Institute of Management Accountants. |
Managerial accountingThe phase of accounting concerned with providing information to managers for use inside the organization. is concerned with providing information to managers—that is, people inside an organization who direct and control its operations. In contrast, financial accountingThe phase of accounting concerned with providing information to stockholders, creditors, and others outside the organization. is concerned with providing information to stockholders, creditors, and others who are outside an organization. Managerial accounting provides the essential data that are needed to run organizations. Financial accounting provides the essential data that are used by outsiders to judge a company's past financial performance. Managerial accountants prepare a variety of reports. Some reports focus on how well managers or business units have performed—comparing actual results to plans and to benchmarks. Some reports provide timely, frequent updates on key indicators such as orders received, order backlog, capacity utilization, and sales. Other analytical reports are prepared as needed to investigate specific problems such as a decline in the profitability of a product line. And yet other reports analyze a developing business situation or opportunity. In contrast, financial accounting is oriented toward producing a limited set of specific prescribed annual and quarterly financial statements in accordance with generally accepted accounting principles (GAAP). The chapter begins with discussions of globalization and the meaning of strategy. Next, it describes the information needs of management and how the role of managerial accounting differs from financial accounting. Finally, the chapter provides an overview of the organizational context within which management accounting operates—including discussions of organizational structure, process management, technology in business, the importance of ethics, corporate governance, and enterprise risk management. |
