Chapter 1

Management accounting:
information for creating value
and managing resources

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-1
 Outline
Australian organisations in the 21st
century
What is management accounting?
Management accounting vs financial
accounting information
Management accounting and strategy
Planning and control
Management accounting design
Changing business environment
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-2
 Australian organisations
in the 21st century
Increasing global competition
Corporatisation and privatisation of public
sector bodies competing with private sector
Rise of e-commerce, rapid technology
changes, strategic alliances, business
networks, global labour mobility
Rise of the service-based economy
Increasing customer demands
Climate change issues
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-3
 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.

(cont.)

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-4
 What is management
accounting? (cont.)
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
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-5
 Management accounting
systems
Produce the information required by managers
to create value and manage resources
Information provided on a regular basis
includes:
Estimates of costs of producing goods and services
Information for planning and controlling operations
Information for measuring performance
Ad-hoc information to satisfy managers short-
term and long-term decision-making needs
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-6
 Management accounting
information
Focus is on the needs of managers within
the organisation
Flexibility in types of information provided
Influenced by managers information
needs and differences in production and
service technologies
Used by senior managers through to
operational managers
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-7
 Management accounting and
financial accounting information
Financial accounting
The practice of preparing and reporting
accounting information for parties outside
the organisation
Costing systems are common to both
financial and management accounting
A system that estimates the cost of goods
and services as well as the cost of
organisational units, such as departments
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-8
 Management accounting vs
financial accounting

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-9
 Management accountants
within organisations
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
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-10
 Management accounting
processes and techniques
Support the organisations formulation
and implementation of strategy
Contribute to improving the organisations
competitive advantage
Provide information to help manage
resources through systems of planning
and control
Provide estimates of the costs of an
organisations outputs
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-11
 Management accounting
and strategy
Formulation and implementation of
strategy
Vision
The desired future state or aspiration of an
organisation
Used by senior managers
Mission statement
Defines the purpose and boundaries of the
organisation (cont.)

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-12
 Management accounting
and strategy (cont.)
Objectives (or goals)
The specific aims of the organisation
Often quantified
Relates to a specific period of time
Strategies
The long term direction to achieve an
organisations mission and objectives
Focus on the organisations resources to
create value for customers and shareholders
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-13
 Major decisions in
formulating strategies
In what business will we operate?
How should we compete in that
business?
What systems and structures should
we have in place to support our
strategies?

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-14
 Corporate strategy
Choices about the types of businesses
How best to structure and finance the
organisation
In publicly listed companies, the influence
of 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
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-15
Vision, mission and strategies

(cont.)

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-16
Vision, mission and strategies (cont.)

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-17
Example - UEL
Vision (Tm nhn): Trng i hc Kinh t - Lut pht trin
theo nh hng i hc nghin cu, n nm 2020 tr thnh:
- C s o to t chun quc t, c xp hng trong s cc
trng i hc c uy tn khu vc ASEAN, ngi hc c nng
lc lm vic trong mi trng ton cu.
- Trung tm nghin cu khoa hc v t vn chnh sch c uy tn
hng u Vit Nam trong lnh vc kinh t, lut v qun l.
Mission (S mnh): Thc y s pht trin v tin b x hi
thng qua nghin cu, o to v cung ng dch v cht lng
cao trong lnh vc kinh t, lut v qun l
Objectives: Cht lng v hiu qu; Nng ng v sng to;
Hi nhp v pht trin; Sc mnh lin ngnh.

