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  • 1. The text overstates the case a bit. The standards of good reporting for external purposes are generally recognized as having value. Basic transaction processing is common to both financial and managerial systems. Budgets, plans and forecasts are uniquely managerial in terms of the formal reporting process. The other major difference is in what gets reported to whom for internal purposes.
  • My paper on adaptive planning is an example of this.
  • My paper on adaptive planning is an example of this.
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    1. 1. Session 2 <ul><li>AGENDA </li></ul><ul><li>Answer questions </li></ul><ul><li>Compare and contrast financial and managerial accounting </li></ul>
    2. 2. Financial Vs. Managerial <ul><li>Who uses the information? </li></ul><ul><li>What entities are involved? </li></ul><ul><li>What time periods are used? </li></ul><ul><li>What basic information is used? </li></ul><ul><li>What are the guiding standards? </li></ul><ul><li>What are the more important methods? </li></ul>
    3. 3. Financial Vs. Managerial <ul><li>What makes information useful? </li></ul><ul><ul><li>Relevance </li></ul></ul><ul><ul><li>Reliability </li></ul></ul><ul><ul><li>Comparability </li></ul></ul><ul><ul><li>Consistency </li></ul></ul>
    4. 4. Users of the Information <ul><li>Financial – </li></ul><ul><li>Current and potential owners </li></ul><ul><li>Directors </li></ul><ul><li>Regulators </li></ul><ul><li>Lenders </li></ul><ul><li>Managerial – </li></ul><ul><li>Directors </li></ul><ul><li>Managers & Associates </li></ul><ul><li>Customers (e.g., Federal Gov’t) </li></ul><ul><li>“ Partners” </li></ul>
    5. 5. Users of the Information (2) <ul><li>Financial – </li></ul><ul><li>Suppliers </li></ul><ul><li>Customers </li></ul><ul><li>Managers & Associates </li></ul><ul><li>Managerial – </li></ul><ul><li>Regulators </li></ul><ul><li>Litigants </li></ul><ul><li>Economists </li></ul><ul><li>Investigators </li></ul>
    6. 6. Accounting Entities <ul><li>Financial – </li></ul><ul><li>Entities that are recognized in law for both business and non-business purposes </li></ul><ul><li>Managerial – </li></ul><ul><li>Any identifiable unit for which costs, revenues, cash flows, or assets can be associated meaningfully </li></ul>
    7. 7. Examples of Entities (1) <ul><li>Financial – </li></ul><ul><li>Corporations </li></ul><ul><li>Partnerships </li></ul><ul><li>Trusts </li></ul><ul><li>Sole proprietors </li></ul><ul><li>Individuals </li></ul><ul><li>Managerial – </li></ul><ul><li>Cost centers </li></ul><ul><li>Revenue centers </li></ul><ul><li>Profit centers </li></ul><ul><li>Activities </li></ul><ul><li>Divisions </li></ul><ul><li>Departments </li></ul>
    8. 8. Examples of Entities (2) <ul><li>Financial – </li></ul><ul><li>Wendy’s </li></ul><ul><li>OSU </li></ul><ul><li>City of Columbus </li></ul><ul><li>State of Ohio </li></ul><ul><li>Managerial – </li></ul><ul><li>Tim Horton’s </li></ul><ul><li>Dept. of A&MIS </li></ul><ul><li>Water Dept. </li></ul><ul><li>Dept. of Education </li></ul>
    9. 9. Accounting Periods <ul><li>Financial – </li></ul><ul><li>Past months, quarters, or years </li></ul><ul><li>Indefinite (e.g., bankruptcy trust) </li></ul><ul><li>Managerial – </li></ul><ul><li>Any period consistent with the information need at hand. </li></ul>
    10. 10. Examples of Periods <ul><li>Financial - </li></ul><ul><li>Quarterly financial statements </li></ul><ul><li>Periodic reports to a bankruptcy judge </li></ul><ul><li>Managerial - </li></ul><ul><li>Monthly division statements </li></ul><ul><li>20-year capital expenditure analysis </li></ul><ul><li>Hourly spoilage reports </li></ul>
    11. 11. Basic Information Utilized <ul><li>Financial – </li></ul><ul><li>Transactions, accruals, deferrals, estimates, allocations, and market values </li></ul><ul><li>Managerial – </li></ul><ul><li>Transactions, accruals, deferrals, estimates, allocations, market values, forecasts, plans, and hypothetical scenarios </li></ul>
    12. 12. Guiding Standards <ul><li>Financial – </li></ul><ul><li>SEC </li></ul><ul><li>FASB </li></ul><ul><li>AICPA </li></ul><ul><li>EITF </li></ul><ul><li>Other GAAP </li></ul><ul><li>Managerial – </li></ul><ul><li>Cost Accounting Standards Bd. </li></ul><ul><li>Company Stds. </li></ul><ul><li>Contracts </li></ul><ul><li>GAAP </li></ul>
    13. 13. Role of the Standards <ul><li>Financial – </li></ul><ul><li>Standards protect the investing public and the functioning of markets. </li></ul><ul><li>Managerial – </li></ul><ul><li>Standards enhance the quality of the information available to managers and representatives of stakeholders. </li></ul>
