TOPIC 1: INTRODUCTION TO MANAGEMENT

ACCOUNTING: INFORMATION FOR CREATING VALUE AND

MANAGING RESOURCES.
Recap Operations Management Accounting (ACC502)

Reference Chapter 1: Management accounting: information

for creating value and managing resources

1-1

Outline
Australian organisations in the 21st century
What is management accounting?
Management accounting vs financial accounting
information
Management accountants within organisations
Management accounting and strategy
Planning and control
Important considerations in the design of management
accounting systems
Management accounting responses to the changing
business environment

1-2

Australian organisations in the

21st century
Organisations have faced increasing global
competition since the early 1990s
Corporatisation and privatisation of public sector
bodies competing with private sector
Rise of e-commerce, rapid changes in technology,
reliance on strategic alliances, business networks,
global mobility of labour
Rise of the service-based economy
Increasing customer demands
Climate change issues
1-3

What is management
accounting?
the processes and techniques that focus on the
effective and efficient use of organisational
resources to support managers in their tasks of
enhancing both customer value and shareholder
value

(cont.)
1-4

What is management
accounting? (cont.)
Customer value
The value that a customer places on particular features
of a product or service

Shareholder value
The value that shareholders or owners place on a
business

Resources
Financial and non-financial, including information, work
processes, employees, committed customers and
suppliers
Determine the capabilities and competencies of the
organisation
1-5

Management accounting
systems
Systems that produce the information required by
managers to create value and manage resources
Information provided on a regular basis includes
Estimates of the costs of producing goods and services
Information for planning and controlling operations
Information for measuring performance

Ad-hoc information may also be supplied to satisfy

managers short-term and long-term decisionmaking needs

1-6

Management accounting
information
Focus is on the needs of managers within the organisation
Flexibility in the types of information provided
Influenced by
Managers information needs, nature of the resources they manage
Differences in production and service technologies, organisational
structure, organisational size, the external environment, level of
sophistication of computer systems

Used by senior managers through to operational managers

1-7

Management accounting and

financial accounting information
Financial accounting
The practice of preparing and reporting accounting
information for parties outside the organisation

Costing systems are common to both financial and

management accounting
A system that estimates the cost of goods and services
as well as the cost of organisational units, such as
departments

1-8

Management accounting vs
financial accounting

1-9

Management accountants within

organisations
Most large organisations have a finance function
at the corporate level
Senior accountants
Financial controller, chief accountant, finance manager,
general manager (GM) of accounting, group accountant

Accounting staff may be found in operating

divisions as well as corporate level
Financial accounting function may be distinct from
management accounting function
Managers from other functional areas may also
undertake management accounting activities
1-10

Management accounting
processes and techniques
Support the organisations formulation and implementation of
strategy
Contribute to improving the organisations competitive advantage
through process improvement and cost management techniques
Provide information to help manage resources through systems
of planning and control
Provide estimates of the costs of an organisations outputs, to
support the strategic and operational decision needs of
managers

1-11

Management accounting
and strategy
Management account ants contribute to an
organisations formulation and implementation of
strategy
Vision
The desired future state or aspiration of an organisation
Used by senior managers to focus the attention and energies of
staff

Mission statement
Defines the purpose and boundaries of the organisation

(cont.)
1-12

Management accounting
and strategy (cont.)
Objectives (or goals)
Specific statements of what the organisation aims to
achieve
Often quantified
Relates to a specific period of time

Strategies
The direction that the organisation intends to take over
the long term to meet its mission and achieve its
objectives
Focus on ways to manage the organisations resources
to create value for customers and shareholders
(cont.)
1-13

Management accounting
and strategy (cont.)
Major decisions in formulating strategies
In what business will we operate?
How should we compete in that business?
What systems and structures should we have in place to support our
strategies?

Corporate strategy
Choices about the types of businesses to operate in, which businesses to
acquire and divest and how best to structure and finance the organisation
In publicly listed companies, the choice of corporate strategy is influenced
by the expectations of major shareholders and securities market

(cont.)
1-14

Management accounting
and strategy (cont.)

