CHAPTER 2

THE PROFESSIONAL
ENVIRONMENT OF COST
MANAGEMENT
 LEARNING OBJECTIVES:
• Describe the position of the management accountant in the
organization structure of the business firm

• Explain the role and relationship between the Chief Financial and the
Controller

• Describe the functions and responsibilities of the Controller as the

top management accountant.

• Explain the role and relationship between the Chief Financial and the
Treasurer
 LEARNING OBJECTIVES:
• Describe the functions and responsibilities of the Treasurer

• Understand the ethical standards for management accountants.

• Realize the need for a company code of conduct

• Be familiar with typical ethical challenges that management

accountants encounter

• Describe the international certifications that are available for

management accountants
• Management Accounting are interrelated
and thus must be coordinated, ranked and
implemented by the management accountant
in such a fashion as to meet the objectives of
the organization as perceived by him or her.
• The major function of the management
accountant is that of tailoring the application
of the process to the organization so that the
organization's objectives, short-term and
long-term, are achieved effectively.
Line authority is the authority to command
action or give orders to subordinates.
Line managers are directly responsible for
attaining the objectives of the business firm as
efficiently as possible.
Staff authority is the authority to advise but not
command others; it is exercised laterally or
upward.
In practice however, the controller holds
delegated authority from top line
management to direct the line people on
how to apply these procedures. This is
known as functional authority which is
the right to command action, laterally or
downward, with regard to a specific
function or specialty.
QUALIFICATIONS OF THE CONTROLLER
The qualifications of an effective controller would
include:

1. An excellent technical foundation in accounting and

finance with an understanding and thorough knowledge
of accounting principles.

2. An understanding of the principles of planning,

organizing, and control.
 QUALIFICATIONS OF THE CONTROLLER
The qualifications of an effective controller would include:

3. A general understanding of industry in which the company

competes and the social, economic, and political forces
involved.

4. A thorough understanding of the including its technologies,

products, policies, objectives, history, organization, and
environment.
 QUALIFICATIONS OF THE CONTROLLER
5. The ability to communicate with all levels of management
and a basic understanding of the other functional problems
related to engineering,production, procurement, industrial
relations, and marketing.

6. The ability to express ideas clearly in writing or in making

informative presentations.

7. The ability to motivate others to achieve positive action and

results.
(a) Credit and Collection
(b) Inventory management
(c) Corporate pension and retirement fund
(d) Investor relations
(e) Insurance
(f) Compliance with legal and regulatory provisions relating to funds procurement, use and
distribution as well as coordination of the finance function with accounting function
 ETHICAL STANDARDS FOR MANAGEMENT
ACCOUNTANTS
Code of Conduct for Management Accountants
The Institute of Management Accountants (IMA)
issued the Standards of Ethical Conduct for
Practitioners of Management Accounting and
Financial Management. The first part provides
general guidelines for ethical behavior. In a nutshell,
the management accountant has ethical
responsibilities in four broad areas namely.
1. to maintain a high level of professional
competence,
2. to treat sensitive matters with confidentiality,
3. to maintain personal integrity, and
4. to be objective in all disclosing.

