ACCT2112 Lecture Notes 1
Major Differences Between Financial & Managerial Accounting
Management accounting – measures, analyses and reports financial and nonfinancial information to
help managers make decisions to fulfill organisational goals. Management accounting need not be
GAAP compliant.
- Internally focused, providing information for internal users
- No Mandatory Rules
- Financial and non-financial information, subjective information possible
- Emphasis on future events
- Internal evaluation and decisions based on very detail information
Financial accounting – focus on reporting to external users including investors, creditors and
governmental agencies. Financial statements must be based on GAA.
- Externally focused, providing information for external users.
- Must follow externally imposed rules and procedures set by IASB and AASB
- Objective financial information
- Historical orientation – records and reports of events already happened
- Information about the firm as a whole
Cost accounting – measures, analyses and reports financial and nonfinancial information related to
the costs of acquiring or using resources in an organization. (interchangeable with mgmt acct)
Sustainability & Management Accounting
Sustainability – ‘development that meets the needs of the present without compromising the ability
of future generations to meet their own needs’ (Our Common Future, known as Brundtland Report
1987)
Management accounting – assists by:
- Identifying relevant costs and benefits;
- Using activity-based costing;
-
Carrying out a cost-benefit analysis of sustainability initiatives.
Strategy & Management Accounting
Strategy – specifies how an organisation matches its own capabilities with the opportunities in the
marketplace to accomplish its objectives
Strategic cost management – focuses specifically on the cost dimension within a firm’s overall
strategy
Management accounting helps answer important questions such as:
- Who are our most important customers, and how do we deliver value to them?
- What substitute products exist in the marketplace and how do they differ from our own?
- What is our critical capability?
- Will we have enough cash to support our strategy or will we need to seek additional
sources?
Four functions of Management
-
Strategic management - Identification and implementation of specific goals and objectives
that provide a competitive advantage (important)
Planning & decision making
Management and operational control
Preparation of financial statements
Management Accounting and Value
Creating value is an important part of planning and implementing strategy
Value is the usefulness a customer gains from a company’s product or service
The value chain is the sequence of business functions in which a product is made progressively more
useful to customers. The value-chain consists of:
1. Research & development
2. Design
3. Production
4. Marketing
5. Distribution
6. Customer service
Supply-chain analysis
Production and Distribution are the parts of the value chain associated with producing and
delivering a product or service.
These two functions together are known as the
Supply-Chain
The supply chain describes the flow of goods, services and information from the initial sources of
materials, services, and information to their delivery regardless of whether the activities occur in
one organization or in multiple organizations.
A Value Chain Implementation
The Supply Chain describes the flow of goods, services and information from the initial sources of
materials and services to the delivery of a product to consumers, regardless of whether those
activities occur in one organization or in multiple organizations.
Key Success Factors
Customers want companies to use the value chain and supply chain to deliver ever-improving levels
of performance when it comes to several (or even all) of the following:
- Cost and efficiency
- Quality
- Time
- Innovation
- Sustainability
A Five-Step Decision-Making Process in Planning & Control
1.
2.
3.
4.
5.
Identify the problem - Planning
Collect relevant information - Planning
Determine possible courses of action and consider the consequences of each - Planning
Evaluate each possible course of action and select the best one - Planning
Implement the decision, evaluate performance, learn - Control
Planning & Control Systems
Planning consists of
1. selecting an organization’s goals and strategies
2. predicting results under various alternative ways of achieving those goals
3. deciding how to attain the desired goals, and
4. communicating the goals and how to achieve them to the entire organization.
Management accountants serve as business partners in these planning activities because they
understand the key success factors and what creates value.
Control comprises
- taking actions that implement the planning decisions
- evaluating past performance, and
- providing feedback and learning to help future decision making.
The most important planning tool when implementing strategy is a budget. A budget is the
quantitative expression of a proposed plan of action by management and is an aid to coordinating
what needs to be done to execute that plan.
Management Accounting Guidelines
Cost–benefit approach is commonly used: benefits generally must exceed costs as a basic decision
rule
Behavioural & technical considerations – people are involved in decisions, not just dollars and cents
Different definitions of cost may be used for different applications
Professional Ethics
The four standards of ethical conduct for management accountants as advanced by the Institute of
Management Accountants are:
- Competence – know your stuff
- Confidentiality – must disclose confidential information when required by law
- Integrity - honest
- Credibility – true and objective