C M A Certified Management Accountant
www.AudioLearn.com
TABLE OF CONTENTS Chapter One: Introduction .......................................................................... 1 Course Conventions and Content .................................................................................... 2 Key Takeaways ................................................................................................................. 8 Chapter Two: The CMA Certified Management Accountant Exam ............... 9 The Beginning of a Great Career ..................................................................................... 9 Why are CMAs needed? .................................................................................................. 11 Sitting for the Exam. ...................................................................................................... 13 Eligibility, Registering, and Scheduling ........................................................................ 14 First Meet the CMA Requirements. ........................................................................... 14 Preparing for the CMA Exam. .................................................................................... 16 Quiz ................................................................................................................................ 25 Key Takeaways ............................................................................................................... 26 Chapter Three: External Financial Reporting Decisions ............................ 28 External Financial Reporting Decisions. ....................................................................... 28 Financial Statements ..................................................................................................... 28 What is the Balance Sheet used for? .............................................................................. 29 The Statement of Cash Flows, or SCF............................................................................ 30 Statement of Comprehensive Income. .......................................................................... 31 Valuation of Accounts Receivable. ................................................................................ 31 The Allowance Methods. ................................................................................................ 32 Operating Leases. ........................................................................................................... 32
What are some specific primary differences between IFRS and US GAAP? ................ 34 Quiz ................................................................................................................................ 36 Key Takeaways ............................................................................................................... 37 Chapter Four: Planning, Budgeting, and Forecasting ................................ 39 Strategic Planning .......................................................................................................... 39 What is a strategy? ......................................................................................................... 40 Budgeting Concepts ....................................................................................................... 41 Methods of Developing Budgets .................................................................................... 42 The Budget Development Process ................................................................................. 42 Responsibility Centers and Controllable Costs ............................................................. 43 The Budgeting Cycle ...................................................................................................... 44 The Annual Budget, Master Budget, or Profit Plan....................................................... 44 Flexible Budgets ............................................................................................................. 44 Project Budgeting........................................................................................................... 45 Forecasting and Budgeting ............................................................................................ 46 Collecting the Data for a Forecast ................................................................................. 46 Time Series Analysis ...................................................................................................... 46 Trend Projection and Regression Analysis .................................................................... 47 Causal Forecasting ......................................................................................................... 47 Quiz ................................................................................................................................ 50 Key Takeaways ............................................................................................................... 51 Chapter Five: Performance Management .................................................. 53 Static Budget Variances versus Flexible Budget Variances. ......................................... 54 Allocation of Common Costs. ........................................................................................ 56
Residual Income, or RI. ................................................................................................. 57 Balanced Scorecard. ....................................................................................................... 58 Key Performance Indicators. ......................................................................................... 59 Quiz ................................................................................................................................ 60 Key Takeaways ............................................................................................................... 61 Chapter Six: Cost Management ................................................................. 63 Cost Management. ......................................................................................................... 63 Evaluating Operating Performance. .............................................................................. 63 Direct Versus Indirect Costs. ......................................................................................... 64 Mixed costs..................................................................................................................... 65 Production versus Period Costs. .................................................................................... 65 Groupings of Product Costs. .......................................................................................... 65 Explicit costs. .............................................................................................................. 66 Implicit costs. ............................................................................................................. 66 Opportunity costs. ...................................................................................................... 66 Carrying Costs ............................................................................................................ 66 Cost Accumulation Methods. ......................................................................................... 66 Overhead Allocation. ..................................................................................................... 67 Supply Chain Management............................................................................................ 68 Lean Concepts. ............................................................................................................... 69 Introduction to MRP, MRP Two, and -E-R-P-. ............................................................. 70 Theory of Constraints, or TOC. .................................................................................. 70 The Value Chain. .........................................................................................................71 Quiz ................................................................................................................................ 73
