About the Instructors ix

About the Exam xi

Introduction xiv

Section A. External Financial Reporting Decisions 1

Topic 1. Financial Statements 2

Overview of Financial Statements and Income Statement 2

Statement of Changes in Equity and Balance Sheet 11

Statement of Cash Flows and Financial Statement Articulation 17

Integrated Reporting 25

Topic 2.1 Recognition, Measurement, Valuation and Disclosure – Assets 31

Receivables 31

Inventory 37

Accounting for Investments in Other Entities 47

Long-term Assets 55

Topic 2.2 Recognition, Measurement, Valuation and Disclosure – Liabilities 63

General Liabilities 63

Leases 67

Topic 2.3 Accounting for Income Taxes and Revenue Recognition 73

Accounting for Income Taxes 73

Revenue Recognition 79

Topic 2.4 IFRS Differences 87

IFRS Differences in Accounting 87

Section A Review Questions 91

Section B. Planning, Budgeting, and Forecasting 95

Topic 1. Strategic Planning 96

Strategy and SWOT 96

Strategic Objectives and Generic Strategy 101

Specific Strategy Tools 105

Topic 2. Budgeting Concepts 111

Strategy Implementation and Budgeting 111

The Budgeting Process 115

Building Budget Standards 119

Topic 3. Forecasting Techniques 123

Regression Analysis 123

Expected Value Computations and Learning Curve Analysis 129

Topic 5. Annual Profit Plan and Supporting Schedules 135

Sales Budgets and Production Budgets 135

Budgeting for Production Costs 141

Wrapping Up Operational Budgeting 149

Capital Expenditures and Cash Budgets 157

Topic 4. Budget Methodologies 165

Comparing Flexible, Rolling, Activity-Based, Zero-Based, and Project Budgeting 165

Topic 6. Top-level Planning and Analysis 175

Pro Forma Financial Statements 175

Section B Review Questions 185

Section C. Performance Management 189

Topic 1. Cost and Variance Measures 190

Flexible Budgets and Performance Analysis 190

Sales Revenue Variances 197

Direct Material and Direct Labor Cost Variances 207

Factory Overhead Cost Variances 217

Management Work with Variance Analysis 225

Topic 2. Responsibility Centers and Reporting Segments 233

Business Units and Performance Evaluation 233

Transfer Pricing 241

Topic 3. Performance Measures 251

Evaluating Product and Customer Profitability 251

Return on Investment and Residual Income 259

The Balanced Scorecard 267

Section C Review Questions 275

Section D: Cost Management 281

Topic 1. Measurement Concepts 282

Cost Drivers and Cost Flows 282

Variable Costing versus Absorption Costing 289

Joint Product Costing 299

Topic 2. Costing Systems 309

Job Order Costing 309

Process Costing 315

Activity-Based Costing (ABC) and Life Cycle Costing 323

Topic 3. Overhead Costs 335

Support Department Costing 335

Variable and Fixed Overhead Costs 345

Topic 4. Supply Chain Management 353

Inventory Management and Production Systems 353

The Theory of Constraints 359

Managing Capacity 367

Topic 5. Business Process Improvement 373

Creating and Capturing Value 373

Managing Quality 379

Section D Review Questions 387

Section E: Internal Controls 391

Topic 1. Governance, Risk, and Compliance 392

Internal Control Structure and Management Philosophy 392

Internal Control Policies for Safeguarding and Assurance 395

Internal Control Risk 399

Corporate Governance 401

External Audit Requirements 403

Topic 2. Systems Controls and Security Measures 407

Information System General Controls 407

Information System Application Controls 413

Section E Review Questions 417

Section F: Technology and Analytics 421

Topic 1: Information Systems 422

Accounting Information Systems 422

Enterprise Resource Planning Systems 425

Enterprise Performance Management Systems 427

Topic 2: Data Governance 429

Data Policies and Procedures 429

Life Cycle of Data 433

Controls Against Security Breaches 435

Topic 3: Technology-Enabled Finance Transformation 437

System Development Life Cycle 437

Process Automation 439

Innovative Applications 441

Topic 4: Data Analytics 443

Business Intelligence 443

Data Mining 445

Analytic Tools 447

Data Visualization 451

Section F Review Questions 453

Review Questions and Answers 457

Appendixes 491

ICMA Content Specification Outlines 491

ICMA Learning Outcome Statements 498

Time-Value of Money Tables 513

Essay Tips 518

CMA Exam Ratio Definitions 520

Index 523

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