Accounting for Management for ACCA MA1

This is just a summary for revision purpose students are requested to read the book for details

Data

• Raw form / unprocessed / no meaning in itself / unorganized / facts

• However, it is needed in order to process it into a meaningful information

Information

• Processed data is called information

• Meaningful

Example

• Daily sales transactions – data. Processing this data into a record, Sales day book – provides information
about the sales made during a specific period.
• Daily time sheets for labor working on a specific job is data. Adding them up to calculate total labor cost
for job is information.

Qualities of good information

• Understandable – You must consider the fact that the information you prepare will not only be used by
accountants but by general users too therefore the information must be set out in easy and well
explained words. Although you may expect certain basic knowledge from readers.
• Relevant - Information must bear on the decision-making process by possessing predictive value
(relevance of notes to accounts to investors, creditors and other users of financial statements)
• Comparability – the information must help user to make comparisons. It must enable users to identify
similarities and differences. (two companies may use different stock valuation basis – fifo and avco , the
notes to accounts must identify this difference in valuation of inventory)
• Timeliness – Provided as soon as it is prepared. The older the information gets the less useful it is. (Audit
deadlines set so that annual reports are issued in time)

ACCURATE

• ACCURATE - Reliable otherwise management may take incorrect actions

• COMPLETE - Provide all details favorable and unfavorable both. Not too much Not too little
• COST EFFECTIVE - Benefits that will be obtained from information must exceed cost of it.
• UNDERSTANDABLE - see up. Not full of abbreviations and short terms.
• RELEVANT - see up.
• AUTHORITATIVE - Reliable source.
• TIME SENSITIVE – see up. Example issue of prospectus in company law. Time gap
• EASY TO USE – not full of complications.

Types of Information organizations require

• Financial – For example cost of subsidized meals served to workers in a canteen.

• Non – financial – Effect on worker morale of the provision of subsidized meals and number of employees
served.

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 Accounting for Management for ACCA MA1
• Combination of the two – Average cost of subsidized meal per employee.

Non-financial information is as useful for management as is the financial information for planning, controlling and
decision-making purpose.

PLANNING, CONTROL AND DECISION MAKING

Planning

• Involves establishing objectives (aim of the organization).

• and selecting appropriate strategies (possible course of action to achieve objective) to achieve those
objectives.
• Example of objectives of different types of organizations – Maximize profits (Profit making organizations),
Increase market share and provision of goods and services (Not for profit organizations).
• Types of planning 1. Long term strategic planning – Also known as corporate planning – depending upon
organization this is a two, five, seven or even a ten-year plan. 2. Short term tactical planning – A
corporate plan is broken up into a series of short term plans so that execution is made easy. It generally
covers a time period of a single year and relates to a single department, section or function of an
organization.
• Stages of planning 1. The first stage may be referred as assessment stage in which the external
environment and internal organizational factors are assessed. 2. The objective stage – Setting corporate
objectives 3. The Evaluation stage – Assessing alternate strategies to achieve the objectives 4. Corporate
plan – A corporate plan is finalized 5. Short term plans for each individual department are set. 6.
Operational plans are set for individual tasks.

Control

• Operational plans and actual results are compared with each other and causes for any deviations are
investigated and corrective actions taken.
• The overall corporate plan is reviewed in light of the findings and if there are any changes noted in the
external environment the plan is modified appropriately.

Decision making

• It is all about taking right selection of action between two alternative choices.

THREE TYPES OF MANAGEMENT ACTIVITY ACCORDING TO ANTHONY (Leading writer on organizational control)

Strategic planning – selection of products or markets, purchase or disposal of subsidiary etc

• Everything linked with organization objectives – deciding them, changing them and on deciding about the
resources to be used to attain these objectives.

Tactical control -

• Process by which managers assure that they obtain the resources(men, material, machine and money)
required for accomplishment of corporate objectives and ensure that they are used effectively.

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 Accounting for Management for ACCA MA1
Operational control

• Process of assuring that individuals carry out the tasks effectively.

MANAGEMENT CONTROL SYSTEM

• System to measure and correct performance of activities of individuals to ensure that they are in line
with the objective of the organization.

TYPES OF INFORMATION

Strategic

• Used by senior managers.

• Summarized at a high level, relevant to the long term, generally dealing with the whole organization.
• Due to its long-term nature it may not be completely certain.

Tactical

• Used by middle management.

• Includes – variance analysis reports, cash flow forecasts etc.
• Primarily internally generated, relevant to the short and medium term, prepared regularly.

Operational

• Used by front line managers.

• Includes – hours worked by each employee in each week, details of time spent by each worker on individual job etc.
Internally generated, highly detailed, relates to immediate term and prepared constantly or very frequently.

FINANCIAL ACCOUNTS MANAGEMENT ACCOUNTS

Reports the performance over a period of time Used for planning, control and decision making
Required by law in most cases No legal requirement
Format is generally prescribed by law and reporting Different for each organization. No rules govern it
bodies
Reflect historical picture Reflect both historical and future picture
Mostly monetary Both monetary and non-monetary
Provides data for management accountant Using the data from cost accounting
Preparing statements example costing Broader term
Cost data collection Includes the task of increasing value of shareholders
Attaching cost to cost objects

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