Chapter 2 The Professional Environment of Cost Management

CHAPTER 2 THE PROFESSIONAL ENVIRONMENT OF
COST MANAGEMENT
l . Describe the position of the management accountant in the organization structure of

the business firm
A 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 such as sales and production managers.
Staff authority is the authority to advise but not command others; it is exercised laterally or
upward. Staff managers give support, advice and service to line departments. Examples of staff
authority are found in personnel, purchasing, engineering and accounting.
● Except for exercising line authority over his department, the chief accounting officer
usually the controller generally fills the staff role in his company.
Functional authority which is the right to command action, laterally or downward,with regard to
a specific function or specialty such as the controller holds delegated authority from top line
management to direct the line people on how to apply procedures.
2. Explain the role and the relationship
between the Chief Financial and the
Controller
Chief financial officer (CFO) "finance Controller

director" "Chief accounting officer"
MAIN overseeing the financial operations of an financial executive primarily

FUNCTION organization responsible for management
accounting and financial
accounting
RESPONSIBI Controllership - providing financial Modern controllers

LITIES information for reports and overseeing the - do not do any
overall operations of the accounting system. controlling in terms of
line authority except
Treasury- includes banking and short-term over their own
and long-term financing, investments, and departments.
management of cash. - does control in a
special sense by
Risk management - includes managing the reporting and
financial risk of interest-rate and interpreting relevant
exchange-rate changes and derivatives data (problem-solving
management. and attention-directing
roles),
Taxation - includes income taxes, sales - exerts a force or
taxes, and international tax planning. influence that impels
management toward
Internal audit - attest to the integrity of the making
financial reports and adherence to its policies better-informed
and procedures. decisions
*the CFO is also responsible for information

systems.
3. Describe the functions and responsibilities of
the Controller as the top management
accountant.
Controllership - the practice of the established

science of control which is the process by which
management assures itself that the resources are
procured and utilized according to plans in order to
achieve the company's objectives.
● provides reports for planning and evaluating
company activities
● provides the information needed to make
management decisions
4. Explain the role and the relationship between the Chief Financial Officer and the
Treasurer
5. Describe the functions and responsibilities of the Treasurer

6. Understand the ethical standards for management accountants
● Institute of Management Accountants (IMA) of the United States has developed a very
useful ethical code called the Standards of Ethical Conduct for Practitioners of
Management Accounting and Financial Management.
● Even though the standards were specifically developed for management accountants,
they have much broader application.
Code of Conduct for Management Accountants

● first part provides general guidelines for ethical behavior
a. To maintain a high level of professional competence,
b. to treat sensitive matters with confidentiality,
c. to maintain personal integrity, and
d. to be objective in all disclosing.
● second part of the standards gives specific guidance concerning what should be
done if an individual finds evidence of ethical misconduct within an organization.
Ethical standards provide sound, practical advice for management accountants and managers.
● require professional behavior, especially in avoiding conflicts or-interest.
● require management accountants to bring bad news to the attention of their supervisors,
and to work cotnpetently.
Standards of Ethical Conduct for Practitioners of Management Accounting

and Financial Management.
- Adherence to these standards, both domestically and intemationally, is integral to
achieving the Objectives of Management Accounting.
1. Competence
- ongoing development of their knowledge and skills.
- duties in accordance with relevant laws, regulations, and technical standards.
- complete and clear reports
2. Confidentiality
- Refrain from disclosing confidential information acquired in the course of their work
except when authorized, unless legally obligated to do so.
- 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.
- 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
3. Integrity
- Avoid actual or apparent conflicts of interest and advise all appropriate parties of any
potential conflct.
- Refrain from engaging in any activity that would prejudice their ability to carry out their
duties ethically,
- Refuse any gift, favor, or hospitality that would influence or would appear to influence
their actions,
- Refrain from either actively or passively subverting the attainment of the organization's
legitimate and ethical objectives.
- Recognize and communicate professional limitations or other constraints that would
preclude responsibility judgment or successful performance of an activity.
- Communicate unfavorable as well as favorable information and professional judgments
or opinions.
- Refrain from engaging in or supporting any activity that would discredit the profession.
4. . Objectivity
- Communicate information fairly and objectively.
- 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.

