hello and welcome to our course on management accounting in module one this is a bit of an unusual module most module in the modules in this course we're going to be using a calculator crunching some numbers but this module you can put your calculator away this is all about learning uh about how management accounting fits into a business and why it's so important and why you're taking a class on it for goodness sakes so we'll look at the differences between managerial accounting and many of you have likely already done a course on financial accounting so
we'll look at the differences between the two look at what managers do and how accounting information helps them to do their jobs trends in management accounting and finally we'll discuss ethics and why it's so important to us accountants but let's just start with the big burning question why why do i have to have a course on management accounting and the answer is i think fairly straightforward first we do a course in financial accounting because we have to learn to make financial statements to figure out how profitable we are so that we can one pay taxes
to the government they want to know how profitable we are but we can also attract investors shareholders bankers will lend us money and it's all based on our financial accounting information so that's why we do financial accounting information trade keeps track of transactions we summarize them in financial statements and then we use those financial statements to either attract investment from investors attract loans from the bank or uh well to pay our taxes we have to do it so that's why we do financial accounting why then do we do managerial accounting well if we're gathering all
this financial data we can use financial information to make decisions so rather than preparing a financial report for some outsider you'll prepare reports for insiders to decide what to do so for example maybe you've ordered a new type of inventory and you want to know how is it selling well that's managerial accounting data right you've ordered in a new sku a new kind of inventory you want to know if it's selling better than the old stuff you use accounting data to help you make that decision for your business so that's why we have management accounting
it's just to help make help us to make better decisions about our business or for our business so uh they're pretty fundamentally different things financial and managerial accounting they have different users as a start the users of financial accounting information as i've suggested these are i'm just going to change my pen these are outsiders to the company so we mentioned you might have to prepare financial information if you want to attract investors they're obviously going to want to see your financial statements before they decide to invest you might want to get a loan from a
banker well they're not going to lend you any money without seeing financial information and that's the financial information provided in the financial statements that you've learned about in financial accounting if you haven't taken financial accounting not the end of the world or if you've forgotten everything not the end of the world you can still do this course and last i'll say is the government of course the government's interested because they want to collect tax dollars from you so those are outsiders who are interested in financial accounting who's interested in managerial accounting information well it is
the insiders it is the employees and the managers and these guys these outsiders they're making decisions about your company they're saying is this company worth investing in okay i might invest in home depot or i might invest in lowe's i can't decide i'm going to make a decision about investing in them insiders are not making decisions about the company they're making decisions for the company and so as a consequence the information required by these parties is very different so let's use the example of walmart let's say i'm an investor and i'm looking at walmart and
i'm thinking oh do i want to invest in walmart i want walmart's consolidated oh i think i spelled it wrong consolidated financial information so in other words i want their total sales revenue their total profits the billions and billions of dollars right a hundred billion dollars or however much walmart has sold in the year that's the data i want to know now let's say i'm a manager at walmart and i live in a small city in in british columbia canada called kamloops i'm the manager of the kamloops walmart's electronics department right where you can buy
playstations and xboxes well they're not on the shelves right now but i'm i'm looking every day uh so i'm the manager of the kamloops walmart electronics department and i want to know i bought a new brand of headphone a new brand of ear candy headphone i've moved them to the front of the shop i want to know how well they're selling well i don't care that walmart corporate sold a hundred billion dollars in headphones this last year whatever they sell in headphones i want to know my department of my store how well that specific skew
of headphones is selling compared to the other ones i want very segmented information i want the micro stuff so financial is concerned about the macro the big company how's the big company doing uh manager was concerned about well how's my department doing oh i made that small decision a month ago i want to know the last two weeks how i've been doing where financial information would be quarterly or even annual information the time elements to financial financial accounting is always looking at the past it's saying how did we do last year how did we do
last quarter how did we do in the past managerial certainly can look at the past and say well how many headphones did i sell last week but it's also very concerned well somewhat concerned with the present but it's often concerned with the future it's budgeting for it it's saying what are our plans for next quarter what are we expecting to do financial accounting says nothing about the future it's commenting on the past because financial accounting is commenting on the past and because it's all about serving these outsiders these investors bankers the government people outside of
