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1.6: Summary and Key Terms

  • Page ID
    10423
  • Section Summaries

    1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management

    • The purpose of managerial accounting is to supply financial and nonfinancial information to the organization’s management and other internal decision makers.
    • Most of the job responsibilities of a manager fit into one of three categories: planning, controlling, and evaluating.
    • Planning involves setting goals and forming the plans to achieve those goals.
    • Controlling involves the day-to-day activities. Its purpose is to help in planning functions and to facilitate coordination within the organization.
    • Evaluation determines whether plans are being followed and whether progress is being made as planned toward the fulfillment of organizational goals and objectives. It also involves taking corrective measures in case of deviations identified in the course of action.

    1.2 Distinguish between Financial and Managerial Accounting

    • Managerial accounting provides information to managers and other users within the company. It has a specific focus, and the information is detailed and timely.
    • Financial accounting follows the guidelines of the GAAP, set in place by the FASB and, in many cases, by the SEC. Managerial accounting is much more flexible and does not have to follow specific rules or guidelines.
    • There are seven key differences between managerial accounting and financial accounting: users, types of reports produced, frequency of producing the reports, purpose of the information produced, focus of the reporting information, nature of the original information used to produce the reports, and verification of the data used to create the reports.

    1.3 Explain the Primary Roles and Skills Required of Managerial Accountants

    • Essential skills for managerial accountants include commercial awareness, collaboration, effective communication skills, strong technology talents, extensive analytical abilities, and elevated ethical values.
    • Management accountants work with individuals at all levels of an organization from the CEO to the shop floor workers.
    • There are many different career paths management accountants can take to work in corporations, government entities, service firms, or nonprofit organizations.
    • There are numerous certifications that accountants can earn to improve their careers and set themselves apart from their peers.

    1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards

    • Many professional organizations share resources, such as education, research, and practice development, with their members. They also enforce a code of ethics for their members.
    • All employees within a company are expected to act ethically within their business actions. This can sometimes be difficult when the company almost promotes the idea of unethical actions.
    • In response to several corporate scandals, the United States Congress passed the Sarbanes-Oxley Act of 2002 (SOX).
    • Ethical codes can be helpful guidelines, but the rationale to act ethically must originate from within oneself, from personal morals and values. There are steps that provide an outline for examining ethical issues.
    • One of the issues with ethics is that what one person, community, or even country considers unethical or wrong, another person, community, or country may have no problem with and see it as just a way of doing business.
    • The Foreign Corrupt Practices Act of 1977 specifically prohibits payments to foreign government officials to aid in attaining or retaining business. This provision applies to all US persons and foreign firms acting within the United States.

    1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting

    • Business regulations are always being altered, global competition continues to increase, and technology provides continual disruption. Management accounting must keep up with the changes in the business environment.
    • The fundamental difference between manufacturing organizations and service-based firms is whether the organizations produce a tangible product.
    • Business entities have been in the lead for using technology, but they must continue to adjust quickly with the ever-advancing business technology.
    • ERP systems help companies streamline their operations and help management respond quickly to change.
    • Lean manufacturing, which was started in Japan by automakers, is now a widely used practice that attempts to increase productivity and eliminate waste.
    • The philosophy of continuous improvement has led organizations to adopt practices such as TQM, JIT manufacturing, and LSS.
    • The balanced scorecard approach uses both financial and nonfinancial measures in evaluating all attributes of the organization’s procedures.
    • Globalization has expanded competitive borders, giving customers and companies more alternatives.
    • Many companies have started to assess their corporation not only on financial profits, but also on their corporate social responsibility.

