1. Chapter 1 Management accounting: information for creating value and managing resources
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2. Outline Australian organisations in the 21st century
What is management accounting?
Management accounting and financial accounting information
Management accountants within organisations
Management accounting processes and techniques
Planning and control
Important considerations in the design of management accounting systems
Management accounting and the changing business environment
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3. Australian organisations in the 21st century
Increasing global competition in the 1990s
Reduction or elimination of input tariffs, quotas and bounties
Deregulation of telecommunications industry
Corporatisation and privatisation of public sector bodies competing with private sector
Changes in the regulation of labour markets
(Cont.)
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4. Australian organisations in the 21st century (cont.)
Shift from primary production to exporter of resources, to manufacturer, to resurgence of mineral resources
Australia is primarily a service-based economy
Rapid and unpredictable change
Increasing customer demands
Rise of the Internet and e-commerce
Climate change
New organisational structures, strategies and management philosophies
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5. 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.)
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6. 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
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7. Management accounting systems
Systems that produce the information required by managers to create value and manage resources
Include estimates of the costs of producing goods and services, information for planning and controlling operations and information for measuring performance
Ad-hoc information to satisfy managers’ short term and long term decision-making needs
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8. Management accounting information
Focus is on the needs of managers within the organisation
Flexibility in the nature of information supplied
Influences
Managers’ information needs, nature of the resources they manage
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
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9. Management accounting and financial accounting information
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
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11. 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 each operating division
Management accounting activities increasingly involve managers from other functional areas of the business
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12. Management accounting processes and techniques
Support the organisation’s formulation and implementation of strategy
Contribute to improving the organisation’s competitive advantage in terms of quality, delivery, time, flexibility, innovation and cost, through modern process improvement and cost management techniques
(cont.)
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13. Management accounting processes and techniques (cont.)
Provide information to help manage resources, through systems of planning and control
Provide estimates of the costs of an organisation’s outputs, to support the strategic and operational decision needs of managers
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14. Management accounting and strategy
Management accounting can support the organisation's 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.)
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15. Management accounting and strategy (cont.)
Objectives
Specific statement 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 organisation's resources to create value for customers and shareholders
(cont.)
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16. 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
Making 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.)
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17. 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
Putting plans into place to implement and support a chosen business strategy
New structures, new systems, new production processes, new marketing approaches, new HRM policies
(cont.)
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18. 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.)
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19. 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 linked to budgeting systems
Performance measurement systems compare actual outcomes to targets
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20. 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 organisation’s operating activities for a specified time period
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21. 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
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23. 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 form part of the financial accounting system, so product costs are prepared to meet external reporting purposes
Product costs are sometimes produced outside of the financial accounting system, to better meet managers’ decision-making needs
These costs may not comply with GAAP or accounting standards
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24. Some important considerations in the design of management accounting systems
Behavioural issues
Information may impact on individual 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 organisation’s goals
Budgeting systems, performance measurement and reward systems may be used as motivational tools
(cont.)
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25. Some important considerations in the design of management accounting systems (cont.)
There are costs and benefits of generating and providing management accounting information
Costs
Salary of accounting personnel
Purchasing and operating computers
Gathering, storing and processing data,
Managers’ time to read, understand and use the information
(cont.)
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26. Some important considerations in the design of management accounting systems (cont.)
Benefits
Improved decisions
More effective planning
Greater operational efficiency at lower costs
Better control
Improved customer and shareholder value
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27. Management accounting design: contingency and institutional theories
Contingency theory – design is influenced by the organisational context
External environment, technology, organisational structure and size, national and organisational culture, and strategy
These factors cause systems to be different
Institutional theory – 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
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28. Management accounting responses to the changing business environment
By the 1990s, many organisations realised that 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.)
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29. Management accounting responses to the changing business environment (cont.)
Conventional management accounting systems
Includes budgeting, costing systems and financial performance measurement systems
In wide use for many decades and still used in many organisations
Contemporary management accounting systems
Includes activity-based costing, performance measurement systems (such as balanced scorecards), cost management systems (such as business process re-engineering), new approaches to customer profitability analysis and supplier cost analysis
(cont.)
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30. Management accounting responses to the changing business environment (cont.)
Contemporary management accounting techniques have developed to support the adoption of new structures, systems and practices
Some organisations continue to use conventional management accounting systems, while others are in the midst of implementing contemporary systems
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33. 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, which are a response to a rapidly changing business environment
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