Managerial Accounting

(EMAF2614)

Chapter 1:
The Context of Prescribed

Management Textbook!
(Details on Bb)

Accounting

1
 Unit 1/Chapter 1

The Context of Management Accounting

2
Learning Outcomes
• Understand the concept of management accounting.
• Explain the role of management accountant in an
organisation.
• Explain the financial information requirements for
companies, public organisations and society.
• Understand the importance of ethics.
• Understand the role of CIMA as a professional body.
• Identify key information that management would require
from management reports
• Calculate the main performance measures used in
management reports
• Understand how and why reports differ for different types
of organisations
• Identify different responsibility centres and their uses

3
Understand the concept of management
accounting
• What is management accounting?

• The purpose of management accounting?

• What is financial accounting?

• What are the differences between management and

financial accounting?

• What is the role of a management accountant?

What is Management Accounting?
CMA (textbook) 
• focuses on providing relevant, accurate and timely
information to managers, the key personnel within
the organization who plan, organize, direct and
control operations.

Drury 
• concerned with the provision of information to
people within the organization to aid in decision-
making and improve the efficiency and
effectiveness of existing operations
 What is Financial Accounting?
CMA 
Focuses on providing information to shareholders, investors,
creditors and others who are outside an organization.

Investopedia 
The process of recording, summarizing and reporting the
transactions resulting from business operations over a period of
time to users of the information

AccountingEdu.org 
Financial accounting is the process of preparing financial statements
that companies’ use to show their financial performance and
position to people outside the company
Definition of Management Accounting
(Page 2 in textbook)

7
Purpose of Management Accounting
(page 2 & 3 in textbook)

• The purpose of management accounting is to

provide __________ to management which assist
them in ______, ______, ______ and
____________ the operations.

• ………. contributes largely to the success of any

organisation.

• Assist in numerous important functions like?

8
 (Page 2 in textbook)

• Planning involves setting objectives of an

organisation and formulating strategies to achieve
those objectives.
• Different levels of planning;
• Strategic – long - term planning performed by the top
management.
• Managerial – short to medium - term planning done by
the middle management.
• Operational – short - term planning for daily operations.

9
Management Accounting provides
information to assist in the following tasks:
• Planning:

• Decision making:

• Controlling and monitoring:

• Motivating:

(Page 3 in textbook)

10
Comparison of financial accounting
and management accounting
Page 3 in textbook

11
Comparison of Financial Accounting and
Management Accounting
Financial Accounting Management Accounting

External focus. Reports to those outside the organisation such Internal focus. Reports to those inside the organisation for
as shareholders, lenders, tax authorities and regulators. planning, decision making, controlling and performance
evaluation.

Emphasis is on historical data Emphasis is on future decisions

Objectivity of data is emphasised Relevance is emphasised

Precise information is required Timely information is required

Must follow GAAP Need not follow GAAP

Summarised data for the entire organisation is prepared Detailed reports about different departments and functions are
prepared

Mandatory for external reports Not mandatory

Governed by many rules and regulations Not governed by rules and regulations

12
Test yourself 1.1

13
The link between cost accounting, financial
accounting and management accounting….
Page 4 in textbook

14
Characteristics of good
information (page 5 in textbook)
•A-
•C-
•C-
•U-
•R-
•A-
•T-
•E-

15
Non-financial information & Financial
information (page 5 & 6 in textbook)

16
Test yourself 1.2

17
Environmental Management Accounting
(EMA) - page 6-7 in textbook

Test yourself 1.3

18
The Management accountant
(page 7 in textbook)

- The role of management accountants

- The work of the chartered management accountant

19
 The work of the Chartered Management
Accountant
Chartered management accountants assist organisations to establish feasible strategies which translate into profit in a commercial
organisation or into value for money in a non-profit organisation. To achieve this they work as an integral part of multi-skilled
management teams in carrying out the following functions.

• Developing policy and setting of corporate objectives;

• Formulating strategic plans derived from corporate objectives;
• Drafting of short term operational plans;
• Acquisition and use of finance;
• Systems design, recording of transactions and management of information systems;
• Generating, communicating and interpreting financial and operating information for management ;
• Provision of specific information and analysis on which decisions are based;
• Monitoring of outcomes against plans and other benchmarks and initiate responsive action for performance improvement;
• Developing performance measures and benchmarks, financial and non-financial, quantitative and qualitative, for monitoring
and control; and
• Improvement of business systems and processes through risk management internal audit review.

Management accountants help organisations improve their performance, security, growth and competitiveness through the
application of their expert knowledge and skills.

Adapted from CIMA

20
The positioning of Management Accountant
within the organisation (page 8 & 9 in textbook)

- The management accountant as a dedicated

business partner
- The management accountant as an advisor

- Shared service centre

- Business process outsourcing
(Advantages & Disadvantages)
Test yourself 1.4

21
Ethics and Professional Standards in
Management Accounting (Page 10 in textbook)
• Integrity:
• Objectivity:
• Professional competence:
• Confidentiality:
• Professional behaviour:

Test yourself 1.5

22
Code of ethics example

• Integrity: Practitioners of management accounting and financial management

have a responsibility of being straight forward, honest and truthful in all
professional and business relationships.
• Objectivity: Practitioners of management accounting and financial management
have a responsibility of not allowing bias, conflict of interest or the influence of
other people to override your professional judgement.
• Professional competence: Practitioners of management accounting and financial
management have a responsibility to maintain an ongoing commitment to
improve the level of professional knowledge and skill.
• Confidentiality: Practitioners of management accounting and financial
management have a responsibility to not disclose professional information unless
there is specific permission, or legal or professional duty, to do so.
• Professional behaviour: Practitioners of management accounting and financial
management have a responsibility to comply with relevant laws and regulations
and also avoid any action that could negatively affect the reputation of the
profession.

• Adapted from CIMA

23
The Chartered Institute of Management
Accountants (CIMA).

• CIMA is the world's largest professional body of management

accountants with 227,000 members and students in 179
countries.
• CIMA offers a professional accounting qualification with an
emphasis on strategic management.
• Students study for the qualification after completing a
degree or start straight from school as there are no minimum
entry requirements.
• CIMA’s members are key role players in helping businesses to
maintain financial control and stability at all stages of the
business cycle.
• They work in all sectors of the economy which includes
private, public and non-profit organisations.
24
Role of CIMA in developing practice of
Management Accounting.
• CIMA qualification
• CIMA qualification is highly regarded across the world
and members hold many high level finance positions.
• The syllabus is constantly updated to make sure that it
continues to meet the needs of business.
• Students must demonstrate their practical experience
by completing their professional experience record
before admission to membership.
• This ensures that the members have both technical and
practical knowledge of the business.
• Members are required to undertake continuing
professional development (CPD) to ensure that they
maintain and develop their knowledge.
25
Management Reports (Page 12)
• Budget and variance reports

• Contribution format income statement

• Projected financial statements

• Balance scorecard

27
Responsibility centres (Page 13)
• Cost centre

• Revenue centre

• Profit centre

• Investment centre

28
Financial Statements that inform management
(Page 13)
• Gross revenue
• Contribution
• Gross margin
• Value added
• Expenses: Marketing, selling and administration
• Return on capital employed

Illustrative example 1.1

Test yourself 1.6 & 1.7
(1.7 - Net profit for Division B should be 95, not 995)

29
Management information
(Page 17)

• Management information in a service organisation

Test yourself 1.8

• Management information in non-profit

organisations

Illustrative example 1.2

30
 Test yourself 1.9

Summary – Page 19

31
Homework:
Refer to study guide Learning unit 1

32