- When faced with significant ethical issues, practitioners of management accounting and
financial management should follow the established policies of the organization bearing
on the resolution of such conflict.
A. Discuss such problems with the immediate superior except when it appears that the
superior involvedr in which case the problem should be presented initially to the next
higher managerial level. If a satisfactory resolution cannot be achieved when the
problem is initially presented, submit the issues to the next higher managerial level.
B. If the immediate superior is the chief executive officer, or equivalent, the acceptable
reviewing authority may be a group such as the audit committee, executive committee,
board of directors, board of trustees, or owners. Contact with levels above the immediate
superior should be initiated only with the superior's knowledge, assuming the superior is
not involved. Except where legally prescribed, communication of such problems to
authonties or individuals not employed or engaged by the organization is not considered
appropriate.
C. 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.
D. Consult your own attorney as to legal obligations and rights conceming the ethical
conflict.
If the ethical conflict still exists after exhausting all levels of intemal review, there may be no
other recourse on significant matters than to resign from the organization and notify other
party depending on the nature of conflicts.
7. Realize the need for a company code of conduct

● Ethical standards serve a very important practical function in an advanced market
economy.Companies with a strong code of ethics can create strong custonper and
employee loyalty.
8. Be familiar with typical ethical challenges that management accountants encounter
9. Describe the international certifications that are available to management accountants
CODES OF CONDUCT ON THE INTERNATIONAL LEVEL

● July 1990, the International Federation of Accountants (IFAC) in which the
Philippines through the PICPA is a member, issued the "Guidelines on Ethics for
Professional Accountants" which governs the activities of all professional accountants
throughout the world; regardless of whether they are practicing as independent CPAs,
employed in government service or employed as internal accountants. In addition to
outlining ethical requirements in matters dealing with competence, objectivity,
● Where cross-border activities are involved, the IFAC ethical requirements' must be
followed if these requirements are stricter than the ethical requirenlents of the country in
which the work is being performed.
● The Board of Accountancy of the Professional Regulation Commission approved
the innplementation of the Revised Code of Ethics for Professional Accountants in
the Philippines effective January l , 2016.
INTERNATIONAL CERTIFICATIONS
1. CMA Certified Management Accountant
● passed the rigorous qualifying examination
● has met an experience requirement
● Participates in continuing educations
● granted by the Institute Management Accountants (IMA).
2. CPA. A Certified Public Accountant
● has met the pre-qualification educational requirements,
● passed the CPA licensure examinations given
● satisfied all other legal and regulatory requirements of a public accountant.
3. CIA.Certification in Internal Auditing
● the Institute of Internal Auditors (IIA) granting (CIA)
● must pass a comprehensive examination designed to ensure technical
competence
● have the required number of years of work experience.

Chapter 2 The Professional Environment of Cost Management

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Chapter 2 The Professional Environment of Cost Management

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CHAPTER 2 THE PROFESSIONAL ENVIRONMENT OF

l . Describe the position of the management accountant in the organization structure of

Line authority is the authority to command action or give orders to subordinates.

Chief financial officer (CFO) "finance Controller

MAIN overseeing the financial operations of an financial executive primarily

RESPONSIBI Controllership - providing financial Modern controllers

*the CFO is also responsible for information

Controllership - the practice of the established

5. Describe the functions and responsibilities of the Treasurer

Code of Conduct for Management Accountants

Standards of Ethical Conduct for Practitioners of Management Accounting

Resolution of Ethical Conflict.

7. Realize the need for a company code of conduct

8. Be familiar with typical ethical challenges that management accountants encounter

9. Describe the international certifications that are available to management accountants

CODES OF CONDUCT ON THE INTERNATIONAL LEVEL

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