Class 1 - Introduction to Managerial Accounting

Intro to Managerial Accounting

What's the difference btwn financial accounting and managerial accounting?

See pp 4-5: The users is the biggest difference. Financial acctg is used for public information and information for investors. Useful for external users. They want aggregate information to compare investment opportunities. They need the right amount of information - not too much.

Managerial accounting is for management purposes, especially for manufacturing companies. It must be much more detailed and the amount and detail is localized to a small area. Used for planning and to reflect your implementation. Time horizon and reporting periods are different than those of financial accounting.

Regulation

Lots of problems, including the difference btwn IFRS and GAAP.

Accounting board sets the regs for financial accounting. But there aren't the same standards in mgrl acctg. In MA, efficiency (how quickly can the project be done) is the key and effectiveness (should u do this project) is secondary.

More detailed outline will come on Thursday.

Governance

See pg 16. Make sure that there's no money laying around without people seeing it. Requires internal control. No leaking. When people take advantage of leaking, there will be.....?

National Governance - no idea what he was saying

The Fraud Triangle

Opportunity

Pressure

Rationalization - "cheating is a national sport"

To prevent fraud, you must do internal auditing, which is specialized knowledge. You have to be able to see the money that nobody else sees and yet not steal it. That is the practical problem. Forensic accounting and accounting security is a field that has many job openings today.

In general, you must make sure the accounting system is secured and fully controlled.

How can you find the person who "sees the money that nobody sees", i.e. the embezzler? Look for suspicious behavior, e.g. going to Las Vegas a lot. You need to ask a lot of questions, like "where does the money come from?" Shine several spotlights on to the problem and then you'll see the reality.

Sarbanes-Oxley Act of 2002 (SOX)

This is really a topic for auditing and accounting information systems. We will cover it briefly.

Enron and WorldCom problems caused many pensions to become zero. But why did we wait for a crisis?

Now, CEO and CFO must sign a personal signature on the financial statements and therefore take responsibility.

Good system

Good ethics

Good future - smart people are ethical and willing to work for the country.

See page 149 - The Curious Accountant

There are costs: liability insurance, overhead, service, setup

Material costs, labor, overhead. American businesses have a lot of overhead because everything must be "shining".

Service

Merchandise

Manufacturing

- material (directly related to product or production)

- labor (directly related to product or production)

- overhead (difficult to trace)