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MANAGEMENT ACCOUNTING SUMMARY LECTURES
1 Information for creating value and managing resources
Learning Objective #1: Describe the recent changes that have taken place in
the business environment and developments in management accounting.
In the last 20 years, Australian organisations have become exposed to global competition for the
first time. Import tariffs, quotas, and subsidies have been gradually reduced or eliminated,
allowing overseas companies to become direct competitors of Australian businesses. This has
led to a rapidly changing and unpredictable environment, where:
- The rise of e-commerce has challenged the traditional modes of business operation
- Rapid advances in technology have resulted in a competitive environment where
innovation is critical to success.
- Domestic competitive pressures resulting from deregulation and privatization
- The increasing reliance on creating strategic alliances with other businesses creates
complicated business relationships and structures
- The increase in outsourcing and a greater reliance of business networks have led to the
emergence of virtual organisations
- The increased global mobility of labour has added to the complexity of managing human
resources
- Collapses of major corporations followed by the GFC have led to increased pressure for
accountability, including a focus on ethical issues
- Organisations are grappling with increasingly important sustainability issues
- Growth of the service sector
- Availability of big data
This has provided both opportunities and threats for Australian businesses, as they have had to
evolve and adapt to compete, by creating new organizational structures, strategies and
philosophies.
Learning Objective #2: Discuss the need for management accounting
information and the role of the profession
Management accounting refers to the processes and techniques that focus on the effective and
efficient use of organizational resources to support managers in their tasks of enhancing both
customer value and shareholder value. Value creation is a central focus for managers, and they
must understand what drives it:
, - Customer value is the value a customer places on particular features of a product, and
satisfying customers is critical to achieving increased sales and market share to achieve
shareholder value.
- Shareholder value involves improving the worth of the business form the shareholders’
perspective – they place value on profitability and increased share price and dividends.
Managers may need to make trade-offs between these objectives, and where there is a conflict
between customer and shareholder value, shareholders are likely given priority as this is the key
strategic objective for most organisations.
The efficient and effective use of resources is essential to creating both customer and
shareholder value, and management accounting provides information to assist managers in doing
so.
- Effectiveness focuses managers of the successful achievement of an objective
- Efficiency focuses managers on achieving the objective with the least possible
consumption of resources (not only financial, but non-financial resources such as
information, work processes, employees, committed customers, and suppliers – these
determine the capabilities and competencies of the organisation).
Management accounting systems
A management accounting system is an information system that produces the information
required by managers to create value and manage resources. The information can be provided on
a regular basis and can include estimates of the costs of producing goods and services,
information for planning and controlling operations, and information for measuring
performance.
Management accounting systems also provide information on an ad hoc basis, to satisfy short
and long term decision-making needs of management. Sometimes the system may not be able to
provide all of the information to satisfy needs; this information needs to be obtained from other
sources, including those outside the organisation. For example, manufacturers may need
information about the prices of competitors’ products to determine their own.
Management accounting information
The focus of management accounting is on the needs of managers within the organisation.
Financial accounting standards do not apply to internal reports and so there is greater flexibility
in what information should be generated for managers, with variations based on:
, - Information needs
- Nature of resources managed
- Differences in production or service technologies
- Organizational structure and organisation size
- The external environment in which the organisation competes
- Levels of sophistication of computer systems
Management accounting information is relevant to all managers from top to bottom. Senior
managers need information providing an overall view of the organisation; middle managers
require more detailed information about their areas of responsibility; and operational managers
need information to help them manage their day-to-day responsibilities.
Differences between management accounting and financial management accounting
- Financial accounting is concerned with preparing and reporting accounting information
for parties outside the organisation, such as shareholders // Management accounting
focuses on satisfying the needs of internal users, such as managers.
- Financial accounting reports are based on past information that emphasis reliability and
verifiability // Management accounting information and reports are not constrained by
regulations, so the content and design is determined by managers’ needs. The nature of
information is current and future-oriented; relevance and timeliness are most important.
