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The importance of managerial accounting
Role of financial accounting in business organization
Role of managerial accounting
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Managerial accounting, also known as cost accounting, is defined by the textbook as the phase of accounting that is related to providing information to managers for use within the organization (Noreen, Brewer, & Garrison, 2014, p. 19). Managerial accounting information is aimed at helping managers within the organization make sound business decisions. On the other hand, financial accounting is focused on providing information to individuals outside the organization. Managers rely on cost accounting to provide them with an idea of the actual expenses related to processes, departments, operations or products which are the basis of their budget procedures. This information allows them to analyze variations to determine the best method of …show more content…
Variance analysis is a vital part of cost accounting because it breaks down each variance into many different elements of standard and actual costs. Some of these components are material expenses variation, volume variation and labor expenses variation (Luft, 1997, p. 215). Understanding why these fluctuations occurred when compared to what was actually planned helps a manager to save their company money by taking actions that are appropriate to correct that variation in the …show more content…
Accounting ethics also ensures that each employee can be trusted with sensitive business information. Ethical standards require that information is reported in full and without bias regardless of the positive or negative effects of the information. Additionally, managerial accountants have access to confidential business information. Accountants who reveal or use internal information for their personal benefit can break trust and set the business up for serious legal implications (Luft, 1997, p. 216). Accounting ethics should be enforced to ensure that all accountants can be trusted with sensitive business and personal
Ethics plays a vital role in developing accurate and high quality financial statements for management, financial institutions, and investors. As management utilizes financial statements to make decisions regarding the operations of the business, it is necessary to review accurate financial statements to make strategic decisions about the future of the organization. Investors and financial institutions require accurate financial statements to make informed decisions upon whether to invest funds into the organization or the wisdom of lending funds to said organization.
[5] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 17, Standard costing and variance analysis, p. 425-436
First, the Code of Professional Conduct encourages accountants to behave ethically. Encouraging accountants to behavior ethically is a strength because it helps create customer loyalty, positive work environments, and dedicated employees, which helps avoids legal issues. Accounting professionals have to behave ethically just because of the profession they are in. Accountants need to behave ethically because the investors, creditors, and rest of the public rely on an accountant’s professional judgment to make
According to Marshall (2004), "accounting is the process of identifying, measuring, and communicating economic information about an organization for the purpose of making decisions and informed judgements" (p. 3). Specifically, financial accounting "refers to the process that results in the preparation and reporting of financial statements for an entity" (Marshall, McManus, & Viele, p. 5). While many entities prepare their own financial statements, firms can also contract with a public accounting firm or a Certified Public Accountant (CPA) to perform services such as reviewing or compiling statements. (A CPA is a professional designation granted by individual states.) Entities that are publicly traded or complex in nature contract for auditing services. The provider of the auditing service will test the compliance of the entity's financial reporting against generally accepted accounting principles as issued by the Federal Accounting Standards Board (FASB). The provider will also ensure that the company, if publicly traded, complies with requirements of the Securities and Exchange Commission (SEC) and the regulations of the Public Company Accounting Oversight Board (PCOAB). This paper briefly explains the principles of financial accounting and how the deviation from ethical and legal obligations led to greater government oversight and the need for ethics training of future accounting professionals.
It helps management to carry out proper profit planning work. It creates cost consciousness in the minds of every employee of a business organization (accountlearning 2018). The detriment of variance analysis such as flexible budget variance is that it needs more time to prepare, delays the issuance of financial statements, does not measure revenue variances, and may not be applicable under certain budget models (Bragg, 2017). Additionally, a static budget is not effective for evaluating the performance of cost centers. Similarly, when revenues are much higher than expected, the managers of cost centers have to spend more than the amounts indicated in the baseline static budget, and thus seem to have unfavorable variances, though they are simply doing what is needed to keep up with customer demand (Bragg,
On the other hand, managerial accounting is category of accounting that provides special purpose statements, and it reports to management and other persons inside the
Accounting ethics has been difficult to control as accountants and auditors must keep in mind the interest of the public while that they remain employed by the company they are auditing. The accountants should take into account how to best apply accounting standards when company faces issues related financial loss. The role of accountant is crucial to society. They serve as financial reporters to owe their primary constraint to public interest. The information provided is critical in aiding managers, investors and others in making crucial economic decisions. An accountant is responsible for any fraudulent financial reporting. Some examples of fraudulent reporting are:
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
Whether we are aware or not, the professional accountant relies profoundly on two fundamental things: ethics and integrity. As we learned in the core of this class, the professional accounting organization established the standards of integrity and ethical code that members should respect while practicing their profession. Integrity standards and the code of ethics are founded on an extensive obligation to objectivity, honesty, and fairness in accounting. The code of ethics is not only required the accountant to obey rules and regulations but also ask the professional accounting to have a reasoning to recognize any potential harm; use his judgment to determine conflict and present moral integrities and the motivation to resolve issues. And these are the principles that my parents and religion have taught me.
It is highly essential for accountants and business professionals to maintain a standard of ethical conduct in the workplace as the nature of their work places them in position of trust. (Senarante, 2011). Accountants have the responsibility to ensure that their duties are performed in accordance with the five fundamental principles set out in the Code of Professional Ethics such as integrity, objectivity, professional competence and due care, confidentially and professional behaviour (Cunningham et al. 2014). Accountants are expected to be reliable and trustworthy. Thus they are required to act ethically in relation to their clients, employers and the general public in order to provide quality services in the best interest of the society (Eginiwin & Dike, 2014). The International Federation of Accountants (IFAC) have established a code of ethics for accountants, allowing each specific country to add their own national ethical standards to the code to reflect cultural differences. The code provides emphasis on the five fundamental principles as well as resolution of ethical conflicts. In Australia, professional accounting bodies such as CPA Australia, Institute of Chartered Accountants in Australia (ICCA) and the Institute of Public Accountants (IPA) adopt the Australian Professional and Ethical
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
Decisions are conclusions made by mangers after long cautious thoughts and happen when answers to problems are chosen for discharge. Options here have to be more than one to enable managers to choose between them, hence, making decisions. Managers of an organization make decisions based on financial statements, since the information contained in financial accounting reveals what has already taken place and what is going on in the organization (Socea, 2012). Managers also predict the future of an organization by reporting that future in the current date. According to Socea (2012), managerial accountants use the financial accounting data that is appropriate, dependable, and comparable. According to Breuer,
Managerial Accounting plays very important role in a nonprofit organization. Accounting analysis techniques will help managers within organization to make better management decisions. With the help of these techniques managers making decisions about selecting equipment, determining whether costs are being efficiently incurred, monitoring financial and nonfinancial performance measures, and developing strategic plans.
...ough just to have a code of ethics in place but it needs to be reinforced and put into practise. In this way threats can be minimized and safeguards put it in place to ensure temptation does not occur. Ethical decisions and perceptions are made on a personal, societal and professional level. I feel all three areas need to be addressed while attempting to improve ethical standards in accountancy reporting, management, governance and disciplinary terms. The very nature of the accountancy profession means a lot of trust is placed in their hands as their judgment and guidance is relied upon by clients, fellow colleagues and the general public.
An accountant frequently encounters ethical issues regardless of the industry and must remain continually vigilant to reduce the chances of outside forces manipulating financial records, which could lead to both ethical and criminal violations.