6.1. Managing Corporations Flashcards
Structure of organisations…
Organised into bureaucratic hierachies.
Members of the organisation are ranked based on their authority.
Four features of a corporation…
Corporate positions are vertically arranged according to authority.
There is a delegation of a power down this vertical structure. Higher positions have more power.
There is a division of work and responsibility, with different people having more authority.
A formal communication channel exists and accounting helps this to flow, by transmitting important information.
Three types of authority…
Charismatic authority:
- The leader or ruler personality that needs to make decisions. They can be religious, political or maybe a celebrity.
Traditional authority:
- An individual who has authority in society through family and wealth.
- Primogeniture and stems from lineage / kinship.
Rational legitimacy (modern view):
- Obedience to an ‘objective set of organisational rules and structures.
- The power occurs due to authority that comes from a specific position.
- The rules and structures may be set out in a company policy and should apply to all levels.
Selecting the best directors with six criteria…
Decision making: we need to select the best candidate who has vision for the future.
Staffing: the director needs to employ the best people to achieve his vision.
Directing: the director needs to lead, communicate and motivate people to achieve objectives and vision for the company.
Controlling: make sure that the company is on track to meet the performance targets.
Planning: determining the objectives and means of achieving the plans and vision for the company.
Organising: designing an appropriate organisational structure to implement the vision.
Three considerations in corporate strategic planning…
What does the corporation want to achieve?
What does the corporation need to achieve this?
How will the corporation achieve this?
Two types of planning within the business…
Corporate planning: plans made by the board of directors and relates to the whole organisation. These are long-term plans.
Operational planning: plans made in specific departments by middle and lower management. Thse are short-term plans.
Control of plans…
Control of a company ensures that a company’s actual performance aligns with the plans it produces.
Four aspects of management accounting (and the balanced scorecard)…
Financial perspectives:
- Financial objectives and measures to meet shareholder expectations.
- This considers the share price, dividends and liquidity / cash flow.
Customer perspectives:
- Objectives and measures to attract, satisfy and retain customers.
- Products, services, image, brand appearance and loyalty relationships should attract customers and show businesses care about their customers.
Internal processes:
- Objectives and measures to determine how well a business is running.
- Quality, cost control, inventory management, supply chain and health and safety must be maintained.
Innovation and learning perspective:
- Objectives and measures to how well the corporation can continue to innovate, adapt, evolve and create value.
- Research and development expenditure, pandemic adaptability etc.
Responsibility accounting…
Assigning financial responsibilities to organisational units.
Cost centres (the smallest):
- Responsible only for expenses and costs, does not consider output or revenue.
Profit centre (larger than the cost):
- Costs and revenues can be controlled.
- Revenue is measurable and allows companies to see if they will meet targets.
For a product, department or geographical area.
Investment centre (the largest centre):
- Managers are responsible for costs, revenues and investment decisions.
- The higher level decisions about what and where to invest.
Areas of accounting…
Financial account (looking to the past):
- Reports corporate profitability, liquidity and the current position.
- Compared with competitor in the industry, current targets and past performance.
Management accounting (looking to the future):
- Offers a wide variety of techniques and methods for the planning and controlling of activities at various levels.
Costing techniques:
- Used to determine the cost of various cost objectives.
- Absorption costing, activity-based costing, job costing.
Decision-making techniques:
- Used to help managers evaluate alternatives and select the most appropriate.
- Capital budgeting techniques, cost-volume-profit analysis, limit factors analysis, inventory management technique etc.
Planning and controlling techniques:
- Used to plan corporate, departmental and operational activities.
Auditing…
Various external and internal checks to help reduce the risk of fraud.
If a company knows there is a potential to be audited, they will act properly.