- Financial accounting draws data from the organisations core transaction-based
accounting system // Management accounting draw son data from many other internal
and external sources, such as operations, personnel, market share data and customer
feedback. The level of data and frequency of reporting is greater for management
accounting.
Learning Objective #3: Describe the relationship between management
accounting and strategy
Management accountants play an important strategic role by contributing to the organisation’s
formulation and implementation of strategy and by helping managers improve the organisation’s
competitive advantage.
Vision The desired future state or aspiration of the organisation
Mission The purpose and boundaries of the organisations
, Objectives Specific statements of what the organisation aims to achieve, often quantified and
relating to a specific period of time. Many organisations focus on profitability,
growth, cost minimization, product leadership, innovation, product quality,
service quality, community service, employee welfare, or environmental
responsibility.
Strategies The strategies of an organisation specify the direction that the organisation
intends to take over the long term to achieve its mission and meet its objectives.
The strategies will focus on ways to manage the organisation’s resources to create
value for customers and shareholders. Major decisions are based on the following
questions:
- In what business will we operate?
- How should be compete in that business?
- What systems and structures should we have in place to support our
strategies?
The first decision involves formulating corporate strategy – making choices
about the types of businesses in which the organisation as a whole will
operate. This includes decisions about what businesses to divest or acquire,
and how best to structure and finance the company.
The second decision involves business or competitive strategy – the way a
business competes within its chosen market. If an organisation consists of
multiple business units, each unit will have its own strategy.
The third decision is concerned with strategy implementation – planning and
managing the implementation of strategies. This can include introducing new
structures and systems, such as setting up new business units, implementing
new production processes, or introducing new human resource management
policies.
Competitive advantage refers to advantages that a business may have over another, which are
difficult to imitate. There are two types of business strategy to gain a competitive advantage:
- Cost leadership involves the business selling its goods or services at a lower price than
competitors, due to low costs of production.
MANAGEMENT ACCOUNTING SUMMARY LECTURES
1 Information for creating value and managing resources
Learning Objective #1: Describe the recent changes that have taken place in
the business environment and developments in management accounting.
In the last 20 years, Australian organisations have become exposed to global competition for the
first time. Import tariffs, quotas, and subsidies have been gradually reduced or eliminated,
allowing overseas companies to become direct competitors of Australian businesses. This has
led to a rapidly changing and unpredictable environment, where:
- The rise of e-commerce has challenged the traditional modes of business operation
- Rapid advances in technology have resulted in a competitive environment where
innovation is critical to success.
- Domestic competitive pressures resulting from deregulation and privatization
- The increasing reliance on creating strategic alliances with other businesses creates
complicated business relationships and structures
- The increase in outsourcing and a greater reliance of business networks have led to the
emergence of virtual organisations
- The increased global mobility of labour has added to the complexity of managing human
resources
- Collapses of major corporations followed by the GFC have led to increased pressure for
accountability, including a focus on ethical issues
- Organisations are grappling with increasingly important sustainability issues
- Growth of the service sector
- Availability of big data
This has provided both opportunities and threats for Australian businesses, as they have had to
evolve and adapt to compete, by creating new organizational structures, strategies and
philosophies.
Learning Objective #2: Discuss the need for management accounting
information and the role of the profession
Management accounting refers to the processes and techniques that focus on the effective and
efficient use of organizational resources to support managers in their tasks of enhancing both
customer value and shareholder value. Value creation is a central focus for managers, and they
must understand what drives it:
, - Customer value is the value a customer places on particular features of a product, and
satisfying customers is critical to achieving increased sales and market share to achieve
shareholder value.
- Shareholder value involves improving the worth of the business form the shareholders’
perspective – they place value on profitability and increased share price and dividends.
Managers may need to make trade-offs between these objectives, and where there is a conflict
between customer and shareholder value, shareholders are likely given priority as this is the key
strategic objective for most organisations.
