Chapter01.ppt/Mgt Accounting Introduction

© McGraw-Hill Education (UK) Limited 2013
Introduction to
Management
Accounting and
Its Changing
Context
Chapter 1
1

Learning Outcomes
• LO1 Define management accounting and its
role in the management process
• LO2 Explain the main objectives of
management accounting
• LO3 Appreciate the complex nature of global
management accounting practice
• LO4 Convey knowledge of the main drivers of
management accounting change
2

Learning Outcomes
• LO5 Distinguish management accounting from
financial accounting and cost accounting
• LO6 Describe the main purpose of an
accounting (or finance) department
• LO7 Discuss the current and potential future
roles and skills of management accountants
3

Introduction
• Accounting is concerned with the provision of
financial and non-financial information to help its
users make decisions
• Management accounting is a professional practice
that seeks to provide information to assist managers
in their decision making
– Involves information that is internal to organizations
– Facilitates planning for both the short- and long-term
4

Introduction
• Management accounting (MA) practice is filled with
tools and techniques that have existed (largely
unchanged) for many decades
– E.g., budgeting, financial measurement, standard
costing, variance analysis, payback investment
appraisal methods
• A recent survey by CIMA confirms the continued
popularity of long-established MA tools and
techniques
5

Introduction
Most popular management accounting
tools/techniques (CIMA, 2009a)
6

Introduction
• The same CIMA (2009a) survey also highlights
the increasing popularity (and predicted
popularity) of more contemporary MA tools
and techniques
– E.g., the balanced scorecard, rolling forecasts and
activity-based management
7

Introduction
Predicted most popular management accounting
tools/techniques (CIMA, 2009a)
8

A Closer Look at Management Accounting
Three aspects that consistently appear in definitions
of MA over time:
1. Information provision, that;
2. Assists management decision-making, and thereby;
3. Helps towards the attainment of organizational
goals
9
Extending our Definition of Management Accounting

• There is no such thing as an ‘optimal package’ of
management accounting
• Aim to design a MA system that ‘does enough’ for
relevant and useful information for specific local
needs, aligned with careful and detailed forward
planning, and ongoing (re-) assessment and review
– MA can to an extent be just what an organization
wants it to be!
10

The formal aspects to an organization’s MA are:
1. MA systems
2. MA techniques
3. Management accountants’ roles
These formal components, along with informal
components, shape the information available to
organizational managers
11

Extending our Definition of Management
Accounting
12
Formal and informal components of management
accounting

Three main objectives of management
accounting:
1. Organizational planning
2. Organizational control
3. Performance measurement
13

14

Financial Accounting:
– The process of collating information for the purpose
of external reports – e.g., ‘glossy’ annual financial
statements
– Is legally-binding, and guided by multiple professional
accounting standards and directives
– Traditionally has presented the financial well-being of
an organization at a particular point in time
15
What Management Accounting is Not

Cost Accounting:
– A narrower application (a subset) of management
accounting
– Concentrates on an organization’s acquisition or
consumption of resources
• Normally how much it costs to make a product or provide a
service
• MA involves the management of costs, not just
their measurement, reinforcing long-run
(strategic) organizational goals
16

Managing costs for multiple organizational (and wider)
benefits, see Management Accounting in Practice
1.2:
– L’Oreal – acquiring supplier businesses
– Philips – adopting alternative transport
– SEAT – resurrected more efficient transport modes
– McDonalds – recycling used-frying oil as engine oil for
trucks
– Cargill – developed innovation sailing methods
– DHL – using electric/hybrid vehicles
17

Drivers of Management Accounting Change
Essentially changes in MA are driven by shifts in
the information demands of decision-makers
within organizations, such drivers include:
– The global economic and financial environment
– Information technology
– Management styles and organizational forms
– Environmental and ethical matters
18

Drivers of Management Accounting Change
A recent key driver of (MA) change is the
financial and economic crisis that began in
2008 (Hopwood, 2009 – see Management
Accounting in Practice 1.3):
– Continually set aside and reformulate budgets
– Question/revise revenues and costs expectations
– Carefully manage cash flows, cash-conversion
– More frequent (revision of) strategy
– More ad hoc analyses
– Treat MA as process in continuous time
19

The Accounting Department and
Accountants’ Roles
Traditionally, an accounting department (or ‘finance
function’) would comprise multiple specialists, e.g.:
– management accounting, financial accounting, tax,
ledgers, internal audit
• More recently, accounting departments would
comprise 2 distinct parts:
1. Routine accounting
2. Advisory accounting
20
The Accounting Department

Routine Accounting:
• A relatively small number of specialists who
oversee such ‘routine’ tasks as:
– (external) financial reporting, transaction
processing, ledger management, ‘simple’
accounting calculations
• Continue to be very important tasks, but are
increasingly undertaken by IT systems and/or
by the managers (rather than accountants)
• Some organizations opt for shared-services or
outsource such tasks
21

Advisory Accounting:
• Accountants working ‘out in the field’ as so-
called business partners
• Involves accountants using their financial
astuteness and acumen to assist decision
makers in producing and using information in
their local activities
• Trying to assist (non-accounting) colleagues to
understand and integrate both financial and
non-financial implications of what they do
22

Management Accountants’ Roles
Management accountants:
• Perform an integrating role between day-to-day
organizational activity and the pursuit of strategic goals
• Are experts in the preparation, interpretation and use of
organizational information; located at the hub of intra- and
extra-organizational flows of information
• Maintain traditional (score-keeping) roles, but there are also
nowadays more strategic-led and integrating roles
23

Typically, today’s roles would incorporate aspects of:
• Corporate strategy
• Change management
• Customer-relationship management
• Systems development
• Risk management
24

Management accountants’ roles according to CIMA, see
Management Accounting in Practice 1.5:
• Advise managers about the financial implications of
projects
• Explain the financial consequences of business decisions
• Formulate business strategy
• Monitor spending and financial control
• Conduct internal business audits
• Explain the impact of the competitive landscape
25

Technical skills (MA tools and techniques) remain a
fundamental pillar of what tomorrow’s
management accountants need
– But they are insufficient by themselves
• Technical skills need supplementing with broader
(organizational and environmental)
understandings
Management Accountants’ Skills

Tomorrow’s management accountants need both ‘hard’
and ‘soft’ skills:
Hard skills:
• IT proficiency
• Broad business understandings
Soft skills:
• Communication
• Interpersonal
• Conviction

Management accountants’ skills according
to CIMA, see Management Accounting in
Practice 1.5:
• Analysis
• Strategy
• Risk
• Planning
• Communication
28

Tomorrow’s management accountants need to apply
their technical accounting skills and know-how to
multiple (and changing) aspects of organizational life
– This may require the (core) techniques of MA to be
used differently, or even changed, as situations or
settings change
• They must know:
1. Both traditional and recent MA techniques
2. Non-technical aspects of org. activity
3. The interface between 1. and 2.
29
Aspiring Management Accountants

Summary
We have set the scene for tomorrow’s world of
management accounting, including its definition and
an understanding of the key drivers of change
We have also explored the roles and skills requirements
of tomorrow’s advisory management accountants
Such background is important in order to be able to
position both traditional and new MA techniques
that we shall be investigating further

Chapter01.ppt/Mgt Accounting Introduction

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