Management Accounting 1
What is Management Accounting?
• Today’s Questions:
• 1) Why is Management Accounting interesting?
• 2) Why do we need Management Accounting?
First, think of what
accounting is…
It is more than counting….
It is about making something/someone
account for something….
So, something/someone can be
managed….
Think of an example.
Second, think of what management is…
Getting
something
achieved/done
with and through
people…
Think of an
example....
Why is
accounting
needed?
So, accounting and management are
interlinked….
Accounting
comes from
what managers
do…..
Management
comes from
what accounting
aims…
Think of an
example…
Management would plan to
achieve some sales target
– this will lead to an
accounting instrument –
that is a sales budget.
This budget will then be a
guide for managers to get
people to achieve the
budget target.
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Management
Accounting
Organization
Look at CIMA’s
definition….
“Inform strategic decisions and
formulate business strategy.
Plan long, medium and shortrun operations Determine
capital structure and how to
fund that structure. Design
reward strategies for
executives and shareholders.
Inform operational decisions.
Control operations and ensure
the efficient use of resources.
Measure and record financial
and non-financial performance
to management and other
stakeholders. Implement
corporate governance
procedures, risk management,
and internal controls.”
• Management accounting or managerial accounting is
concerned with the provisions and use of accounting
information to managers within organizations, to
provide them with the basis to make informed
business decisions that will allow them to be better
equipped in their management and control functions.
• Wikipedia.org
Difference between FA & MA…
FA
General-purpose
MA
Specific-purpose (often)
Level of detail
Regulations
Broad Overview
Subject to accounting
regulations
Considerable detail
No specific regulation
Reporting interval
Time horizon
Range and quality of
information
Annual basis (often)
Backward-looking
Quantifiable information
in monetary terms
As frequently as required
Backward + Forward looking
Financial + non-financial information
Nature of the reports
produced
So….
Management
Accounting is less
constrained than
Financial Accounting.
This is both positive and
negative as we will
discover throughout the
course.
The role of the management accountant in the management process can be seen in terms of:
Planning
Management accountants help to:
- formulate plans for different activities and
- co-ordinate these plans into budgets for the business as a whole
Controlling
Management accountants produce performance reports that compare actual outcomes
with planned outcomes.
Organising
Management accountants develop accounting reporting systems that are closely related to
organisational structure.
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Communicating
Management accounting can aid the communication function by
installing and maintaining an effective communication and reporting
system (e.g. the budget and performance reporting process).
Motivating
The budgets and performance reports produced by accountants have
an important influence on the motivation of managers and
employees.
Decision-making
Providing guidance for decision making and problem-solving.
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Cost A/Cing v Cost Mngt
Cost Accounting:
–Provides information for both management accounting
and financial accounting.
It measures and reports financial and non-financial data
that relates to the cost of acquiring or consuming
resources by an organisation.
Cost Management:
–Describes the activities of managers in short- run and
long-run planning and control of costs.
It includes the continuous reduction of costs.
It is a key part of general management strategies and their
implementation.
Readings: session…
Chapter 1 _Drury’s textbook
Quattrone, P., (2016), Management accounting
goes digital: Will the move make it
wiser?, Management Accounting Research,
Volume 31, pp. 118-122.
Quinn, M., (2014), Stability and change in
management accounting over time—A century or
so of evidence from Guinness, Management
Accounting Research, Volume 25, Issue 1,
pp.76-92.
Readings for next week’s
session…
Chapters 2 & 3 from Drury