Key Takeaways ............................................................................................................... 74 Chapter Seven: Internal Controls, Technology and Analytics .................... 76 Internal Controls ............................................................................................................ 76 Governance, Risk, and Compliance. .............................................................................. 76 Corporate Governance. .................................................................................................. 77 The responsibilities of the Board of Directors............................................................... 77 Components of Internal Control ................................................................................... 78 Just what is Effective Internal Control? ........................................................................ 79 Segregation of Duties. ....................................................................................................80 Responsibilities and Limit of Responsibilities. ............................................................. 81 what are the different types of Audits? .......................................................................... 82 The objectives of an Audit of Controls........................................................................... 83 Testing Compliance with Controls. How is that done? ................................................. 83 Technology and Analytics .............................................................................................. 84 Enterprise Resource Planning Systems, or ERP. .......................................................... 85 Data Governance. ........................................................................................................... 86 Digital Transformation in Finance. ............................................................................... 87 Data Visualization. ......................................................................................................... 89 Quiz ................................................................................................................................ 90 Key Takeaways ............................................................................................................... 91 Chapter Eight: Financial Statement Analysis and Corporate Finance ........ 93 Financial Statement Analysis ........................................................................................ 93 Horizontal Index Number Trend Series Analysis. ........................................................ 94 Financial Ratio Analysis. ............................................................................................... 94
Net Working Capital. ..................................................................................................... 95 Liquidity Ratios. ............................................................................................................. 96 Current Ratio. ................................................................................................................ 96 Quick or Acid Test Ratio. ............................................................................................... 96 Cash Ratio. ..................................................................................................................... 96 Cash Flow Ratio. ............................................................................................................ 97 Financial Leverage. ........................................................................................................ 97 Degree of Financial Leverage, FL. ................................................................................. 98 Capital Structure and Solvency Ratios. ......................................................................... 99 Debt to Equity equals Total Liabilities divided by Total Equity ................................... 99 Accounts Receivable Activity Ratios. ............................................................................. 99 Inventory Activity Ratios. ............................................................................................ 100 Gross Profit Margin Percentage. ................................................................................. 100 Limitations of Ratio Analysis? ......................................................................................101 Corporate Finance........................................................................................................ 102 What is Return? ........................................................................................................... 102 Risk. .............................................................................................................................. 103 Interest Rate Risk. ....................................................................................................... 103 Foreign Exchange Risk. ............................................................................................... 103 Credit, or Default Risk. ................................................................................................ 104 Political Risk. ............................................................................................................... 104 Systematic Risk. ........................................................................................................... 104 Market Risk. ................................................................................................................. 104 The Relationship between Risk and Return. ............................................................... 105
Capital Asset Pricing Model, or CAPM. ....................................................................... 105 The CAPM Formula ..................................................................................................... 105 What exactly is Beta? ................................................................................................... 105 Long Term Financial Management. ............................................................................ 106 Derivatives. .................................................................................................................. 107 Cost of Capital. ............................................................................................................. 107 Direct Foreign Investment, also known as DFI? ......................................................... 108 Foreign Exchange Market. ........................................................................................... 109 Corporate Restructuring. ............................................................................................. 109 Acquisition of Common Stocks. .................................................................................... 111 Acquisition of Assets is up next. ................................................................................... 112 Quiz ............................................................................................................................... 113 Key Takeaways .............................................................................................................. 114 Chapter Nine: Decision Analysis and an Introduction to Risk Management ............................................................................................ 116 Decision Analysis .......................................................................................................... 117 Contribution Margin. .................................................................................................... 118 Contribution Margin Ratio. .......................................................................................... 118 Break Even Analysis. ..................................................................................................... 119 Marginal Analysis. ........................................................................................................ 119 Relevant and Irrelevant Information. ......................................................................... 120 Marginal Costs and Marginal Revenues. ..................................................................... 120 Incremental and Differential Costs. ............................................................................ 120 Avoidable and Unavoidable Costs. ............................................................................... 121 Sunk Costs. .................................................................................................................... 121