    14. 14. Accounting Methods <ul><li>Financial – </li></ul><ul><li>accounting equation </li></ul><ul><li>double-entry system </li></ul><ul><li>chart of accounts </li></ul><ul><li>data dictionaries </li></ul><ul><li>Documentation standards are nearly universal . </li></ul><ul><li>Managerial – </li></ul><ul><li>Fin. acct. methods </li></ul><ul><li>ERP and other software systems </li></ul><ul><li>Statistical methods </li></ul><ul><li>Mathematical programming </li></ul>
    15. 15. Usefulness: Relevance <ul><li>Financial – </li></ul><ul><li>Timeliness of reporting & analysis is constrained by audits, SEC review, etc. </li></ul><ul><li>Managerial – </li></ul><ul><li>Timeliness is un-constrained by out-side forces, so management decides the trade-off among timeliness, cost, and quality. </li></ul>
    16. 16. Usefulness: Relevance (2) <ul><li>Financial – </li></ul><ul><li>Feedback value is relatively high and improving due to GAAP & standardization </li></ul><ul><li>Managerial – </li></ul><ul><li>Feedback value should be higher because the decision-makers can request needed information </li></ul>
    17. 17. Usefulness: Relevance (3) <ul><li>Financial – </li></ul><ul><li>Predictive value is limited without other economic forecasts </li></ul><ul><li>Managerial – </li></ul><ul><li>Predictive value high because the perspective, volume, and variety of info. is geared for these purposes </li></ul>
    18. 18. Usefulness: Reliability <ul><li>Financial – </li></ul><ul><li>Neutrality is supposed to be high but abuses abound </li></ul><ul><li>Managerial – </li></ul><ul><li>Neutrality in the sense of an absence of “spin” and efforts to please bosses is important </li></ul>
    19. 19. Usefulness: Reliability (2) <ul><li>Financial – </li></ul><ul><li>Verifiability— objective bases that can be confirmed by other professionals </li></ul><ul><li>Managerial – </li></ul><ul><li>Verifiability— objective bases that can be confirmed by other professionals </li></ul>
    20. 20. Usefulness: Reliability (3) <ul><li>Financial – </li></ul><ul><li>Representational validity - communicates a “valid” perspective of what is happening in the underlying system </li></ul><ul><li>Managerial – </li></ul><ul><li>Representational validity – communicates a “valid” perspective of what is happening in the underlying system </li></ul>
    21. 21. Usefulness: Reliability (4) <ul><li>Is neutrality redundant? </li></ul><ul><li>The idea is that an accountant should be neutral in developing and presenting information rather than taking sides on an issue and attempting to put a more favorable light on one side or another. </li></ul>
    22. 22. Usefulness: Comparability <ul><li>Financial – </li></ul><ul><li>Comparability across entities for investment and lending decision purposes </li></ul><ul><li>Managerial – </li></ul><ul><li>Comparability – report results in a manner comparable with profit plans or analyses </li></ul>
    23. 23. Usefulness: Comparability (2) <ul><li>Enhancing comparability in mgt. acct. </li></ul><ul><li>Flexible budgets </li></ul><ul><li>Plans modified to reflect the actual operating environment (adaptive plans) </li></ul><ul><li>Seasonal adjustment of data </li></ul>
    24. 24. Usefulness: Comparability (3) <ul><li>Enhancing comparability in mgt. acct. </li></ul><ul><li>The most important comparability issue in MA is the reporting results in a manner consistent with the development of plans. </li></ul><ul><li>Comparability across business units is an important challenge in MA </li></ul>
    25. 25. Usefulness: Consistency <ul><li>Financial – </li></ul><ul><li>Reporting standards are observed over time by reporting entities within a firm </li></ul><ul><li>Managerial – </li></ul><ul><li>Consistency of reporting and analysis methodologies over time. </li></ul>
    26. 26. Some Implications <ul><li>1. Generally accepted accounting principles inform and support--but not constrain--what we do in managerial accounting. </li></ul><ul><li>2. If we are to better support internal users of information, we need to know how information is to be used. Increasingly, this implies interacting with other members of a team. </li></ul>
    27. 27. Some Implications <ul><li>3. Being knowledgeable about financial reporting standards and transactions processing systems does not make one a good managerial accountant. Some would go so far as to argue that different skills and abilities are needed for managerial accounting, particularly when it comes to planning activities. </li></ul>
    28. 28. Where are YOU? <ul><li>Comments? </li></ul><ul><li>Observations? </li></ul><ul><li>Questions? </li></ul>
    29. 29. Homework <ul><li>http://fisher. osu . edu /~ bentz _1/525/problems/H11C1E18. ppt </li></ul><ul><li>http://fisher. osu . edu /~ bentz _1/525/problems/H11C1E21. ppt </li></ul>