our company it needs to be verifiable you need to be able to double check you need to be able to audit this information right and the reason is because we got to protect these outsiders you know in case the firm is lying or making mistakes these outsiders need rules and protections so yes it has to be verifiable and that's why it's passed now obviously if we're doing managerial accounting based on plans for the future we can't verify the future until after it's happened so it's not verifiable by nature right when i'm planning for next year
i already know my numbers are going to be off if i'm walmart and i think i'm going to sell you know next month 25 pairs of headphones well i might sell 22 i might sell 28. i'm very rarely going to be exactly right with all of my predictions so it need not be verifiable that doesn't mean though i don't go back after it's happened and say oh i thought i was going to sell 25 i actually sold 40. what does that mean right that's definitely the work of managerial accounting but i don't need to and
i'm not able to double check in the moment where i generate the the budget or the plan i just try to come up with as good of plans as possible uh there are rules for financial accounting everybody has to do it the reason we have to do it even if you say i don't have any investors i'm just a private business and i don't have a banker i don't need a loan i'm just self-funding here unfortunately you still need to file your taxes to the government so you still must do it and you still must
follow rules you can't just make up the rules as you go when you are preparing your financial accounting information broadly we would call the rules for financial accounting information gaap uh also ifrs international so gaap stands for generally accepted accounting principles i offer us international financial reporting standards these are the broad names of the rules or the frameworks that accountants must follow managerial accounting there's no rule that says i have to budget there's no obligation there's no government body saying you walmart have to budget for how many uh skull candy headphones you're going to sell
next week and compare it to how many beats headphones you're going to sell next week it's sensible to do but there's no obligation to do it and there's not a rule framework now sometimes my students will say oh there's no rule so that means i can do anything well of course you can budget correctly and incorrectly and i can still mark you wrong on a test but there are no strict rules requiring people to budget just as there's no rule requiring you when you go to the supermarket you have a hundred dollars in your pocket
there's no rule saying you have to budget that hundred dollars you probably do because you're sensible and you say oh i only want to spend you know twenty dollars today at the grocery store because i only have a hundred dollars in my bank account uh and so you you budget accordingly well businesses again there's no rule that you have to do it but it's a sensible thing to do so anyway those are the broad differences there are more differences but those are key differences between financial and managerial accounting let's continue so what do managers do
well uh there there's sometimes i take this from a textbook and some textbooks actually have four things on the list this one has three at a broad picture there might be like strategy formulation kind of above all of this but let's say we are a disney theme park and i i guess they're opening a new land avatar land they've made a movie uh avatar 2 and avatar 3 are going to be big movies coming out soon and so they've made a new theme park and they want to make a ride to go with this new
avatar property that they're they're having uh well they've got to drop the plans like literally architectural plans for the ride what's it going to look like how much is it going to cost will be a big part of that and that's management accounting decisions so they're going to plan let's just talk about this one theme park right right they've you know strategy formulation they know they're releasing the avatar movie and they've decided they want to add avatar land to their disney theme park uh planning wise okay they've said okay we want this one roller coaster
this super avatar roller coaster let's get the architectural plan let's uh let's figure out how much it's going to cost to make and let's let's get our road map here how many years is it going to take to build this rider months however long it takes to build a ride directing is so so planning is almost like writing the map right here's where we're going right we in one year we're going to have this ride built people are going to start using it directing is as you are building the ride you're double checking to see
if you're on budget you're saying are we following the map or not and directing is more focused on making sure we're following the map controlling is you double check the map and you look back and you say have i been following what i thought i was going to do if not do i need to change the plan or do i need to change my course of action you know i said i was going to be done in a year we're eight months in and we're not half done yet do i need to one hire more
people bring in more resources because i need to be done in the next four months or two do i need to say oh this plan is out the window let's make a new plan controlling is revisiting how you're doing against the plan so again planning big picture what are we going to do directing trying to follow that map as best as you can trying to follow the plan is basically again controlling is double checking if you're on track with your plan okay some trends in management accounting and business in general machine learning and data analytics
