Chapter 1 (WEEK 1) Flashcards
Management Accounting
measures, analyses and reports financial and non financial information which assists managers in fulfilling the goals of an organization
To which part of management according to CIMA does this belong to?
Integral part of Management
For what reasons do professional management accountants apply the principles of accounting and financial management?
To create, protect, preserve, increase value for shareholders.
Is it only for private and profit sectors?
No for private, public, for-profit and not-for-profit
Management accountants engage with identification, interpretation and use relevant info to..
make strategic decisions, formulate business strategy, plan long, medium and short term, determine capital structure, design strategies, operational decisions, control, efficient use, measure and report to stakeholders, implement corporate governance procedures, risk management, internal controls, potential and value creation.
Does management accounting info and reports have to follow set principles or rules?
No
What are the key questions (3) of management accounting info and reports?
- How will this info help managers do their jobs better?
- Do the benefits of producing this info exceed costs?
- Does the info recognize what is specific about the organizational context?
Financial accounting
Focuses on external reporting directed by authoritative guidelines. They’re required to follow these guidelines to outside parties.
Management accounting VS Financial accounting: REGULATIONS
MA: generally prepared for internal use and no external regulations govern their preparation.
FA: reports need to abide by accounting regulations and guidelines imposed by the law and the accounting profession.
Management accounting VS Financial accounting: RANGE AND DETAIL OF INFORMATION
MA: very detailed or highly aggregated (= lot of different pieces put together).
FA: broad-based, not very detailed
Management accounting VS Financial accounting: REPORTING INTERVAL
MA: may be produced frequently
FA: (semi-)annually
Management accounting VS Financial accounting: TIME PERIOD
MA: include historical and current information but also expected future performance and activities.
FA: past
MA or FA: focus on what you own
FA
MA or FA: focuses on what you do
MA
MA or FA: financial and non financial
MA
MA or FA: internal use
MA
MA or FA: external use
FA
Cost accounting
Measures and reports financial and non financial information related to the organization’s acquisition or consumption of resources.
Does cost accounting provides info for MA or FA?
Both
Is there a clear-cut distinction between cost accounting and management accounting?
No
Cost management
Central task of managers, describes the actions managers undertake in the short-run and long-run planning and control of costs that increase value for customers and lower the costs of products and services.
Key idea in cost management
Decisions made by management in the past can lead to future costs for the organization.
Cost management is important in which time period?
The whole life cycle, from conception to deletion.
Strategy
How an organisation creates value for its customers while distinguishing itself from its competitors.
How does management accounting help strategic actions (5)?
- customers and value
- bargaining power of customers
- bargaining power of suppliers
- substitute products
- financial objectives
Could performance-based pay focusing on highly TANGIBLE near-term measurable variable damage or increase the creation of longer-term shareholder value
damage
Whats the most significant quantitative information systems in almost every organization?
The accounting system
The accounting system aims to provide five broad purposes:
- formulation overall strategies and long-range plans (new product development and investment etc)
- resource allocation: product and customer emphases and pricing, distribution channels etc.
- cost planning and cost control of operations and activities: reports on revenues, costs, assets and liabilities of divisions, plans and other areas of responsibility.
- performance measurement and evaluation of people: financial and non-financial measures
- meeting eternal regulatory and legal reporting requirements where they exist.
Planning
choosing goals, predicting results for various ways of achieving those goals an then deciding how to attain the desired goals
budget
quantitative expression of plan of action and an aid to the coordination and implementation of the plan.
control
covers both the action that implements the planning decision and ecng on performance evaluation and the related feedback that will help future decision making.
management by exception
the practice of concentrating on areas not operating as expect and placing less attention on areas operating as expected.
important part of management by exception
understanding the reasons for any difference between the actual results and the budgeted results.
key influences on changes in accounting information include (6):
- increased pace of change in business world
- shorter product life cycles and CA
- requirement for more strategic action by management
- Digital transformation of companies and new business models
- outsourcing of non-value-added but necessary services
- increased uncertainty and risk
Variance
the difference between the actual results and the budgeted amounts
management control
human activitity that tends to focus on how to help individuals do their jobs better.
feedback
managers examining past performance and systematically exploring alternative ways to improve future performance.
Name the three important functions of management accountants
- scorekeeping
- attention directing
- problem solving
Explain function of management accountants: scorekeeping
Accumulation of data and the reporting of reliable results to all levels of management (recording of sales, purchases of materials and payroll payments).
Explain function of management accountants: Attention directing
attempts to make visible both opportunities and problems on which manager needs to focus. ALL opportunities, not just the cost-refuting opportunities.
Explain function of management accountants: problem solving
Comparative analysis executed to identify the best alternatives in relation to the organization’s goals.
Difference between the first task and second and third?
1st: focuses on honesty and reliability
2nd: supportive role in helping managers and make decisions
There are 3 important factors management accounting considers:
costs, benefits, context
What’s important when choosing alternative accounting systems
How good they are perceived to be in helping achieve organizational goals in relation to the costs of those systems and the context within which they are to operate.
There are four (overlapping) main themes that are important for managers who want to make effective planning- and control decisions:
- Customer focus
- Value chain and supply chain analysis
- Key success factors
- Continuous improvement and benchmarking
Explain CUSTOMER FOCUS as one of the four main themes for planning and control decisions.
the challenge is to invest in enough (but not too much) sources so the profit-generating customers are attracted and kept.
What’s a value-chain?
Sequence of business functions in which utility is added to the p/s of an organization.
Explain VALUE CHAIN AND SUPPLY CHAIN ANALYSIS as one of the four main themes for planning and control decisions.
functions of value chain:
1. R&D
2. Design of products, services or processes
3. Production
4. Marketing
5. Distribution
6. Customer service: Customer Relationship Management (CRM: uses technology to organize and manage everything a company does that involves customers).
What’s the supply chain
the flow of goods, services and info from cradle to grave regardless of whether those activities occur in the same organization or in other organizations.
Explain KEY SUCCES FACTORS as one of the four main themes for planning and control decisions.
The important things a company must focus on to stay successful. These factors directly impact how well the company does financially. Customers today expect companies to constantly improve in areas like cost, quality, speed, innovation, and sustainability.
Sustainability
Creating strategies that help a company achieve long-term goals in finances, social responsibility, and protecting the environment.
Explain CONTINUOUS IMPROVEMENT AND BENCHMARKING as one of the four main themes for planning and control decisions.
Means always looking for ways to get better. This could involve making processes faster, products better, or cutting costs.
Digitalization meaning
Process whereby use of digital technologies changes the business model and provides new revenue and value producing possibilities.
Explain the two important aspects related to digitalization
Digital disruption and rapid cognitive business development: Cognitive businesses, which use large amounts of data and machine learning, can now generate insights that help with better decision-making.
Data availability:creates opportunities to make better, data-driven decisions, but it also presents challenges. Management accountants need to understand the different types of data and how they can be useful.
Technologies that management accountants should be aware of:
- AI
- Blockchain
- Big data and analytics
- the Cloud
