This document discusses recent developments in management accounting. It covers the evolution of management accounting from a focus on cost determination and financial control to value creation. It also discusses how management accountants have transitioned from being "bean counters" to business partners and consultants. Additionally, the document outlines factors driving changes in management accounting, including technology, globalization, and a focus on customers. It notes a gap between management accounting theory and practice and the role of professional bodies in addressing this.

1. RECENT DEVELOPMENTS IN
MANAGEMENT ACCOUNTING
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2. Lecture outline:
• Management accounting scope
• The evolution of management
accounting
• Management accounting change
• The gap between theory and practice
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3. Management Accounting
3
• Management accounting is the branch of accounting, which
is concerned with supplying relevant information to
managers at appropriate time to enable them to take
decisions in organization.
• It is the process of accounting, which generates accounting
information from both financial accounting and cost
accounting and provides essential accounting information to
all departments concerned.
• Management accounting is the process of identifying,
measuring, analyzing, interpreting and communicating
accounting information to department concerns to meet
organizational goals and objectives.
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4. Objectives of Management Accounting
4
• Providing information for decision making and planning in
revenue and cost projection of organization
• Helps managers to interpret financial data that are not
understand by internal users.
• Management accountants are crucial in an organization
that they become an integral part of management team
who provides necessary information.
• Helps managers in directing and controlling operations
through its attention in their function.
• Motivating managers to achieve organization's goals
• Measures the performance of managers, subunits and
employees within organization.
• Assess organizations’ competitive position, and working
with the other managers to ensure organization's long
term competitiveness
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5. Role of Managerial Accounting
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• To achieve its’ goals, organization acquires
resources, hires people, and then engages in an
organized set of activities.
• It is up to the management team to make the best
use of the organization's resources, activities, and
people in achieving the organization's goals.
• Planning
• Directing operational activities
• Controlling
• Decision Making
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6. Differences Between Management And Cost Accounting
Basis Management accounting Cost Accounting
Objectives Its objective is to assist managers
providing accounting information for
decision-making.
Its objective is to determine and record
the cost of production of goods and
services.
Scope It has broad scope, and includes
financial and cost accounting.
Its scope is limited in cost determination
and record.
Sources of
data
It uses both quantitative and
qualitative data
It uses the quantitative data only.
Accounting
principles
No specific principles like
accounting and cost accounting.
Certain principles and procedures are
followed in cost determination and
allocation.
Nature It uses past and present data in the
projection of future.
It uses both past and present data and
figure.
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7. Management Accounting Vs. Financial Accounting
Basis Management accounting Financial Accounting
Objectives Assist managers at all levels i.e.
internal users by providing necessary
accounting information.
Make periodical report Outsiders like
shareholders, government, customers,
suppliers, managers
Sources of data It uses data, which are subjective,
descriptive and related with future.
It uses data, which are historical, quantitative
, and related with past.
Accounting
principles
No such principles for preparation and
presentation of reports. Therefore,
reports differ from one organization to
another.
Governed by GAAPs. Therefore, all
organizations prepare the financial reports in
the same manner.
Reporting Reports are prepared in certain time
interval according to need of
management.
Financial reports are generally prepared at
the end of the fiscal year to report
stakeholders.
Legal
compulsion
It is voluntary. It is applied to increase
management efficiency for attaining
organizational objectives.
It is compulsory in every business
organization.
Performance
measurements
It measures the efficiency and
performance
of various departments and divisions.
It measures the overall efficiency and
performance of organization.
