Week 2 Flashcards
What is Accounting?
It’s the language of business, developed from a capitalist thinking, to record business transactions.
Types of services around accounting:
> audit
➢ assurance
➢ taxation
➢ management consulting
➢ valuation
➢ market research
➢ actuarial
➢ corporate finance
Accounting as a Language
Communicating how we collect information
Analysing complex sources of information
Not just about numbers, it also concerns narratives and notes
Accountability for and to users of the accounting information:
government, customers, owners, suppliers, employees, competitors etc
Differences in Management and Financial Accounting
Nature of the reports procedures:
MA- specific purpose
FA- general purpose
Level of Detail:
MA- often very detailed
FA- usually broad overview
Regulations:
MA- not regulated
FA- regulated
Reporting Interval:
MA- as short as required by managers
FA- annual and bi-annual
Time Orientation:
MA- based on projected future information as well as past information
FA- almost always historical
Range and Quality of Information:
MA- financial and non-financial information
FA- focuses on financial information
Management Accounting Responsibilities
- Determining relevant information
- Collecting information
- Communicating information
- Incentives to achieve objectives
- Monitoring achievement of objectives and highlighting any cause for concern.
Managers are then responsible for making decisions based on this information provided
Definition of Management Accounting
“Techniques and processes that are intended to provide financial and non-financial information to people within an organisation to make better decisions and thereby
achieve organisational control and enhance organisational effectiveness.”
Functions of Management Accounting
Planning
Management Accountants help to formulate plans for different activities and co-ordinate these plans into budgets
Controlling
Management Accountants produce performance reports that compare actual outcomes with planned goals
Organising
Management Accountants develop accounting reporting systems that are closely related to organisational structure
Communicating
Management Accountants can aid the communication function by installing and maintaining an effective communication and reporting system (e.g. the budget and performance reporting process)
Motivating
The budgets and performance reports produced by Management Accountants have an important influence on the motivation of managers and employees
Decision-making
Providing guidance for decision making and problem-solving
Customer Satisfaction and New Management Approaches
Key success factors:
* Quality: quality measures, Total Quality Management
* Cost efficiency: increased emphasis on accurate product costs and cost management
* Time: reduced cycle time and focus on “non-value-added” activities
* Innovation: responsiveness in meeting customer requirements
* Product comparisons
* Feedback on customer satisfaction
Cost Accounting vs Cost Management
Cost Accounting:
It 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. Accounting concerned with cost accumulation for inventory valuation to meet the
requirements of external reporting and internal profit measurement
Cost Management:
It describes the activities of managers in short-run and long-run planning and control of costs. It includes the continuous reduction of costs. It is a key part of general management strategies and their implementation. Accounting is concerned with the provision of information to people within the organisation to aid decision-making and improve the efficiency and effectiveness of existing operations.
Life-Cycle Costing
Identify and monitor costs throughout a product’s life cycle:
Research and development costs
Product design and testing costs
Manufacturing, inspecting, packaging and warehousing costs
Marketing, promotion, and distribution costs
Sales and service costs
Total Quality Management
PLAN
where are we? where do we want to go?
CHECK
how are we doing?
ACT
do we need to change the plan?
Benchmarking
Identify an activity that needs to be improved.
Find an organisation that is the most efficient at this
activity.
Study its process and utilise that process.
Target Costing
Identify product opportunity
Determine price that would make product competitive
Determine if product can be made at cost sufficiently low to provide a desired profit
Strategic Management Accounting
The provision of information to support strategic decisions in organisations.
The Balanced Scorecard
Traditionally MA focused on financial performance measures e.g sales and profit
Greater emphasis now being given to incorporating non-financial measures into the formal reporting system.
As a result, to integrate both financial and non-financial measures, the balanced scorecard (BSC) was developed.
The BSC seeks to link performance measures to an organisation’s strategy and should be used to clarify, communicate and manage strategy.
Challenges Facing Management Accounting
UN SDGs, ESG – challenges in reporting, integrating practices
Sustainability challenges in general: ‘measuring’, sustainable creation
SMEs: circular economy
Conflicts, expectations and ambiguity of managerial positions
Digital business strategies
Technology innovation
Employee Trust
Forecasting corporate control