    Key Terms

    automation
    method of using systems such as computers or robots to operate different processes, and machinery to improve efficiencies and lower direct labor costs
    balanced scorecard
    tool used to evaluate performance using qualitative and nonqualitative measures
    board of directors
    group of individuals elected by the shareholders of a company with the role of placing management, supervising management, and making key decisions on major issues of the company
    bribery
    when an organization or representative of an organization gives money or other financial benefits to another individual, business, or official in order to gain favor or to manipulate a business decision
    budget analyst
    someone who arranges and manages the master budget and compares master budget projections to actual results
    cash-management accountant
    someone with responsibilities that include transferring monies between accounts, monitoring deposits and payments, reconciling cash balances, creating and tracking cash forecasts, and performing all other cash-related financial processes
    Certified Financial Analyst (CFA)
    certification for a career in the finance and investment domains; requirements include a bachelor’s degree or four years’ experience and passing all three sections of the exam
    Certified Fraud Examiner (CFE)
    signifies proven proficiency in fraud prevention, detection, and deterrence; requirements include bachelor’s degree, two years of work-related experience, moral character references, and passing of four separate exams
    Certified Government Auditing Professional (CGAP)
    designation exclusively for auditors employed throughout the public sector (federal, state, local); requirements are the same as for the CIA, but with a different exam
    Certified Internal Auditor (CIA)
    credential offered by the Institute of Internal Auditors (IIA) and one of the only certifications accepted worldwide; requirements include a bachelor’s degree, two years of work experience in a related field, and passing the three sections of the examination
    Certified Management Accountant (CMA)
    certification for a specialist in corporate accounting management, including financial analytics, budgeting, and strategic assessment; requires a bachelor’s degree, two years of work experience, and successfully passing both parts of the exam
    Certified Public Accountant (CPA)
    top tier in accounting certifications; in the United States, each state has different educational and experience requirements, and certification requires passing the four-part CPA administered by the American Institute of Certified Public Accountants (AICPA)
    chief executive officer (CEO)
    executive within a company with the highest ranking title who has the overall responsibility for the management of a company; reports to the board of directors
    chief financial officer (CFO)
    corporation officer who reports to the CEO and oversees all of the accounting and finance concerns of a company
    collaboration
    working in cross-functional teams and earning the trust and respect of colleagues in order to complete a task
    commercial awareness
    knowing how a business is run and how it is influenced by the external environment, and knowing and understanding the overall industry within which the business is operating
    continuous improvement
    ongoing effort to improve processes, products, services, and practices
    controller
    financial officer of a corporation reporting to the CFO who is responsible for an organization’s accounting records, financial statements, tax returns, and internal reporting
    controlling
    monitoring of the planning objectives that were put into place
    corporate social responsibility (CSR)
    actions that firms take to assume responsibility for their impact on the environment and social well-being
    cost accountant
    employee who amasses large sums of data, checking for accuracy and then formulating the cost of raw materials, work in process, finished goods, labor, overhead, and other associated manufacturing costs
    effective communication
    conveying information in both written and oral forms in a way that the intended audience can understand
    Enrolled Agent (EA)
    credential focusing on a career in taxation; created by the IRS to signify significant knowledge of the US tax code and the ability to apply the concepts of that code
    enterprise resource planning (ERP)
    system that helps a company streamline its operations and helps management respond quickly to change
    evaluating
    comparing actual results against the planned results
    external user
    someone who relies on the financial statements and annual reports to access information about a company in order to make more informed decisions (e.g., creditor, tax authority and regulator, investor, customer, competitor, and others)
    Financial Accounting Standards Board (FASB)
    independent, nonprofit organization that sets financial accounting and reporting standards for both public and private sector businesses in the United States that use Generally Accepted Accounting Principles (GAAP)
    financial analyst
    someone who assists in preparing budgets and tracking actual costs, and performs other tasks that support other management personnel in organizing forecasts and projections
    Foreign Corrupt Practices Act (FCPA)
    law that specifically prohibits payments to foreign government officials to aid in attaining or retaining business and requires a company to have good internal controls so a slush fund to pay bribes cannot be created and maintained
    generally accepted accounting principles (GAAP)
    common set of rules, standards, and procedures that publicly traded companies must follow when composing their financial statements
    globalization
    development of business through international influence, or extending social and cultural aspects around the world
    goal
    what a company expects to accomplish over time
    government agency
    found at all levels of government: federal, state, county, city, and so on; includes military, law enforcement, airports, and school systems
    Institute of Management Accountants (IMA)
    professional organization for management accountants that provides research, education, a means of knowledge sharing, and practice development to its members
    intangible good
    good with financial value but no physical presence; examples include copyrights, patents, goodwill, and trademarks
    internal auditor
    employee of an organization whose job is to provide an independent and objective evaluation of the company's accounting and operational activities
    internal user
    someone inside the company or organization who is responsible for managing the company’s business interests and executing decisions (e.g., all levels of management, owner, and other employees)
    just-in-time (JIT) manufacturing
    inventory system that companies use to increase efficiency and decrease waste by receiving goods only as they are needed within the production process, thereby reducing warehousing costs
    kaizen
    another process that is often linked to Six Sigma and is designed for continuous improvement by eliminating waste and increasing efficiencies; a Japanese word meaning change for the better
    lean business model
    one in which a company strives to eliminate waste in its products, services, and processes, while still fulfilling the company’s mission
    Lean Six Sigma (LSS)
    quality control program that depends on a combined effort of many team members to enhance performance by analytically removing waste and diminishing variations between products
    managerial accounting
    process that allows decision makers to set and evaluate business goals by determining what information they need to make a particular decision and how to analyze and communicate this information
    mission statement
    short statement of a company’s purpose and focus
    monetary accounting information
    relating to money or currency
    nonmonetary accounting information
    not relating to money or currency, such as the quantity of materials, number of employees, number of hours worked, and so forth
    nonprofit (not-for-profit) organization
    tax-exempt organization that serves its community in a variety of areas
    objective
    target that needs to be met in order to meet company goals
    outsourcing
    act of using another company to provide goods or services that your company requires
    planning
    process of setting goals and objectives
    radio-frequency identification (RFID)
    technology that uses electromagnetic fields to routinely identify and trace inventory tags that have been attached to objects
    Sarbanes-Oxley Act (SOX)
    federal law that regulates business practices; intended to protect investors by enhancing the accuracy and reliability of corporate financial statements and disclosures through governance guidelines including sanctions for criminal conduct
    strategic planning
    setting priorities and determining how to allocate corporate resources to help an organization accomplish short-term and long-term goals
    sustainability
    meeting the needs of the present generation without compromising the ability of future generations to meet their own needs by being aware of current economic, social, and environmental impacts
    tangible good
    physical good that customers can handle and see
    theory of constraints (TOC)
    process of recognizing and removing bottlenecks within the value chain that may be limiting an organization’s profitability
    total quality management (TQM)
    process in which management and employees look to reveal waste and errors, streamline the supply chain, improve customer relations, and confirm that employees are informed and properly trained
    treasurer
    financial officer of a corporation reporting to the CFO who is in control of the finance side of the business (cash position, corporation funds)
    whistleblower
    someone who provides evidence of fraud