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8. Evolution of the Focus of MA
Stage
Transformation
Transformation
Transformation
Ongoing
Transformation
1
2
3
4
FocusStage 1 Stage 2 Stage 3 Stage 4
Source: IFAC, 1998
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9. Management Accounting Change
Stage 1
Stage 2
Stage 3
Stage 4
• Cost determination
• Financial control
• Management planning and
control
• Reduction of waste
• Value creation
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10. Change in the Profession
Scorekeepers Bean counters
ChangeChange
Internal consultant
-business partner
-business analyst
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11. Change in the Profession
“Accounting is changing. You are no longer sitting behind a desk
just working on a computer, just crunching the numbers. You
are actually getting to be part of the day-to-day functions of
the business.” (Abbott Laboratories)
“We are looked upon as more business advisors than just
accountants, which has a lot to do with the additional analysis
and forward-looking goals that we are setting. We spend
more of our time analyzing and understanding our margins,
our prices, and the markets in which we business. People
have a sense of purpose, have a sense of “I am adding value
to the company.” (Caterpillar, Inc)
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12. 12
Change in Profession
The Prior Business
Environment
Financial reporting and
cost
Common emphasis on
standardization & Std
cost
The accountants as
functional expert and
financial scorekeeper
The Contemporary
Business
EnvironmentView of cost Act as a
tool for the development
and implementation of
business strategy
The accountant as a
business partner
Blocher, Chen, Lin
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13. Change in Profession
• Today’s management accountants need the
following skills:
– Solid knowledge of both financial and
management accounting
– Analytical skills
– Knowledge of how a business functions
– Ability to work on a team
– Oral and written communication skills
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14. Evolution and Adaptation in
Managerial Accounting
Continuous Improvement
Service Vs. Manufacturing
Firms
Emergence of New
Industries
Global Competition
Focus on the Customer
Cross-Functional Teams
Computer-Integrated
Manufacturing
Product Life Cycles
Time-Based Competition
Information and
Communication
Technology
Just-in-Time Inventory
Total Quality
Management
Change
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15. WHAT FACTORS DRIVE CHANGE OF
MA
External
•Customer oriented (competition)
•Technology
•Globalization
Customer-oriented (competition)Internal
Organizational
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16. WHAT FACTORS DRIVE CHANGE OF MA –
External
Focus on customer satisfaction
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17. WHAT FACTORS DRIVE CHANGE OF MA -
Internal
• Core competencies and work characteristics
of the organization.
– Modern production technologies  changes in
product costing practices
– IT  capital budgeting
– E-commerce  new ways of operating
• Design of MA systems
– Style of management
– Existence of TQM programmes
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18. WHAT FACTORS DRIVE CHANGE OF MA -
Organizational
• Merger and acquisition
• Organizational restructuring
• Corporate failures  enhanced corporate
governance
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19. The Gap between Theory and
Practices
• Management accounting practices can be
observed at the macro or micro levels
(Drury, 2008):
• Macro refers to concepts and techniques
• Micro refers to the behavioral patterns of
use.
• Tendency towards globalization at the
macro level.
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20. The Gap between Theory and
Practices
• Drivers of convergence include:
• Global competition
• Information technology (e.g. ERP systems)
• Standardization by transnational companies
• Global consultancy
• Use of global textbooks
• At the micro level accounting information may be
used in different ways due to influence of different
national and local cultures.
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21. The Gap between Theory and
Practices
• Professional bodies play an important role to bridge
the gap between MA theory and practice.
• For example, CIMA stated its first objective as “to
promote and develop the science of management
accountancy”.
• CIMA established the Technical Committee to
oversee a rigorous technical development agenda.
– Review developing practices and highlight what’s working
and what’s not.
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22. The Gap between Theory and
Practices
• CIMA also worked with IFAC to develop the concept
of enterprise governance, focusing on the balance
between regulatory conformance and business
performance.
• In Malaysia, NAfMA awards is introduced by CIMA
and MIA to promote best practices of MA.
• The NAfMA awards recognize the best practices in
MA that lead to value creation and excellent
business performance based on the MA concepts of
IFAC.
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23. The Gap between Theory and
Practices• NAfMA award is a response to the criticism by
accounting practitioners and educators on the
ground that MA practices had changed little over for
almost 60 years (e.g. Johnson & Kaplan,1987),
despite radical changes in the business environment.
• The awards also reflects the shift from ‘number
cruncher’ and ‘corporate cop’ to decision-support
specialists and reflects what it takes to compete in
today’s lean, global, technologically-driven
environment.
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