(cont.)
1-15

Management accounting
and strategy (cont.)
Business (or competitive) strategy
The way a business competes within its chosen market
Distinct business strategies for each business unit

Strategy implementation
Planning and managing the implementation of strategy
New structures, new systems, new production
processes, new marketing approaches, new human
resource management policies

(cont.)
1-16

Management accounting
and strategy (cont.)
Competitive advantage
Advantages that a business may have over another that
are difficult to imitate, achieved through
Cost leadership
Economies of production, superior process technologies,
tight cost control

Product differentiation
Superior quality, customer service, delivery performance,
product features

(cont.)
1-17

Management accounting and

strategy (cont.)
Strategic planning
Long-term planning, usually undertaken by senior
managers with a three to five-year timeframe
Involves corporate strategy decisions
Draws on management accounting information

Implementing strategies
Managers at all levels share the responsibility for
implementation
Long-term plans need to be linked to budgeting systems
Performance measurement systems compare actual
outcomes to budgets and other targets

1-18

Planning
A broad concept that is concerned with formulating
the direction for future operations
Allows an organisation to consider and specify all
resources needed in the future
Occurs at all levels of the organisation
A budget is an example of a short-term plan that
summarises the consequences of an organisations
operating activities for a specific future time period

1-19

Controlling
Involves putting mechanisms in place to ensure
that operations proceed according to plan and that
objectives are achieved
Management accounting information provides
information for control by comparing actual
performance with plans, targets or budgets
Control systems are the systems and procedures
that provide regular information to assist in control

1-20

Planning and controlling

1-21

Costing goods and services

Estimates of the cost of producing goods and services are
needed to support a range of operational and strategic
decisions
Routine costing systems are a part of the financial accounting
system, so product costs are prepared to meet external
reporting purposes
Different product costs may also be produced outside of the
financial accounting system, to better meet managers
decision-making needs
These costs may not comply with GAAP or accounting standards

1-22

Some important considerations

in the design of management
Behavioural issues
accounting
systems
Information may impact on individuals behaviour, so
management accounting systems may have expected
and unexpected outcomes
A key purpose of management accounting systems is to
motivate managers and employees to direct their efforts
towards achieving the organisations goals
Budgeting systems, performance measurement and reward
systems may be used as motivational tools

(cont.)
1-23

Some important considerations

in the design of management
accounting
systems
There are costs and
benefits of(cont.)
generating and
providing management accounting information
Costs include

Salary of accounting personnel

Purchasing and operating computers
Gathering, storing and processing data
Managers time to read, understand and use the
information
(cont.)
1-24

Some important considerations

in the design of management
Benefits include
accounting
systems (cont.)
Improved management decisions

More effective planning

Improved operational efficiency at lower cost
Better control
Improved customer and shareholder value

1-25

Management accounting design:

contingency and institutional
Contingency theory
theories
The design of a management accounting system is influenced by
specific aspects of the organisations context
External environment, technology, organisational structure, size,
national and organisational culture, and strategy

Institutional theory
The design is influenced by institutional forces, which explain
similarities
The need to achieve legitimacy within and beyond their organisation
The tendency for firms to imitate good practice of other firms

1-26

Management accounting
responses to the changing
By the 1990s,
many organisations realised that
business
environment

they needed to improve their product and service

quality, delivery responsiveness and cost
performance in order to improve market share and
profits
Adoption of new management structures, systems
and practices, including new management
accounting techniques and systems
(cont.)
1-27

Management accounting
responses to the changing
business
Conventional environment
management accounting
systems
(cont.)

Include budgeting, costing systems and financial performance

measurement systems
Still widely used in many organisations

Contemporary management accounting systems

support the adoption of new structures, systems and practices
Includes activity-based costing, performance measurement
systems (e.g. balanced scorecards), cost management
systems (e.g. business process re-engineering), new
approaches to customer profitability analysis and supplier cost
analysis
(cont.)
1-28

Management accounting responses to the

changing business environment (cont.)

(cont.)
1-29

Management accounting responses to

the changing business environment
(cont.)

1-30

Summary
Management accounting supports managers in enhancing
customer value and shareholder value

Systems to support formulation and implementation of strategy

Process improvements and cost management techniques
Information for planning and control
Product costs for strategic and operational decisions

Contemporary management accounting techniques have

developed to support new organisational structures, systems
and practices, as a response to a rapidly changing business
environment

1-31

Professional accounting
organisations and ethics

In Australia, management accountants may join

CPA Australia
Institute of Chartered Accountants in Australia
Institute of Public Accountants (formerly NIA)
Chartered Institute of Management Accountants (CIMA)

Code of Ethics for Professional Accountants

Fundamental principles of the code

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
1-32