ACCG301 -Lecture 1

What is Management Accounting?

…the processes and techniques that focus on the effective and efficient use of organisational
resources to support managers in their tasks of enhancing both customer value and shareholder
value

Customer value

- The value that a customer places on particular features of a product or service

Shareholder value

- The value that shareholders or owners place on a business

Resources

- Financial and non-financial

- Organisation capabilities and competencies

Management accounting vs Financial accounting

Management accountants within organisations (cont.)

• Most large organisations have a ‘finance function’ at the corporate level

• Accounting staff may be in operating divisions as well as corporate level
• Financial accounting function is distinct from management accounting function
• Managers from other functional areas may undertake management accounting activities
Management Accounting and Strategy

Formulation and implementation of strategy

Vision

The desired future state or aspiration of an organisation Used by senior managers

e.g., Microsoft: "Empower people through great software anytime, anyplace, and on any
device."

Mission statement

Defines the purpose and boundaries of the organisation e.g., Nissan: "Nissan provides
unique and innovative automotive products and services that deliver superior, measurable
values to all stakeholders."

Objectives (or goals)

The specific aims of the organisation • Often quantified • Relates to a specific period of time

Management Accounting and Strategy (cont.)

Corporate strategy

• Choices about the types of businesses to operate

• how best to structure and finance the organisation
• In publicly listed companies, the choice of corporate strategy is influenced by the
expectations of major shareholders and securities market

Business (or competitive) strategy

• The way a business competes within its chosen market

• Distinct business strategies for each business unit

Business strategy

Cost Leadership- sell products and services at lower prices.

Product differentiation – Offer different products in quality, delivery and operations.

Strategy Implementation

•Planning and managing the implementation of strategy

•New structures

•New systems

•New production processes

•New marketing approaches

•New human resource management policies

Planning and control

Planning

Setting Goals – Deciding how attain goals – predicting results

Control

Budgeted results – Actual results ( ensures plans are being followed)

Association between Strategy, Planning and Control

Considerations in the design of management accounting systems

Behavioural issues

• Information may impact on individuals’ behaviour, so management accounting systems

may have expected and unexpected outcomes
• A key purpose of management accounting systems is to motivate managers and
employees to direct their efforts towards achieving the organisation’s goals

Costs and Benefits

There are costs and benefits of generating and providing management accounting information

Costs include

• Salary of accounting personnel

• Purchasing and operating computers
• Gathering, storing and processing data
• Managers’ time to read, understand and use the information

Benefits include

- • Improved management decisions

• More effective planning
• Improved operational efficiency at lower cost
• Better control
• Improved customer and shareholder value

Contingency and institutional theories

Contingency theory

–The design of a management accounting system is influenced by specific aspects of the

organisation’s context and a range of other factors;
e.g., technology, national culture, firm size
Institutional theory

- –The design is influenced by institutional forces, which explain similarities

e.g., ABC costing. Balanced scorecard