Decision Making About Production Using Economic Concepts. ................................. 121 First is Marginal Revenue. ........................................................................................... 122 Two, Marginal Cost. ..................................................................................................... 122 Applications of Marginal Analysis. .............................................................................. 123 Pricing Methodologies. ................................................................................................ 126 Value Based Pricing Methodology. .............................................................................. 128 Market Based Methodology. ........................................................................................ 129 Introduction to Risk Management .............................................................................. 130 Types of Risk. ................................................................................................................ 131 Risk Management. ....................................................................................................... 132 Risk Analysis? .............................................................................................................. 133 Enterprise Risk Management, or ERM. ...................................................................... 133 Corporate Governance and ERM................................................................................. 135 Components of an ERM System. ................................................................................. 135 Benefits of ERM. ...........................................................................................................137 Event Identification Techniques in ERM. ....................................................................137 Cost Benefit Analysis in Risk Assessment and Decision Making. .............................. 138 Quiz .............................................................................................................................. 139 Key Takeaways ............................................................................................................. 140 Chapter Ten: Investment Decisions and Professional Ethics ................... 143 The Capital Budgeting Process. ................................................................................... 143 The Stages in Capital Budgeting. ................................................................................. 144 The concept of Expected Cash Flow. ........................................................................... 144 Capital Budgeting Methods. ........................................................................................ 144
The Payback Period, or Payback Method. ................................................................... 145 Discounted Payback Period or Method. ...................................................................... 145 Net Present Value Method. .......................................................................................... 146 Internal Rate of Return. ............................................................................................... 146 Risk in Capital Budgeting. ........................................................................................... 147 Types of Risk. ............................................................................................................... 147 Analysis of Risk. ........................................................................................................... 148 Decision Trees. ............................................................................................................. 148 Sensitivity Analysis. ..................................................................................................... 148 Scenario Analysis. ........................................................................................................ 148 Simulation Analysis. .................................................................................................... 148 Monte Carlo Simulation and “What If” Risk Analysis. ............................................... 149 Real Options in Capital Budgeting .............................................................................. 149 Professional Ethics ....................................................................................................... 150 Business Ethics. ........................................................................................................... 150 Principles ...................................................................................................................... 151 Standards..................................................................................................................... 152 Standard number one: Competence. ....................................................................... 152 Standard number two: Confidentiality. ................................................................... 152 Standard number three: Integrity. ........................................................................... 152 Standard number four: Credibility. ......................................................................... 152 Resolution Of Ethical Conflict. .................................................................................... 153 Foreign Corrupt Practices Act, or -FCPA. ................................................................... 153 Quiz .............................................................................................................................. 156
Key Takeaways ..............................................................................................................157 Congratulations! You Passed, What’s Next? ............................................ 159 Final Exam .............................................................................................. 162 Conclusion .............................................................................................. 164 So, you’re ready to become a Certified Management Accountant. ............ 165 Follow Along PDF Manual ........................................................................ 180
CHAPTER ONE: INTRODUCTION Hello, and welcome to your course on preparing to become a Certified Management Accountant! My name is, and I will be your guide throughout the audio course. If you’re currently listening, perhaps you have decided to become CMA certified. In this case, you are probably already preparing for the written exam, however rigorous that might be. Maybe you're a finance and accounting professional looking to improve your career opportunities. Or you’re a practitioner involved with identifying, measuring, analyzing, and interpreting financial information. You might even be an accredited, certified, and licensed professional looking to add more education credits to your resume. Are you a student who is interested in financial planning, analysis, and control? Whatever your reason for taking this course, I congratulate you! You have chosen a potentially rewarding career path for yourself. After going through all of the material we provide in this course, you will be ready for the written CMA Certification exam. You will have a solid understanding of the steps required to become a Certified Management Accountant. The Certified Management Accountant, CMA, is an important certification in strategic management and financial accounting. Additionally, unlike the other accounting certifications out there, CMA is an internationally recognized credential. It places a special focus on corporate finance and management accounting. It’s an advanced level credential and is suitable for both accountants and financial professionals in different lines of business. Achieving CMA certification establishes your professional expertise in financial planning, decision support, control, analysis, and professional ethics. These skills are in high demand by organizations around the globe. You may want to develop and improve your career potential or boost the value that you bring to your current position. Either way, CMA certification sets the standard for
1
professional excellence. CMAs earn the credential through their work experience, the rigorous two part CMA exam, and then continuing education. So, what are the benefits that the CMA certification and this course bring to you? First, CMA is a relevant credential. As I mentioned, the CMA covers the skills that are most in demand for professionals in the world of finance. Second, preparation is convenient and flexible. This is because anyone, however busy you might be, can prepare for the CMA exam through a variety of learning platforms. That’s why we have perfected this audio format just for you. Listen when and where it works best. Also, the CMA exam is offered at hundreds of testing centers around the world. This makes it easy to take an exam no matter where you live. Third is employer recognition. Around the world, employers turn to CMAs to improve the financial performance of their organizations. Finally, there is a high return on investment. CMA certification will yield an exceptionally good return on your investment. The IMA’s Annual Salary Survey tells us that CMAs earn fifty nine percent more in median salary than their non CMA peers. They also earn sixty three percent more in median total compensation. When you are done with this course, you will be well on your way to becoming certified. This is because the material in this audio course will give you the tools you need to prepare for the test. As we move along, I will give you a brief overview of this course. Before I do, though, I will brief you on what to expect as we go through the material together. Thank you, again, for your interest in this course and for your interest in this field. If you are ready, let’s get started.
