1 Introduction Flashcards
What are the main purposes of management accounts?
- The purpose is to provide both financial and non financial information.
- This is used for things such as setting prices, strategies and initiatives
- They have to play a strategic, operational and controlling role in the company
- Management is pervasive and purposeful
- Support decision making at all levels
- It is intended to affect behaviour for decisions
- They can create significant value if provide data that is timely and accurate
What is non financial information?
Advertisement data, how people use products
Who uses financial data?
- Internal users within the organisation (management accounting)
- External parties (financial accounting)
What are the four functions of management
- Strategic management
- Planning and decision making
- Management and operational control
- Preparation of financial statements
How is cost management information used in strategic management?
Cost management information is used to make strategic decisions
E.g. customer profitability and product mix
How is cost management information used in planning and decision making?
- Cost management information is used for planning
E.g. in the acquisition of property, plant and equipment
How is cost management information used in management and operational control?
Cost management information is used to identify divisions and managers who are performed well or failing in order to introduce the right rewards and motivators
How is cost management information used in financial statements?
Cost management information is required for reporting accurate and regulatory compliant information about inventory and other assets
What are the ethical considerations for management accountants?
- Profit maximisation should not be the only objective
- Should consider the employees, society and the environment
- UN SDGs are getting more popular
- However globalisation has allowed firms to exploit loop holes abroad
- Often financial rewards are linked to personal performance not company
- For these reasons codes of ethics have been introduced
What is CIMA’s code of ethics?
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
What is integrity?
Being straightforward, honest and truthful in all professional and business relationships. You should not be associated with any information that you believe contains a materially false or misleading statement, or which is misleading by omission
What is objectivity?
Not allowing bias, conflict of interest or the influence of other people to override your professional judgment
What is professional competence and due care?
An ongoing commitment to your level of professional knowledge and skill. Base this on current developments in practice, legislation and techniques. Those working under your authority must also have the appropriate training and supervision
What is confidentiality?
You should not disclose professional information unless you have specific permission or a legal or professional duty to do so.
What is professional behaviour?
The Code requires you to comply with these fundamental principles of ethics. The Code also requires you to apply the conceptual framework to identify, evaluate and address threats to compliance with the fundamental principles. Applying the conceptual framework requires exercising professional judgment, remaining alert for new information and to changes in facts and circumstances, and using the reasonable and informed third party test.
Changing business environment
Must make sure to keep on top of changes that are happening as they are great to include in exams
Why must business adapt to the contemporary environment?
To compete successfully in todays economic environment companies are now having to focus on providing customer satisfaction
How can business adapt to the contemporary environment?
- Cost efficiency (increased emphasis on accurate product costs and cost management)
- Quality control (TQM, quality reporting)
- Time management (customer response time, on-time delivery, elimination non-value-added activities)
- Innovation and continuous improvement
- Information technology and internet
What are some key tools for strategic cost management?
- Balanced scorecard
- Strategy maps
- Value chain analysis
What are the 4 perspectives of the balanced scorecard?
- Financial indicators. “Measures of profitability and market value, among others, as indicators of how well the firm satisfies its owners and shareholders.”
- Customer satisfaction. ”Measures of quality, service, and low cost, among others, as indicators of how well the firm satisfies its customers.”
- Internal processes. ”Measures of the efficiency and effectiveness with which the firm produces the product or service.”
- Learning and growth. ”Measures of the firm’s ability to develop and utilize human resources to meet its strategic goals now and into the future.”
What are strategy maps?
Strategy Maps are used to link the four parts of the Balanced Score Card
What is value chain analysis?
Value chain analysis helps organizations to determine specific steps required to enable the provision of a competitive product or service to a customer
What are the two main types of competitive strategy?
Cost leadership
Differentiation
What is cost leadership?
Entities compete against each other on the basis of cost
