introduction to management, the controller, and cost accounting

8/12/2019 Introduction to Management, The Controller, And Cost Accounting

1/4

Introduction to Management, the Controller, and Cost Accounting

Management

According to Henry Fayol's Industrial and General Administration, "to manage is to

forecast and to plan, organize, to command, to co-ordinate and to control". To an

organization, those various activity can be narrowed to Planning, Organizing and Control by

three groups of management: operating management, middle management and executive

management with different role in each level.

Planning is the process of sensing external opportunities and threats, determining

desirable objectives and employing resources to accomplish these objectives. Effective

planning takes the companys business (what, where, who), major policies (how), and timings

(when) into account. Organizing is the establishment of the framework within which

activities are to be performed. A company is usualy divided into two or more functional

units/divisions suited to the companys operation. Each units/divisions has specialized

job/function, but still parts of an interdependent system that works as a whole, thats where

organizing takes place. All those objectives, all factors affecting them, and companys

activity are monitored, compared, and followed through a systematic effort or what you call

control in management.

Although managements planning, organizing and control seems to be a separate

processes, in reality they sync together and can dynamicaly affects each other. Especially

planning and control, they occurs simultaneously at the same time, the planning of next cycle

of activity is being done while the activitys control takes place. Heres an illustration of

managements planning done by different level of management, all while organizing and

control the activities as materials for decisions of next cycle of planning.

Executive management :- decides what type of business (product(s) and costumer) a company will run;- what the company will be in the future

Middle management :- how to sustain companys operation in the near-future

Operating management :- focus on the operation of current and next budget period


2/4

from the illustration we can conclude that the higher level of management have a longer

term/range decision. The least quantifiable one, handled by executive management is called

strategic plans, which affect the lowers long range and short range plans of management

level. The lowest level focus on smaller time frame in a more fixed intervals than its higher

component while operates in a more systematic process in accordance with the companys

policies that have been defined by middle and executive management. Operating and middle

management also have a very little influence on external environment as only executive

management has the potency to affect it, so middle and operating management can only focus

on the companys organization itself.

Authority, Responsibility, and Accountability

How and who planning and control are done can be different from one company to

another, usualy a bigger company let more people handle its planning and control function.

In that account, we should pay attention to authority, responsibility, and accountability.

Authority is the power to direct others. The highest authority is in the hand of

executive management, which delegates it to lower level without removing its responsibility.

Responsibility/obligation is closely related to authority, in which its output can be measured

from accountability-reporting result to higher authority.

An organization chart helps to define authority, responsibility, and accountability of

an entity. It leads to an aproach to accounting and reporting called responsibility accounting-a

structured accountability report.

The Controllers Participation in Planning and Controlling

The controller is the executive manager responsible for the accounting function. It

observe and coordinates planning and controlling of the company and strive for improvement

in them. The controller issuing performance report that emphasizes deviations from a

predetermined plan-management by exception.

Under the controllers direction, a cost department analyze cost and issuing

performance report and other dacision-making data. It gathers, compiles and communicates

information to managers for use in controlling and improving operations. Using cost

accounting, it helps management to accomplish the following tasks:

- Creating and executing plans and budget for operating under expected competitiveand economic conditions.


3/4

- Establishing costing method that permit control of activities, reduction of costs,and improvement of quality.

- Controlling physical quantities of inventory and its cost for pricing andperformance evaluation.

- Determining company cost and profit for an accounting period- Choosing from two or more short-run or long-run alternatives that might alter

revenues or cost

Budgeting

The budget is the quantified, written expression of managements plan. Making a

budget should involve all levels of management. It plays an important role in influencing

management process. such as:

- Setting goals- Informing individuuals about what they should contribute to the accomplishment

of the goals

- Motivating desirable performance- Evaluating performance, and- Suggesting when a correction action should be taken.

In budgeting, the responsibility for cost control should be assigned to a specific

individuals who are also accountable for budgeting the cost under their control. Refers to

responsibiliy accounting system, each managers responsibility should be limited to to the

cost and revenues that are controllable by the manager.

Controlling cost can be aided by a predetermined cost ammount that can also be the

foundation for budget and cost reports. A complex production setting can result in non-value-

added activities (activities that do not add value to the output, ex: storage and invenory

transports). Reporting non-value-added activities is a first step of their reduction/elimination.

Pricing

Although demand-supply ussually are determining factors in pricing, ideally even under

adverse condition, its should assure long-run recovery of all cost and a profit. To determine

profit, cost accounting matching the costs and revenues. It involves identifying short-run and

long-run cost and variable and fixed (capacity) costs.


4/4

Cost accounting also provides information concerning the different revenues and costs

that might result from alternative actions. It plays an essential role in idetifying, evaluating

and selecting strategies for the company.

Cost Accounting Certification, Ethics, and Standards Board

Management accountants or internal accountants are persons engaged in cost or other

accounting function within an organization. As in formal recognition proffesional

certification, they can be reffered to as Certified Management Accountant (CMA) and

Certified in Financial Management (CFM).

Standards of Ethical Conduct for Practitioners of Management Accounting and

Financial Management is issued by Institute of Management Accountants (first issued in

1983 then modified in 1997) as a code of ethics. In Indonesia, Accountants code of ethics is

issued by Ikatan Akuntan Indonesia (IAI). There are eight elements: a) resposibility, b)

public interest, c) integrity, d) objectivity, e) competence and professionals prudential, f)

secrecy, g) Professional Conduct, and h)technical standards.

introduction to management, the controller, and cost accounting

Documents