The efficient and effective use of resources is essential to creating both customer and
shareholder value, and management accounting provides information to assist managers in doing
so.
- Effectiveness focuses managers of the successful achievement of an objective
- Efficiency focuses managers on achieving the objective with the least possible
consumption of resources (not only financial, but non-financial resources such as
information, work processes, employees, committed customers, and suppliers – these
determine the capabilities and competencies of the organisation).
Management accounting systems
A management accounting system is an information system that produces the information
required by managers to create value and manage resources. The information can be provided on
a regular basis and can include estimates of the costs of producing goods and services,
information for planning and controlling operations, and information for measuring
performance.
Management accounting systems also provide information on an ad hoc basis, to satisfy short
and long term decision-making needs of management. Sometimes the system may not be able to
provide all of the information to satisfy needs; this information needs to be obtained from other
sources, including those outside the organisation. For example, manufacturers may need
information about the prices of competitors’ products to determine their own.
Management accounting information
The focus of management accounting is on the needs of managers within the organisation.
Financial accounting standards do not apply to internal reports and so there is greater flexibility
in what information should be generated for managers, with variations based on:
, - Information needs
- Nature of resources managed
- Differences in production or service technologies
- Organizational structure and organisation size
- The external environment in which the organisation competes
- Levels of sophistication of computer systems
Management accounting information is relevant to all managers from top to bottom. Senior
managers need information providing an overall view of the organisation; middle managers
require more detailed information about their areas of responsibility; and operational managers
need information to help them manage their day-to-day responsibilities.
Differences between management accounting and financial management accounting
- Financial accounting is concerned with preparing and reporting accounting information
for parties outside the organisation, such as shareholders // Management accounting
focuses on satisfying the needs of internal users, such as managers.
- Financial accounting reports are based on past information that emphasis reliability and
verifiability // Management accounting information and reports are not constrained by
regulations, so the content and design is determined by managers’ needs. The nature of
information is current and future-oriented; relevance and timeliness are most important.
- Financial accounting draws data from the organisations core transaction-based
accounting system // Management accounting draw son data from many other internal
and external sources, such as operations, personnel, market share data and customer
feedback. The level of data and frequency of reporting is greater for management
accounting.
Learning Objective #3: Describe the relationship between management
accounting and strategy
Management accountants play an important strategic role by contributing to the organisation’s
formulation and implementation of strategy and by helping managers improve the organisation’s
competitive advantage.
Vision The desired future state or aspiration of the organisation
Mission The purpose and boundaries of the organisations
, Objectives Specific statements of what the organisation aims to achieve, often quantified and
relating to a specific period of time. Many organisations focus on profitability,
growth, cost minimization, product leadership, innovation, product quality,
service quality, community service, employee welfare, or environmental
responsibility.
Strategies The strategies of an organisation specify the direction that the organisation
intends to take over the long term to achieve its mission and meet its objectives.
The strategies will focus on ways to manage the organisation’s resources to create
value for customers and shareholders. Major decisions are based on the following
questions:
- In what business will we operate?
- How should be compete in that business?
- What systems and structures should we have in place to support our
strategies?
The first decision involves formulating corporate strategy – making choices
about the types of businesses in which the organisation as a whole will
operate. This includes decisions about what businesses to divest or acquire,
and how best to structure and finance the company.
The second decision involves business or competitive strategy – the way a
business competes within its chosen market. If an organisation consists of
multiple business units, each unit will have its own strategy.
The third decision is concerned with strategy implementation – planning and
managing the implementation of strategies. This can include introducing new
structures and systems, such as setting up new business units, implementing
new production processes, or introducing new human resource management
policies.
Competitive advantage refers to advantages that a business may have over another, which are
difficult to imitate. There are two types of business strategy to gain a competitive advantage:
- Cost leadership involves the business selling its goods or services at a lower price than
competitors, due to low costs of production.
