Chapter 1 - The accountant's role in the organisation

Question 1

The accounting system should provide informaiton for five broad purposes. Describe them.

Answer 1

1 Formulating overall strategies and long-range plans (non-routine, internal)
2 Resource allocation decisions, e.g. product and customer emphasis and pricing (internal routine)
3 Cost planning and cost control of operations and activities (internal routine)
4 Performance measurement and evaluation of people (internal non-routine)
5 Meeting external regulatory and legal reporting requirements (external)

Question 2

Distinguish between management accounting and financial accounting.

Answer 2

Financial accounting focuses on reporting to external parties. It measures and records business transactions. It provides financial statements based on generally accepted accounting principles (GAAP).

Management accounting measures and reports financial and non-financial information that helps managers to make the right decisions to fulfil the goals of an organisation.

Question 3

Describe the business functions in the value chain.

Answer 3

• Research and development
• Design of products, services or processes
• Production
• Marketing
• Distribution
• Customer service

Question 4

Explain the meaning of cost management.

Answer 4

Cost management describes the activities of managers in short-run and long-run planning and control of costs. It entails the continuous reduction of costs. It is a key part of general management strategies and their implementation.

Question 5

Explain cost accounting

Answer 5

Cost accounting provides information for both management accounting and financial accounting. It measures and reports financial and non-financial data that relates to the cost of acquiring or consuming resources by an organisation

Question 6

Name the three functions management accountants have in most organisations

Answer 6

Scorekeeping involves accumulating data and reporting reliable results to all levels
of management. E.g. recording of sales, purchases of materials and payroll payments.
This role asks: how is the business doing? (control)

Attention directing involves helping managers properly focus their attention. This role: asks which opportunities and problems should be emphasised first. Attention directing should focus on all opportunities to add value to an organisation, not just cost-reduction opportunities. (control)

Problem solving involves comparative analysis for decision making with an element of analytical review. E.g. comparing the financial advantages of leasing relative to owning
This role asks: of the several alternatives available, which is the best? (planning)

Question 7

Name some forces for change in relation to management accounting

Answer 7

Economic and global factors are affecting management accounting thinking and practices, including organisational structure change, digitisation, the growing significance of intellectual capital and knowledge management, sustainability issues, the rise of ‘ Big Data’, and national and international measures to deal with governance, risk and economic growth issues

Question 8

Name and explain the themes in the design of management accounting systems

Answer 8

Customer focus (The challenge facing managers is to continue investing sufficient (but not excessive) resources in customer satisfaction such that profitable customers are attracted and retained).

Success factors, time, cost, quality and innovation (Operational factors that directly affect the economic viability of the organisation)

Value-chain and supply-chain analysis (Treat each of the business functions in the value chain as an essential and valued contributor.
Integrate and coordinate the efforts of all business functions in addition to developing the capabilities of each individual business function.)

Continuous improvement (Continuous improvement by competitors creates a never-ending search for higher levels of performance within many organisations)

Question 9

What are 5 ethical guidelines management accountants should follow?

Answer 9

1 Integrity – A professional accountant should be straightforward and honest in all professional and business relationships. Integrity also implies fair dealing and truthfulness.

2 Objectivity – A professional accountant should not compromise their professional or business judgement because of bias, conflict of interest or the undue influence of others.

3 Professional competence and due care – A professional accountant should maintain professional knowledge and skill at the level required to ensure that clients or employers receive a competent professional service. A professional accountant should act diligently in accordance with applicable technical and professional standards when providing professional services.

4 Confidentiality – A professional accountant should refrain from disclosing outside the firm or employing organisation confidential information acquired as a result of professional
and business relationships without proper and specific authority unless there is a legal
or professional right or duty to disclose. Confidential information acquired as a result
of professional and business relationships should not be used for personal advantage of the professional accountant or the advantage of third parties.

5 Professional behaviour – A professional accountant should comply with relevant laws and regulations and should avoid any actions that the professional accountant knows or should know may discredit the profession.