1 - Introduction to management accounting Flashcards
management accounting definition
application of the principles of accounting and financial management to create, protect, preserve and increase value for the stakeholders of for-profit and not-for**-profit enterprises in the public and private sectors
management accounting is an integral part of management requiring identification, generation, presentation, interpretation and use of relevant information
what are the 5 main areas management accounting are broken down into
- costing
- needed to assess profitability and help set prices/value the inventory in the statement of financial position - planning
- involves defining objectives and assessing future costs and revenues to set up a budget
- essential to help assess purchasing and production requirements of the business - control
- company must ensure they are being followed and assess inefficiencies in the business - decision making
- finance function involved in assessing and modelling expenditure and cash flow implications of proposed decisions - performance evaluation
- employees and divisions assessed by comparing performance against targets/budgets
- can be classed as control
what are the four global management accounting principles
- ‘communication provides insight which is influential’
- ‘information is relevant’
- ‘impact on value is analysed’
- ‘stewardship builds trust’
explain the first accounting principle
‘COMMUNICATION PROVIDES INSIGHT WHICH IS INFLUENTIAL’
as an objective = to drive better decisions about strategy and its execution at all levels
- communication on strategy should involve all employees
- communication should be adopted to suit the users needs
- good communication helps decision making
explain the second accounting principle
‘INFORMATION IS RELEVANT’
as an objective = ‘to help organisations plan for and source the information needed for creating strategy and tactics for execution’
- information is accurate, timely and collected from the best sources
- financial and non financial
- quantitative and qualitative
explain the third accounting principle
‘IMPACT ON VALUE IS ANALYSED’
as an objective = ‘to stimulate different scenarios that demonstrate the cause and effect relationships between inputs and outcomes’
- models used to estimate outcomes and measure impact of decisions
- models can = improved prioritisation of undertakings
explain the fourth accounting principle
‘STEWARDSHIP BUILDS TRUST’
as an objective = to actively manage relationships and resources so that the financial and non financial assets, reputation and value of the organisation are protected
- competent people applying best practice
- behaving with integrity, objectivity and accountability
- considering economic, environmental and social risks
explain: what objective a commercial organisation will have and what information it needs to be able to do this
(eg manufacturing and retail businesses, service providers)
OBJECTIVE = profit
INFO NEEDED = costs of running business functions, profitability
explain: what objective a not for profit organisation will have and what information it needs to be able to do this
(eg providing services to society through charities, public health and education services)
OBJECTIVE = value for money, effectiveness, efficiency
INFO NEEDED = funds raised, donations made, services provided
cima definition of the role of a management accountant
‘chartered management accountants help organisations establish viable strategies and convert them into profit (in a commercial context) or into value for money (in a not for profit context)
what do management accountants carry out
- setting of corporate objectives
- formulation of strategic plans from objectives
- formulation of operational plans
- use of finance
- design of systems and management of information
- generation, communication, and interpretation of financial and operating info
- provision of information/analysis for decision making
- monitoring of outcomes against plans
- derivation of performance measures
- improvement of business systems and processes
what does CIMA detail the role of a management accountant as
- advise managers about financial implications of projects
- explain financial consequences of business decisions
- formulate business strategy
- monitor spending and financial control
- conduct internal business audits
- explain the impact of the competitive landscape
- bring a high level of professionalism and integrity to the business
what does the ifac describe a professional accountant as in terms of personal standards
‘someone that first meets the standards of a professional, defined as’ :
- having skills/knowledge/expertise tested by examination and continuously developed
- committed to values of accuracy, honesty, integrity, objectivity, transparency and reliability
- subject to oversight by a body with disciplinary powers
what does the ifac describe a professional accountant as in terms of the job
- belonging to a recognised accountancy body which upholds standards
- this is in the discipline of recording, analysing, measuring, reporting, forecasting and giving advice in support of financial, management and strategic decisions
what does the ifac describe a professional accountant as in terms of status
- working in organisational entity of any size, in either for or not for profit
- integral member of, or supporting, the main management team to strive for value for stakeholders
