Chapter 1 Management accounting: information for creating value and managing resources 1-1 Copyright...

Chapter 1

Management accounting: information for creating value and managing

resources

1-1

Copyright 2009 McGraw-Hill Australia Pty Ltd PowerPoint Slides t/a Management Accounting 5e by Langfield-SmithPrepared by Kim Langfield-Smith

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

1-2


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

1-3


(Cont.)

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

1-4


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

1-5


(cont.)

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

1-6


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

1-7


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

1-8


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

1-9


1-10


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

1-11


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

1-12


(cont.)

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

1-13


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

1-14


(cont.)

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

1-15


(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

1-16


(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

1-17


(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

1-18


(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

1-19


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

1-20


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

1-21


1-22


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

1-23


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

1-24


(cont.)

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

1-25


(cont.)

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

1-26


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

1-27


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

1-28


(cont.)

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

1-29


(cont.)

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

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, which are a response to a rapidly changing business environment

1-33


Chapter 1 Management accounting: information for creating value and managing resources 1-1 Copyright...

Documents

Transcript of Chapter 1 Management accounting: information for creating value and managing resources 1-1 Copyright...