RECENT DEVELOPMENTS IN MANAGEMENT ACCOUNTING(TOPIC 1: PART 1)*

Lecture Outline Management accounting scope

(Case-Discussion) The evolution of management

accounting (Article-Reading) Management accounting change

(Article Reading) The gap between theory and practice

BKAM 3033 Topic 1*

Management Accounting ScopeProvision of information

Decision making Control Planning Direction setting ChangeCommitment

Manage resources efficiently

BKAM 3033 Topic 1*

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*Management accounting is the branch of accounting, which is concerned with supplying relevant information to managers at appropriate time to enable them to take decisions in organization.MANAGEMENT ACCOUNTING SCOPEIt is the process of accounting, which generates accounting information from both financial accounting and cost accounting and provides essential accounting information to all departments concernedManagement accounting is the process of identifying, measuring, analyzing, interpreting and communicating accounting information to department concerns to meet organizational goals and objectivesBKAM 3033 Topic 1

Providing information for decision making and planning in revenue and cost projection of organizationHelps managers to interpret financial data that are not understand by internal users.Management accountants are crucial in an organization that they become an integral part of management team who provides necessary information.Helps managers in directing and controlling operations through its attention in their function.Motivating managers to achieve organization's goalsMeasures the performance of managers, subunits and employees within organization.Assess organizations competitive position, and working with the other managers to ensure organization's long term competitiveness

*BKAM 3033 Topic 1

*BKAM 3033 Topic 1

BasisManagement accountingCost AccountingObjectivesIts objective is to assist managers providing accounting information for decision-making. Its objective is to determine and record the cost of production of goods and services.ScopeIt has broad scope, and includes financial and cost accounting. Its scope is limited in cost determination and record.Sources of dataIt uses both quantitative and qualitative dataIt uses the quantitative data only.Accounting principlesNo specific principles like accounting and cost accounting.Certain principles and procedures are followed in cost determination and allocation.NatureIt uses past and present data in the projection of future.It uses both past and present data and figure.

BKAM 3033 - Topic 1*

BasisManagement accountingFinancial AccountingObjectivesAssist managers at all levels i.e. internal users by providing necessary accounting information.Make periodical report Outsiders like shareholders, government, customers, suppliers, managersSources of dataIt uses data, which are subjective, descriptive and related with future. It uses data, which are historical, quantitative , and related with past.Accounting principlesNo such principles for preparation and presentation of reports. Therefore, reports differ from one organization to another. Governed by GAAPs. Therefore, all organizations prepare the financial reports in the same manner.ReportingReports are prepared in certain time interval according to need of management. Financial reports are generally prepared at the end of the fiscal year to report stakeholders. Legal compulsionIt is voluntary. It is applied to increase management efficiency for attaining organizational objectives.It is compulsory in every business organization. Performance measurementsIt measures the efficiency and performanceof various departments and divisions.It measures the overall efficiency and performance of organization.

BKAM 3033 - Topic 1

*Stage

Transformation

Transformation

Transformation

OngoingTransformation1234FocusStage 1Stage 2Stage 3Stage 4Source: IFAC, 1998BKAM 3033 Topic 1BKAM 3033 Topic 1

1970s oil price shock (Threats to Western established markets)Early 1980s increased global competition (Threats to Western established markets)There was rapid technological developments + increased competition affected the industrial sectore.g. use of robotics and computer-controlled processes improved quality + reduced costsE.g. developments in computers: change the nature and amount of data accessible by managersThus, design, maintenance and interpretation of information systems became of considerable importance in effective managementChallenge of meeting global competition: introduced new management and production techniques controlling costs: through reduction of waste in resources used in business processes (IFAC, 1998). supported by employee empowerment (as need for management information and decision-making to be diffused throughout the organisation)Challenge for management accountants as primary providers of information:To ensure that through the use of process analysis and cost management technologies, appropriate information is available to support managers and employees at all levels.