COURSE CONVENTIONS AND CONTENT This section focuses on the course conventions and content. Course conventions refers to concepts and methods that I will use to present all the material to you. This course is divided into different chapters. These chapters are also further divided into sections and sometimes, subsections. At the beginning of every new chapter or section, I will give you 2
its name. You will probably hear me use the term lecture as well. For this course, consider the words lecture and chapter as interchangeable. Near the end of each chapter, I will present small quizzes to you. You will find the quiz questions in the Follow Along PDF Manual; I will talk about that a bit later. You will be able to take the quiz and consult the answer key to assess how well you are retaining the course material. You can also take the quizzes straight from the lectures. If you do, be aware that you won’t have as much time to answer the questions unless you pause the audio after each one. Regardless of which way you take the quizzes, I will go through the correct answers during the lectures. Even if you correct your quiz from the PDF manual, listen to the correct answers from me anyway. Think of it as a bonus review lecture. After all, repetition is a great way to learn. Quizzes consist of ten or more questions, depending on the subject matter that I’ve been discussing. The questions will be presented in multiple choice format. So that you can retain as much information as possible, I will finish each chapter with a list of takeaways. These are the most important points to remember from each lecture. There will typically be ten of these important points from each chapter. Earlier, I mentioned a Follow Along PDF Manual. Each AudioLearn course comes with a companion study guide, which is called a Follow Along PDF Manual. You can print out the material or read it in digital format. The manual contains important summaries as well as links to supplemental information. You will also find the quizzes for each chapter, the answer keys, and your final exam. I advise you to print out the manual. That way, you can also use it to jot down additional comments and notes when you need to. During the course of these lectures, I may use the expression “he or she” or “him or her.” It is important to note that more and more clients are asking for female financial planners. Statistics show that fifty five percent of women between the ages of twenty five and thirty four prefer working with female financial advisors. More females are needed in the financial planning industry. So, if you are a woman listening in, welcome and thank you for your interest in the course!
3
For the majority of the population, repetition is a vital aspect of effective learning. Soon, you will realize that I will repeat several terms and concepts. This is not because there is a lack of things to say, nor is it because I’m trying to extend the length of the course. The point is to take note of the ideas that I repeat. They are important. This audio course contains a significant amount of information, including terminology, techniques, suggestions, and sources for supplemental study. For this reason, it’s very important that you listen to every lecture in this course at least twice, or even more. One listen might not be enough to give you a full understanding of the subject matter. Depending on where you are listening, you can take notes as well. Most of the information is best absorbed if you can sit and consult the Follow along PDF manual as I present the material. If, however, you are only able to listen while commuting to work for example, forget the manual for now. Consult it when the time is more safe or convenient. You can still get valuable information just by hearing what I have to say. Now, I would like to give you an outline of the entire CMA course. This is just an overview to show you what to expect. I hope that much of what you hear in this outline encourages you to want to dive right in. I hope it excites you about the prospect of becoming CMA certified! In chapter two, I will go through the process of applying for and taking the CMA certification exam. I will explain the eligibility criteria, how to register, and how to get ready. I will inform you about the test center regulations and the policies regarding results and retakes. Once your application to take the written test has been accepted, what comes next? The written exam marks the initial step in the hiring process. I will walk you through the overview of the written test. At this point, my explanation will just be in summary form. Next, I will venture into the core of the written examination. This is where you can expect to receive the majority of the quizzes in the course. After giving you an introductory overview of the exam structure, I will go over information about general test taking. How do you work through a written multiple choice test? What are some
4
successful study habits? What should you do during the time leading up to your test date? As we get into specific topics, it’s important to let you know beforehand that the entire CMA course is divided into two parts. Part One is based on Financial Planning, Performance, and Analytics. Part Two is all about Strategic Financial Management. In Part One, I will talk about Financial Planning, Performance, and Analytics. This material is covered in chapters three to eight. I start with chapter three on External Financial Reporting Decisions. This makes up fifteen percent of Part One of the exam. In this chapter, I will touch upon concepts related to different components of financial statements. They include: •
Balance sheets
•
Income statements
•
Statements of changes in equity
•
Statements of cash flows
•
Valuation of different assets and liabilities
•
and operating and capital lease.
