Topic 4 Setting the scene Flashcards
The separation between management accounting and financial accounting
In this course we will not provide an artificial delineation
between management accounting and financial accounting. This separation is artificial: Product ‘cost’ has relevance to stakeholders inside and outside the organisation. Planning occurs before we report the results: Discussing financial accounting prior to other aspects of ‘accounting’ seems to be inconsistent with reality. Much of the information that is necessary for managing a
business also has relevance to stakeholders not directly
involved in the management of the organisation.
Information about the following might be relevant to both internal and external stakeholders:
• The organisation’s actual and projected performance.
• The organisation’s control of resources.
• The organisation’s resource usage.
• Organisational impacts.
• Compliance with organisational goals, regulations and/ or
particular stakeholder expectations.
• Implications of future plans, and so forth, on various
stakeholders including ‘the environment’.
5 Steps in the cycle of management (what does a manager do)
Plans Organises Makes decisions Monitors performance Revises
Plans
What does the organisation want to do/achieve?
Organises
How does the organisation achieve its goals and
plans?
Makes decisions
Determining the best course of action from amongst alternatives.
Monitors Performance
How is the organisation doing, relative to what it wanted to achieve?
Revises
Revises plans in light of performance: (and the cycle continues.)
The accountants role in planning
Framing business models. Challenging conventional assumptions of doing business and redefining success in the context of achieving sustainable value creation.
What the accountant does in regards to planning
Sets objectives. Encourages long-term sustainability (vs. short-term approach). Promotes a value added approach.
Planning
‘Planning’ is central to managing a business. Planning should be a continuous process which should start well before an organisation commences operations. The plan provides a benchmark against which future
performance can be assessed.
Key planning factors to consider
Mission
Resources
Stakeholder expectations
Technologies
Economic, social, environmental implications
Regulations (existing and projected)
The continual process of planning
Plans need to be implemented with related activities
(and ‘costs’) being monitored and controlled for
compliance with standards/ goals that were established
and opportunities for improvement to processes
need to be continuously considered. Previous plans can be revised, and new plans
established. Feedback from interested stakeholders can also be used.
Planning non-financial and long term
Managers and accountants need to extend the focus of performance beyond the ‘financial’ and think about the ‘long term’. The need for short-term results can distract
managers from their long-term visions. Defining the long-term and embedding it into
operations in a meaningful way can be complex.
Planning for value creation
An organisation would be expected to create ‘value’ for various stakeholders. The value creation should ideally occur in an ecologically and socially sustainable and responsible manner. Value creation requires clear vision, strategy, and planning. Value creation relies upon well functioning corporate
governance.
Porter’s value chain
Porter (1985) describes the sequence of activities undertaken by an organisation as a ‘value chain’. Well performing organisations create relatively more value from the
various steps involved in acquiring and transforming resources into products and
services.
INBOUND LOGISTICS OPERATION OUTBOUND LOGISTICS SALES AND MARKETING SERVICING
4 support activities in the value chain
Admin, finacne infrastructure
Human resources management
Product & Tech development
Procurement
Output of the value chain
Value added, decreased costs, better profit margin
Inbound logistics
E.g. quality control, receiving, raw materials control, supply schedules
Operation
E.g. manufacturing, packaging, production control, quality control, maintenance
Outbound logistics
E.g. finishing goods, order handling, dispatch, delivery, invoicing
Sales & marketing
E.g. customer management, order taking, promotion, sales analysis, market research
Servicing
E.g. warranty, maintenance, education and training, upgrades
Admin, finacne infrastructure
E.g. legal, accounting, financial management
Human resources management
E.g. personnel, lay recruitment, training, staff planning
Product & Tech development
E.g. product and process design, production engineering, market testing, R&D
Procurement
E.g. supplier management, funding, subcontracting, specification
What roles do professional accountants in business perform?
- As creators of value
- As enablers of value
- As preservers of value
- As reporters of value
5 components of an organisations plan
- Overview/description
- Financial Plan
- Marketing Plan
- Social and environmental management plan
- Operation plan
The accountants role in organising
Encouraging and rewarding the right behaviours.
What the accountant does in regards to organising
Allocates resources to add value and achieve goals.
Structures incentives to align
behaviour with organisational
goals
Organising: 5 factors that influence value creation
- Culture and leadership styles in place.
- Management’s willingness to collaborate.
- Preparedness to be innovative.
- The level of efficiency being embraced.
- Awareness of market opportunities and changes therein.
Organising - value drivers and resource allocation
The determination of what influences value will in turn
impact The way resources are used and The way performance and resource usage is measured and associated rewards are determined.
Organising - value drivers
According to IFAC (2011) there are eight drivers of
sustainable organisational success, that provide the
basis for understanding how the global accountancy
profession needs to support the development of
professional accountants, so that they can help
organisations achieve sustainable value creation.
8 value drivers
Customer/stakeholder focus
Leadership and strategy
Integrated governance, risk, control
Innovation and adaptability
Financial management
People and talent management
Operational excellence
Effective and transparent communication
Customer/stakeholder focus
Understanding and satisfying customer or service user needs. Aligning all parts of an organisation to these needs
Leadership and strategy
Providing ethical and strategic leadership focused on sustainable value creation. Enabling key performance enablers including strong corporate values, ethical culture and organisational structures and processes
Integrated governance, risk, control
Deploying affective governance structures and processes with integrated risk management and control systems. Balancing performance and conformance in governance
Innovation and adaptability
Innovating processes and products to improve reputation and performance. Adapting the organisation to changing circumstances
Financial management
Insuring financial leadership and strategy support sustainable value creation. Implementing good practices in areas such as tax and Treasury, cost and profitability improvement and working capital management
People and talent management
Enabling people and talent management as a strategic function. Applying talent management to the finance function so better service the needs of the wider organisation
Operational excellence
Aligning resource allocation with strategic objective and the drivers of shareholder and stakeholder value. Supporting decision-making with timely and insightful performance analysis
Effective and transparent communication
Engaging stakeholders effectively to ensure that they receive relevant communications. Preparing high-quality business reporting to support stakeholder understanding and decision-making
Enablers of Value
As enablers of value, by informing and guiding managerial and operational decision making and implementation of strategy for achieving sustainable value creation, and the planning, monitoring, and improvement of supporting processes.
Preservers of value
As preservers of value, by ensuring the protection of a sustainable value creation
strategy against strategic, operational, and financial risks, and ensuring compliance with
regulations, standards, and good practices.
Reporters of value
As reporters of value, by enabling the transparent communication of the delivery of sustainable value to stakeholders’.
Creators of value
As creators of value, by taking leadership roles in the design and implementation of
strategies, policies, plans, structures, and governance measures that set the course for delivering sustainable value creation.
Accountants as part of the management team
Accountants are effectively
‘gatherers’ of information. Professional Accountants are trained in the discipline of collecting
relevant information and compiling reports/’accounts’ that create value to the organisation
Professional accountants in all organizations have a significant role in:
− Faming business models;
− Challenging conventional assumptions of doing business and redefining success in
the context of achieving sustainable value creation;
− Encouraging and rewarding the right behaviours;
− Ensuring that decisions are supported by the necessary information, analysis, and
insights;
− And ensuring that monitoring and reporting performance go beyond the traditional
ways of thinking about economic success.
