1.) An Introduction to Management Accounting Flashcards

1
Q

Define: Accounting. (American Accounting Association, 1966 definition)

A

“The process of identifying, measuring and communicating economic information to permit judgements and decisions by users of the information”

  • Financial decisions/judgement
  • Measured quantitatively (even non-financial tings)
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2
Q

Who are the users of accounting information?

A

“It’s a language”

  • Management
  • Investors
  • Lendors
  • Employees (employment security?)
  • Creditors
  • Government (taxation)
  • Public
  • Analysts

> > > Internal vs. external users

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3
Q

What is Management Accounting?

What is Financial Accounting?

A

Management:

  • Provides information for managers of an organisation who direct and control its operations
  • Information to help planning & control, decision making
  • Mostly internal users

Financial:

  • Provides information to shareholders, creditors and others who are outside the organisation
  • Mostly external users
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4
Q

Describe ‘The Management Cycle’

A

Decision Making at centre with arrows going to all:

1) Formulating Long-and Short-Term Plans (Planning)
2) Implementing the Plans (Directing and Motivating)
3) Measuring Performance (Controlling)
4) Comparing Actual to Planned Performance (Controlling)

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5
Q

What are some examples of how The Management Cycle is implemented?

A

1) Need information to formulate plans e.g. for budget targets (Planning)
2) Encouraging employees to work in the interest of the company (Directing and Motivating)
3) , 4) Is the organisation meeting budget targets? (Controlling)

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6
Q

Define: Management Accounting (CIMA Official Terminology)

A

The process of:

  • identification,
  • measurement,
  • accumulation,
  • analysis,
  • preparation,
  • interpretation and
  • communication of:

information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources.

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7
Q

What is the Role of Management Accounting?

A

1) Developing plans and analysing alternatives
2) Communicating plans to key personnel
3) Evaluating performance
4) Reporting the results of activities
5) Accumulating, maintaining, and processing an organisation’s financial and non-financial information

  • Also; risk-management
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8
Q

What are the Characteristics of Useful Information?

A
  • Relevance (key; fit for purpose, comparable)
  • Understandability (to be interpreted)
  • Timeliness (detecting problems early to stay on track to achieve plan)
  • Comparability
  • Reliability (but doesn’t have to be as precise as financial accounting)
  • Completeness
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9
Q

What is the purpose of information re. Management Accounting? What are the caveats?

A

Information provision should ultimately be aimed at achieving organisation objectives, but:

  • objective(s) may be poorly defined (and may change based on new information)
  • there may be several objectives in conflict (top-down approach of organisation, filtering down to specific objectives at base level)
  • objectives could change over time
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10
Q

What is the Cost/Benefit Criterion for obtaining information?

A
  • Cost of obtaining information should not outweigh the benefit of possessing it
  • More info = more cost
  • Benefit reaches a plateau, whilst cost keeps increasing
  • Thus information often based on estimates as a result
    “Just precise enough”
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11
Q

What are the similarities of Management and Financial Accounting?

A

Similarities:

  • Both predominantly quantitative
  • Share certain data sources
  • Both are key elements of the MIS; Management Information System
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12
Q

List the key differences between Management and Financial Accounting.

A

1) Users
2) Time focus
3) Emphasis
4) Frequency
5) Focus
6) Format

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13
Q

How do Management and Financial Accounting differ re. Users?

A

Financial:
- External persons who make financial decisions

Management:
- Managers who plan for and control an organisation

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14
Q

How do Management and Financial Accounting differ re. Time focus?

A

Financial:
- Historical perspective

Management:
- Future emphasis on planning/company growth etc.

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15
Q

How do Management and Financial Accounting differ re. Emphasis?

A

Financial:
- Emphasis on verifiability and precision (trust)

Management:
- Emphasis on relevance for planning and control

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16
Q

How do Management and Financial Accounting differ re. Focus (general)?

A

Financial:
- Primary focus is on the whole organisation

Management:
- Focuses on segments of an organisation e.g. profitability of individual products etc

17
Q

How do Management and Financial Accounting differ re. Frequency?

A

Financial:
- Prepared on a regular basis; annually

Management:
- Prepared on an ad hoc basis; produced PRN

18
Q

How do Management and Financial Accounting differ re. Format?

A

Financial:
- Must follow GAAP and prescribed formats

Management:
- Flexible, based on users’ needs, not mandatory (apart from product costing for financial statements)

19
Q

Describe the expanding role of Management Accounting.

A
  • Increasing complexity and size of organisations (w/globalisation; becomes de-centralised)
  • Increased emphasis on quality; customers more discerning e.g. mobile phone market
  • Rapid development and implementation of technology
  • World-wide competition
  • Regulatory environment (e.g. low-cost airlines)

> > > All factors that increased the need for management accounting information.

20
Q

Describe how the business environment has changed in the last 20 years.

A

More competitive environment emphasising:

  • Higher quality products
  • Lower prices and costs
  • Global competition
  • Meeting and anticipating customer needs (customer satisfaction)
21
Q

What current issues surround Management Accounting?

A
  • Changing organisational forms; flatter, network structures
  • Increased importance of service industries and changing approaches to public sector management e.g. NHS targets (private sector management strategies in public sector)
22
Q

Why are ethical accounting practices important?

A
  • Build trust

- Promote loyal, productive relationships w/users of accounting information

23
Q

Which professional organisation outlines a good code of ethics for Management Accounting?

A
  • CIMA; Chartered Institute of Management Accountants
  • Many companies and professional organisations also have
    »> Accounting scandals = ethics gone wrong e.g. Tesco
24
Q

Describe the Code of Ethics for Management Accountants.

A

Integrity:

  • Avoid activities that could affect your ability to perform duties
  • Refuse gifts/favours that might influence behaviour
  • Communicate unfavourable as well as favourable information
  • Refrain from activities that could discredit the profession