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-18
Example - FAA
Vision (Tm nhn): n nm 2020, khoa K ton - Kim ton s tr thnh mt
trong nhng c s o to, nghin cu, t vn hng u trong lnh vc k
ton, kim ton ti Vit Nam v khu vc.
Mission (S mnh): Khoa K ton - Kim ton cung cp cho x hi ngun
nhn lc v cc sn phm nghin cu khoa hc, o to cht lng cao trong
lnh vc k ton kim ton, p ng yu cu pht trin kinh t x hi ca Vit
Nam v hi nhp quc t; v s hp tc v gio dc v o to gia Vit Nam
vi cc trng i hc khc trn th gii.
Objectives:
Xy dng i ng cn b ging dy c trnh chuyn mn cao trong ging
dy v nghin cu khoa hc;
Hon thin, pht trin chng trnh o to tin tin ph hp vi trnh gio
dc i hc trong khu vc v quc t trn c s tham kho chng trnh o
to ca cc trng i hc trong v ngoi nc.
p dng phng php ging dy v nghin cu ph hp vi xu th gio dc
trong thi i mi, ph hp vi chin lc ging dy ca Khoa KTKT.
Tip tc y mnh quan h hp tc quc t, quan h vi cc hip hi ngh
nghip trong nc v quc t, trong o to nghin cu v t vn trong lnh
vc k ton v kim ton th hin qua vic lin kt gia khoa KTKT v cc t
chc ngh nghip.
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-19
 Strategy implementation
Planning and managing the
implementation of strategy
New structures
New systems
New production processes
New marketing approaches
New human resource management
policies
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-20
 Competitive advantage
Advantages of one business over another
that are difficult to imitate, achieved by
Cost leadership
Economies of production
Superior process technologies
Tight cost control
Product differentiation
Superior quality
Customer service
Delivery performance
Product features
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-21
 Planning and implementing
strategy
Strategic planning
Long-term planning
Involves corporate strategy decisions
Draws on management accounting information

Implementing strategies
Managers share the responsibility for implementation
Linking long-term plans
Performance measurement systems compare actual
outcomes to budgets and other targets

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-22
 Planning
A broad concept that is concerned with
formulating the direction for future
operations
Allows an organisation to consider and
specify all resources needed in the
future
Occurs at all levels of the organisation
A budget is an example of a short-term
detailed plan
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-23
 Controlling
Involves putting mechanisms in place to
ensure that operations proceed according
to plan and that objectives are achieved
Management accounting information
provides information for control using
plans, targets or budgets
Control systems are the systems and
procedures that provide regular
information to assist in control

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-24
 Planning and controlling

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-25
 Costing goods and services
Estimates of the cost of producing goods
and services are needed to support a
range of operational and strategic
decisions
Routine costing systems are a part of the
financial accounting system
Different product costs may also be
produced outside of the financial
accounting system, to better meet
managers decision-making needs
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-26
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 organisations goals
(cont.)
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-27
 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
(cont.)
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-28
 Costs and benefits (cont.)
Benefits include
Improved management decisions
More effective planning
Improved operational efficiency at lower
cost
Better control
Improved customer and shareholder value

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-29
 Contingency and institutional
theories
Contingency theory
The design of a management accounting
system is influenced by specific aspects of
the organisations context and a range of
other factors
Institutional theory
The design is influenced by institutional
forces, which explain similarities

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-30
 Responses to the changing
business environment
By the 1990s, many organisations
realised that they needed to make
improvements in order to improve market
share and profits
Adoption of new management structures,
systems and practices, including new
management accounting techniques and
systems
(cont.)
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-31
 Responses to the changing
business environment (cont.)
Traditional management accounting
systems
Modern management accounting systems
Support the adoption of new structures, systems and
practices
Includes activity-based costing, performance
measurement systems, cost management systems,
new approaches to customer profitability analysis
and supplier cost analysis

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-32
 Key influences on management
accounting systems

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-33
 The changing focus of
management accounting

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-34
 Summary
Management accounting supports
managers in enhancing customer value
and shareholder value
Modern management accounting
techniques have developed to support
new organisational structures, systems
and practices, as a response to a rapidly
changing business environment

Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd

Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-35
 Professional accounting
organisations and ethics
In Australia, management accountants
may join
CPA Australia
Institute of Chartered Accountants in Australia
Institute of Public Accountants (formerly NIA)
Chartered Institute of Management Accountants
(CIMA)
Code of Ethics for Professional
Accountants
Fundamental principles of the code
Copyright 2015 McGraw-Hill Education (Australia) Pty Ltd
Langfield-Smith, Thorne, Smith, Hilton Management Accounting, 7e 1-36