The second part of the standards gives specific

guidance concerning what should be done if an
individual finds evidence of ethical misconduct within
an organization.
 STANDARDS OF ETHICAL CONDUCT FOR
PRACTITIONERS OF MANAGEMENT
ACCOUNTING AND FINANCIAL MANAGEMENT
Competence. Practitioners of management accounting and
financial management have a responsibility to:
1. Maintain an appropriate level of professional competence
by ongoing development of their knowledge and skills.
2. Perform their professional duties in accordance with
relevant laws, regulations, and technical standards.
3. Prepare complete and clear reports and
recommendations after appropriate analysis of relevant and
reliable information.
Confidentiality. Practitioners of management accounting and
financial management have a responsibility to:
1. Refrain from disclosing confidential information acquired in
the course of their work except when authorized, unless legally
obligated to do so.
2. Inform subordinates as appropriate regarding the
confidentiality of information acquired in the course of their work
and monitor their activities to assure the maintenance of that
confidentiality.
3. Refrain from using or appearing to use confidential
information acquired in the course of their work for unethical or
illegal advantage either personally or through third parties.
Integrity. Practitioners of management accounting and
financial management have a responsibility to:
1. Avoid actual or apparent conflicts of interest and
advise all appropriate parties of any potential
conflict.
2. Refrain from engaging in any activity that would
prejudice their ability to carry out their duties
ethically.
3. Refuse any gift, favor, or hospitality that would
influence or would appear to influence their actions.
Objectivity. Practitioners of management
accounting and financial management have to:
1. Communicate information fairly and
objectively.
2. Disclose fully all relevant information that
could reasonably be expected to influence
an intended user's understanding of the
reports, comments, and recommendations
presented.
Resolution of Ethical Conflict
1. Discuss such problems with the immediate superior except
when it appears that the superior is involved, in which case the
problem should be presented initially to the next higher
managerial level.
2. Contact with levels above the immediate superior should be
initiated only with the superior's knowledge, assuming the
superior is not involved. Clarify relevant ethical issues by
confidential discussion with an objective advisor (e.g., IMA
Ethics Counseling Service) to obtain a better understanding of
possible courses of action.
3. Consult your own attorney as to legal obligations and rights
concerning the ethical conflict.
 COMPANY CODE OF CONDUCT
Ethical standards serve a very important
practical function in an advanced market
economy. Without widespread adherence to
ethical standards, material living standards
would fall.
"Employees like to work for a company that they can
trust. Customers like to deal with an ethically reliable
business. Suppliers like to sell to firms with which
they can have a real partnership. Communities are
more likely to cooperate with organizations that deal
honestly and fairly with them. If the business
community is to function effectively, all of the players
need to act ethically.”
Those who engage in unethical behavior often justify
their actions with one or more of the following
reasons:
(1) the organization expects unethical behavior,
(2) everyone else is unethical, and/or
(3) behaving unethically is the only way to get ahead.
INTERNATIONAL CERTIFICATIONS
The three certifications available to
management accountants are as follows:
• Certificate of Management Accounting (CMA)
• Certificate in Public Accounting (CPA)
• Certificate in Internal Auditing (CIA)
 CMA
A Certified Management Accountant is one who
has passed the rigorous qualifying examination,
has met an experience requirement, and
participates in continuing educations. The CMA
Certificate is granted by the Institute
Management Accountants (IMA).
 CPA
A Certified Public Accountant is one who has met the
pre-qualification educational requirements, passed
the CPA licensure examinations given by the
Professional Regulatory Board of Accountancy and
has satisfied all other legal and regulatory
requirements of a public accountant. The CPAs main
responsibility is to provide assurance concerning the
reliability of the information contain in the firm's
financial statements.
 CIA
Since one of the management control responsibilities of the
management accountant is to develop effective systems to
detect and prevent errors and fraud in the accounting
records, it is common for the management accountant to
have strong ties to the control-oriented organization such as
the Institute of Internal Auditors (IIA) granting Certification in
Internal Auditing (CIA). To attain the status of Certified
Internal Auditor an individual must pass a comprehensive
number of years of work experience. examination designed
to ensure technical competence and have the required
number of years of work experience.
 INSTITUTE OF MANAGEMENT ACCOUNTANTS
(IMA)
The Institute of Management Accounting (IMA) is a
professional organization that publishes the monthly
magazine Strategic Finance. Since 1973, the IMA
has conducted a comprehensive examination to test
the knowledge a management accountant must have
to be successful in a complex and fast-changing
business world. Those who pass the exam are
issued a Certificate in Management Accounting and
are proud to indicate the designation CMA on
resumes and business cards.
 PHILIPPINE ASSOCIATION OF MANAGEMENT
ACCOUNTANTS (PAMA)
PAMA was established in 1972 as the National
Association of Accountants (NAA) Philippine
Chapter, Inc. It is affiliated with NAA in New York. It
was founded primarily to provide its members with
educational and professional activities that
supplement in the knowledge of management
accounting practices and methods.
Basic objectives of the program are:
1. To establish management accounting as a recognized
profession by identifying the role of the management
accountant and the underlying body of knowledge, and
by outlining a course of study by which such knowledge
can be acquired.
2. To foster higher educational standards in the field of
management accounting.
3. To assist employees, educators and students by
establishing an objective measure of an individuals'
knowledge and competence in the field of management
accounting.