In 1990s:World-wide industry continued to face considerable uncertainty and unprecedented advances in manufacturing and information processing technologies e.g. the development of www + associated technologies e-commerce + increased global competitionFocus of management accountants shifted to the generation and creation of value through the effective use of resources achieved through the use of technologies which examine the drivers of customer value, shareholder value and organisational innovation

Management Accounting ChangeStage 1(Before 1950)Stage 2(1965-1985)Stage 3(1985-1995)Stage 4(1995 onwards) Cost determination Financial control

Management planning and

control Reduction of waste

Value creation

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Change in the ProfessionScorekeepersBean countersInternal consultant-business partner-business analystBKAM 3033 Topic 1*

Accounting is changing. You are no longer sitting behind a desk just working on a computer, just crunching the numbers. You are actually getting to be part of the day-to-day functions of the business. (Abbott Laboratories)

We are looked upon as more business advisors than just accountants, which has a lot to do with the additional analysis and forward-looking goals that we are setting. We spend more of our time analysing and understanding our margins, our prices, and the markets in which we business. People have a sense of purpose, have a sense of I am adding value to the company. (Caterpillar, Inc)*BKAM 3033 Topic 1

*BKAM 3033 Topic 1

The Prior Business Environment

Financial reporting and costCommon emphasis on standardisation & Std costThe accountants as functional expert and financial scorekeeper

The Contemporary Business Environment

View of cost acctg as a tool for the development and implementation of business strategyThe accountant as a business partner

Blocher, Chen, Lin

BKAM 3033 - Topic 1(a)*Continuous Improvement

BKAM 3033 - Topic 1(a)

Todays management accountants need the following skills:

Solid knowledge of both financial and management accountingAnalytical skillsKnowledge of how a business functionsAbility to work on a teamOral and written communication skills*BKAM 3033 Topic 1

WHAT FACTORS DRIVE CHANGE OF MA

ExternalCustomer oriented (competition)TechnologyGlobalization

Customer-oriented (competition)InternalOrganizationalBKAM 3033 Topic 1*

Focus on customer satisfaction*BKAM 3033 Topic 1

Core competencies and work characteristics of the organisation

Modern production technologies changes in product costing practicesIT capital budgetingE-commerce new ways of operatingDesign of MA systems

Style of managementExistence of TQM programmes*BKAM 3033 Topic 1

Merger and acquisitionOrganizational restructuringCorporate failures enhanced corporate governance

*BKAM 3033 Topic 1

Management accounting practices can be observed at the macro or micro levels (Drury, 2008): Macro refers to concepts and techniques Micro refers to the behavioural patterns of use.Tendency towards globalization at the macro level.

*BKAM 3033 Topic 1

Drivers of convergence include:

Global competition Information technology (e.g. ERP systems)

Standardization by transnational companies

Global consultancy

Use of global textbooksAt the micro level accounting information may be used in different ways due to influence of different national and local cultures.

*BKAM 3033 Topic 1

Professional bodies play an important role to bridge the gap between MA theory and practice.For example, CIMA stated its first objective as to promote and develop the science of management accountancy.CIMA established the Technical Committee to oversee a rigorous technical development agenda.

Review developing practices and highlight whats working and whats not.*BKAM 3033 Topic 1

CIMA also worked with IFAC to develop the concept of enterprise governance, focusing on the balance between regulatory conformance and business performance.In Malaysia, NAfMA awards is introduced by CIMA and MIA to promote best practices of MA.The NAfMA awards recognize the best practices in MA that lead to value creation and excellent business performance based on the MA concepts of IFAC.

*BKAM 3033 Topic 1

NAfMA award is a response to the criticism by accounting practitioners and educators on the ground that MA practices had changed little over for almost 60 years (e.g Johnson & Kaplan,1987), despite radical changes in the business environment.The awards also reflects the shift from number cruncher and corporate cop to decision-support specialists and reflects what it takes to compete in todays lean, global, technologically-driven environment.

*BKAM 3033 Topic 1

*1970s oil price shock (Threats to Western established markets)Early 1980s increased global competition (Threats to Western established markets)There was rapid technological developments + increased competition affected the industrial sectore.g. use of robotics and computer-controlled processes improved quality + reduced costsE.g. developments in computers: change the nature and amount of data accessible by managersThus, design, maintenance and interpretation of information systems became of considerable importance in effective managementChallenge of meeting global competition: introduced new management and production techniques controlling costs: through reduction of waste in resources used in business processes (IFAC, 1998). supported by employee empowerment (as need for management information and decision-making to be diffused throughout the organisation)Challenge for management accountants as primary providers of information:To ensure that through the use of process analysis and cost management technologies, appropriate information is available to support managers and employees at all levels.

In 1990s:World-wide industry continued to face considerable uncertainty and unprecedented advances in manufacturing and information processing technologies e.g. the development of www + associated technologies e-commerce + increased global competitionFocus of management accountants shifted to the generation and creation of value through the effective use of resources achieved through the use of technologies which examine the drivers of customer value, shareholder value and organisational innovation