Introduction Flashcards
What is accounting?
The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information”
(American Accounting Association)
What is management accounting?
The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources.”
(CIMA)
What is one new feature of how organisations are managed?
Introduction of strategic management outlining a long-term vision to help meet managers needs
How do management accountants service the information needs of management?
- Developing plans and analysing alternatives-e.g. new store
- Communicating plans to key personnel-e.g.budgets for regional managers
- Evaluating performance-costs, comparisons across regions
- Reporting the results of activities-to senior execs
- Accumulating, maintaining, and processing an
organisation’s financial and non-financial information-also interested in quality but are also linked
What are some example decisions of managers that accountants can help with?
• Product choice-revenue of each
• Customers to serve or not to serve- which will be most lucrative
•Where to invest- does equipment need replacing
- what capital expenditure will provide
the most returns
Explain KPIs?
Include financial and often non-fiancial indicators of performance
What is the management cycle?
- Formulate short and long term plans (planning)
- Implement the plans (Directing and motivating)
- Measuring Performance (Controlling)
4 Comparing Actual to Planned performance (Controlling)
Regarding the management cycle, what areas do management accountants have the most effectiveness?
- Planning
* Controlling
what are the characteristics of useful management accounting information? and caveat
• Faithful representation/accurate
•Relevant-make a differnece
•Timeliness-produced in time to make infromed decisions
•Understandable-for managers to make decisions
•Comparable-in time and to other firms
•Complete/verifiable-full information and verified that it is faithfully represented
but
OFTEN A TRADE-OFF BETWEEN IS NEEDED
What is the aim of information provision?
Should ultimately be aimed at achieving organisational objectives
but
• objective(s) may be poorly defined
• there may be several objectives in conflict e.g. aiming for profits and becoming carbon neutral
• objectives could change over time
Explain the cost-benefit criterion
- Cost of obtaining information should not outweigh the benefit of possessing it (draw)
- Added value of additional information eventually begins to decline-e.e.g due to relevance or practical issues with information overload
- Costs of proving subsequently increase with the amount of info
- Optimal point is biggest gap between lines
What are the similarities between Management accounting and financial accounting?
- Both predominately quantitative
- Share certain data sources
- Both are key elements of the MIS
What are the users, time focus, verifiability/relevance, precision/timeliness, subject and requirements of management accounting?
- Users: Managers who plan for and control an organisation
- Time focus Future emphasis
- Verifiability/relevance Emphasis on relevance
for planning and control - Precision V timeliness: Emphasis on
timeliness - Subject: Focuses on segments of an organisation
- Requirements: Need not follow IFRS
formats (e.g.IFRS) or any prescribed format
What are the factors expanding the role of management accountants?
- Worldwide competition-harder to get comp. adv
- Regulatory environment-e.g.sustainability-no fuel cars by 2035
- Rapid development/implementation of tech-routine work done by IT=more time for analysis
- Increased emphasis on quality
- Increased complexity and size of organisations
What are the implications for the role of management accountants over time?
Before…emphasis on: •Achieving cost efficiency •Effective cost management Now…management accountants need to be prepared to: •Manage value •Manage for environmental sustainability
What does Hopwood argue about the changing nature of management accounting?
2009-economic information flows have greater salience within the management of organisations
•Budgets are continually set aside and reformulated
•Expectations on revenues and costs are questioned and revised
• Ad-hoc analysis but also management accounting operating in continuous time
What does Quattrone argue about the changing nature of management accounting?
(2016) argues that ‘digital’ accounting information will
not automatically make management accounting wiser
•Technology may create an ‘illusion of control’
•Role of accountants to validate info
What are the hard skills required of management accounts?
- Analysis
- Planning
- Risk
What are the soft skills required by management accountants?
- Communication-between departments/personnel
- Interpersonal
- Creativity and Innovation
What is the purpose of ethics in management accounting?
Ethical accounting practices build trust and promote
loyal, productive relationships with users of
accounting information.
What is an example of a professional organisation writing a code of ethics?
Chartered Institute of Management
Accountants (CIMA), have written codes of ethics
which serve as guides for employees
What are the 5 main components of ethics in the CIMA code?
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
Explain integrity of the CIMA code?
- Truthfulness
- Straight forward
- Honest
- Fair dealing
Explain objectivity of the CIMA code
- Communicate unfavourable as well as favourable information
* Refuse gifts or favours that might influence behaviour-e.g. conflict of interest
What are the users, time focus, verifiability/relevance, precision/timeliness, subject and requirements of financial accounting?
- Users: External persons making financial decisions
- Time focus: historical
- Verifiability/relevance : verifiability
- Precision V timeliness: Precision
- Subject: WHole organisation
- Requirements: Follow prescribed formats e.g. IFRS