are obviously affecting everything you know every business has a tech side to the business and uh just you know we can trust uh computers more than we can trust people in some cases to analyze human behavior and so if people are coming into your store buying things uh you know machine learning is helping us make decisions for our companies better than we've ever done before and and so it's affecting uh the way business is run and it certainly affects us in accounting uh you know certainly um uh the work of accountants uh you know ais
can do similar work to accountants and they help us do our work better when the big firms are hiring these days they are just as apt you know the big cpa firms kpmg uh what are the big ones kpmg pwc deloitte uh ernst young ey uh those are the big four they are as app to hire computer programmers software engineers as they are accounting grads these days and the reason is machine learning and data linux is so important to their clients and it's important to the way they do business as well so this trend is
going to continue if i were to advise a young person i would say you want to be a dual expert if you want to get into accounting you want to be an expert not only in accounting but also in computers globalization you guys who are watching this video i get views from well over 150 countries which is crazy it blows my mind actually that this happens well the world is coming together right and and that means if you're running a small business in your town very likely you're not just competing with your neighbors and the
businesses down the street you're competing with businesses from all over the world that have entirely different cost structures and entirely different challenges to you so if i want to buy a set of headphones i can go to the walmart store that's you know about a kilometer away from me i can also go on the internet and buy it from walmart.ca or amazon i can also go on ebay and buy it directly from hong kong there's there's ebay shops that are based in hong kong these are totally different business models but they're all competing for my
dollar and so when you start a business you're going to be competing broadly now why does that what's the relevance here i think we'd all agree that that's happening well the relevance is uh competition is more fierce than ever and so we go back to management accounting being optional well of course it's optional to budget but you're going to run a better business if you do it and so you're going to be up against competitors that are doing this type of stuff you're competing in a global market now for most things or for many things
you need to be more efficient than your competitors and management accounting helps us improve our efficiency okay the final slide if you want to call it a slide of this chapter and again this is an unusual chapter we will normally be pulling out calculators but putting pen to paper with problems but this chapter is all about just the the framework of accounting and how it fits in and the last thing is ethics i um i'm not a car expert and when i take my car into the shop the um repair person will you know maybe
it's making a knocking sound as i bring the car in and the repair person will look at it and a couple hours later i'll come back and they'll hold up this piece right some random thing they'll go uh this is your carburetor buddy you can see there's a hole in the carburetor and uh uh your car is not working i got to replace the carburetor and i look at the person i go okay please please do that and make my car drive again i have no idea what they're talking about i have no idea what's
going on i just kind of go okay yep and i'm at their mercy accountants in a different context i've been a professional accountant for many years and sometimes you'll bring a client in many clients are sophisticated but many are not and you'll bring them in and you'll be talking about some tax issue with them and they get that look in their eyes like i have when i go to the car repair shop where they go okay where do i sign mr accountant that's why i hired you i i trust you to help me and uh
they're putting their lives in your hand right you know you can absolutely screw people over as they're going and it makes news when accountants steal money and screw people over so that's why ethics is so important to us accountants um you know again this is some i think it's a cma's ethical framework i'll just go through the gist of each one the first is to do the work you have to be competent and competence you know even if you are well intentioned and you're not trying to screw anybody or steal from them if you don't
know how to do the work you shouldn't do the work right and that's why cpa firms they're built on competence and and on a hierarchy where you know if you're a junior staff you have senior staff to help you so you might not be competent but you're going to be trained and you're going to be monitored confidentiality of course financial information needs to be kept confidential we don't share anything to do with client information and financial information is kept private uh integrity you need to behave honestly in integrity you with integrity you will be put
in positions where you could do dishonest things and again the whole profession rides on our integrity uh so i was an auditor and an audit you review a company's financial statements you audit them and then at the end of the day you write one page of paper signing saying yes these financial statements i certified that they're okay i you know i give you reasonable assurance that there aren't material misstatements to get technical but you know i certified that these aren't right i sign on the bottom line the accountant charges tens of thousands of dollars depending
on the size of company for a piece of paper that says i looked at this it's okay trust me i have integrity so accounts are selling on their integrity so it's important that if you're part of this profession you behave with integrity and the last is it goes with all of the above credibility right when we say it's true it better be true and uh that's the profession is built on that okay we're 20 minutes deep and that's more than enough chapter one a most unusual chapter but i hope you stay with me for our
journey to better understand management accounting thanks for watching so far and i'll see you in our next video bye for now