I will also discuss equity transactions, revenue recognition, revenue measurement, and the difference between US GAAP and IFRS. In chapter four, I will talk about planning, budgeting, and forecasting. This makes up twenty percent of the Part One syllabus. In this section, I will talk about the strategic planning process, budgeting concepts, annual profit plans, and supporting schedules. I will explain different types of budgeting, including activity based budgeting, project budgeting, and flexible budgeting. In this chapter, I also address concepts like strategic planning and analysis and forecasting techniques like regression analysis and learning curve analysis.
5
Chapter five is all about Performance Management. I will talk extensively on control and performance analysis, variance analyses, responsibility accounting, key performance indicators, and balanced scorecard. You will also learn about responsibility centers. Chapter six covers Cost Management. This chapter addresses basic cost accounting concepts and terminology, cost measurement concepts, and cost accumulation systems: For example, job order costing, process costing, and activity based costing. I will also explain other concepts such as overhead cost allocation, supply chain management, and some other business process performance topics. From Cost Management, we go to Internal Controls in chapter seven. Here, I touch on Corporate Governance, Internal Control Risk, Internal Control Environment, and Responsibility and Authority for Internal Auditing. I also explain types of audits and assessing the adequacy of the accounting information system controls. You will hear a section on newer exam content about Technology and Analytics as well. As we bring Part One to a close, chapter eight is all about Financial Statement Analysis and Corporate Finance. You will now be hearing about Part Two content of the exam. Chapter nine brings us to Decision Analysis and an Introduction to Risk Management. You'll learn the definition of risk and hear about the different kinds of risk. Chapter ten is about Investment Decisions. From there, I will transition into Professional Ethics. This particular chapter is the last of the actual content chapters. Chapter eleven closes out your course. The course will close out with a summary of the steps you need to follow once you pass the actual CMA certification exam. Now that you have received your exam results, what happens next on your road to becoming a Certified Management Accountant? And, of course, there is your final exam. Use this practice test of one hundred questions to put together everything you've learned. Find out how your timing is. Learn about areas where you'll need to place more focus and study time. I hope you heard that we have quite a lot to cover. I encourage you to move at a pace that is comfortable to you. Try to listen as often as you can. Practice retaking written portions of the quizzes, especially if you get any questions wrong. Recall that the
6
primary purpose of your taking this course is to put yourself in the best position to confidently take the Certified Management Accountant certification exam. The more familiar you are with the material, the more prepared you will be. In addition, the more information you retain about the non content requirements for the test, the more prepared and confident you will be.
7
KEY TAKEAWAYS I know this lecture has been introductory. That does not mean that there are no takeaways for me to go through. Some key points for you to note are as follows: 1. Whatever your reason for taking this course, you have chosen a potentially rewarding career path for yourself. 2. CMA certification is an advanced level credential that is globally recognized. Therefore, it’s suitable for both accountants and financial professionals in different lines of business. 3. You should expect a comprehensive set of tests for certification. 4. To become a CMA professional, you must pass a two part exam. 5. Part One of the course is based on Financial Planning, Performance, and Analytics. Part Two is all about Strategic Financial Management. 6. Expect short quizzes near the end of each chapter. They are there to help you understand and retain the information provided in the lectures. 7. Make use of the Follow Along PDF Manual. It will help you to grasp the information better. 8. Items and concepts that I frequently repeat during the lectures are of great importance: remember them. I repeat them for emphasis, and to help you retain them. 9. You need to complete all necessary requirements to receive authorization to use your CMA exam marks. It's not just about passing the exam. 10. Make an effort to listen to the course at least a couple of times. I do hope that all of the information I’ve dished out so far has excited you and motivated you to get started. If you are ready to begin this journey with me, be sure to have your Follow Along PDF Manual close at hand. Have some writing material available as well. Get comfortable, and let’s get right to the work that we have before us!
8
To download the audio version of this course, please visit our website WWW.AudioLearn.com
176
