ACCA Papers F2/FMA

MANAGEMENT ACCOUNTING

SYLLABUS & TIMELINES

1 The nature, source and purpose of management information 2 Cost classification 3 Accounting for materials 4 Accounting for labour 5 Accounting for overheads 6 Absorption and marginal costing 7 Job, batch, unit and process costing 8 Service/operation costing 9 Alternative cost accounting 10 Budgeting 11 Statistical techniques 12 Capital budgeting and capital investment appraisal 13. Budgetary control and behavioural aspects 14 Standard costing 15 Performance measurement

The nature, source and purpose of management information

The nature, source and purpose of management information

Purpose and role of cost and management accounting within an organisation

(a) The distinction is not clear Cost accounting and management accounting are essentially the same subject - such differences as there may be between the two reflecting the more elementary approach of cost accounting and its greater concern with shop-floor and lower levels of management as against board-room matters.

At this point in time it is still, perhaps, acceptable to draw an artificial distinction and informally say that cost accounting is limited to cost ascertainment - that is, to finding what something costed - whereas management accounting is concerned with providing cost information which assists managers to manage. Since telling managers what a thing costed assists managers to manage, cost accounting is clearly part of management accounting. It is therefore, logical to have a single subject covering both topics and thereby eliminating much of the overlap which arises when they are treated as separate topics. In our coverage reference to management accounting will include cost accounting.
5

Purpose and role of cost and management accounting within an organisation

(b) The finance function It makes sense to start our studies by looking at the broad sweep of financial management before moving to the more specific practices and principles of management accounting. Management accounting is obviously part of financial management, in its broadest sense. The finance function is performed by a separate department within larger companies or organisations and usually by the accounting department within smaller firms. Financial managers depend heavily upon other managers, such as accountants and market researchers, to provide information for financial decision making. Figure 1.1 shows how in a large organisation the head of finance, typically a finance director, might report directly to the managing director, with authority over the treasurer and controller.

Purpose and role of cost and management accounting within an organisation

(c) The Finance Director The has overall responsibility for the planning and control of: (i) maintenance of statutory accounts; (ii) management accounting and management accounting information systems, such as budgetary control; (iii) internal audit (perhaps reporting to the Audit Committee); and (iv) treasury management and strategic financial decisions. In fulfilling this responsibility the Finance director would advise the Board of Directors on strategic financial matter such as: - whether proposed corporate investments are appropriate; - how such investments are best financed; - the level of dividend distributions. (d) The treasurer The treasurer, usually a senior manager, is responsible for managing external financial matters, such as cash and credit management, raising funds, capital budgeting, and financial analysis and planning. The treasurer needs information from manufacturing and marketing to carry out these activities.
8

Purpose and role of cost and management accounting within an organisation

(e) The financial controller The financial controller, another senior finance manager, is responsible for internal matters, `such as accounting, budgeting, payroll, taxes, and information processing. (f) Different accountancy roles The work of accountants' is sectionalised into four main roles, which provides for the specialist needs within the accountancy profession, such as evidenced by The Institute of Chartered Accountants (England and Wales), The Chartered Association of Certified Accountants, and The Chartered Institute of Management Accountants, and so on. These four roles, briefly described below, are: - financial accounting - financial management - cost accounting - management accounting Note, that although the overall financial management function is often called the 'Finance Department the role of financial management is only one of four. 9

Purpose and role of cost and management accounting within an organisation

(g) Financial accounting This involves the recording of financial transactions of the business and the subsequent production of financial statements, usually the statement of comprehensive income, statement of financial position and cash flow statement. In large companies these statements are audited by independent auditors and then submitted to shareholders and other interested groups. We see from this, that financial accounting is mainly concerned with historical aspects of external reporting, that is, providing information about financial results to outside parties such as investors, creditors, and governments. To protect those outside parties from being misled, financial accounting is governed by what are collectively called generally accepted accounting practices (GAAP) which include financial reporting standards. An important accounting standard being used by many companies throughout the world is the International Financial Reporting Standards (IFRS).

10

Purpose and role of cost and management accounting within an organisation

(h) Financial management (sometimes called 'Treasury management)
Extending on the points raised previously, financial management is concerned with four key aspects: (i) planning the firm's financial strategy; (ii) planning and controlling the financing of working capital; (iii) obtaining funds for expansion and investments; and (iv) planning and controlling long-term investments.

11

Purpose and role of cost and management accounting within an organisation

12

Purpose and role of cost and management accounting within an organisation

13