Chapter 1 - The accountant's role in the organization +

PLANNING
Saturday, January 29, 2022
1:09 PM

Financial Accounting, Management Accounting, Cost accounting

 
Most of the CEOs of an organization have accounting knowledge. The chief financial officer
position is the most unrivalled and wanted by everyone
The management and cost accounting provides an insight in the relationship between
accountants and managerial positions (making decisions,
planning, etc.)
 
Management accounting is an integral part of management. It combines accounting, finance and
management with the leading of a business strategies.
 
5Financial accounting vs management accounting
 
Financial:
 Reports made for the outsiders
 Reports profitability and efficiency of a firm
 Precise information
 Follows accounting standards`
 Only made to provide info from the past
 Concerned with the value of assets and liabilities (doing impairment and reevaluations)
 Financial statements are used by outsiders to decide whether to invest or not in the firm
 
Management:
 Reports made for the insiders
 Very detailed info
 Reports problems and how to fix them
 Mostly deals with estimates and not precise info
 No standards
 It can have a future orientation as it makes forecasts and budgets
 It does not have a specific time (the time depends on the decision, it can be from hourly
to something made for 6 years)
 Is not interested in the value of the assets but how much profit they can produce
 Management accounting reports for the improvement of operations
 
Cost accounting:
 Reports information regarding the acquisition and selling of resources in an organization
 The actions managers make for planning and controlling the costs (increasing the value
for customers and lowering the costs)
 Management's decisions can lead to more costs or lower costs
 It reports the cost of production from the state of raw material to the end
  If a company wants managerial decisions (ex: enhancing customer satisfaction) they need
to take into account cost accounting.
 
Some countries' regulation allow the involvement of management documents in the
financial statements
Ex: the chart of accounts can be both for financial and management purposes (involving
people)
 
It is important to understand that financial information Is the key to some great
management decisions
 
Why management accounting?
When a company wants to grow more, to produce more value to its shareholders, to
introduce new functions, etc. , decisions have to be made.
The management accountant is the one seeing where there is a need for change, analyze it
and its future impacts.
Whenever there are organizational changes, management accountants are important.
 
Idee: Care sunt costurile si daca se merita o anumita schimbare si care sunt posibilele
rezultate/impact = management accounting
 
Purpose of accounting systems: (FA and MA)
 
 Formulating overall strategies and long-run plans (ex: new product development and
investments)
 Resource allocations
 Cost planning and cost control (reports on revenues, costs, assets, liabilities, etc.)
 Performance measurement (comparing actual with planned results)
 Meeting legal requirements (following accounting methods)
 
Planning and Control (they can be seen as same term)
 
 Planning = choosing a goal, searching for possible results and then providing ways to
attain those goals.
Ex: goal = increase advertising rates by 4%
 
THE GOAL HERE = INCREASING OPERATING PROFIT (THE ONE WE GET FROM
SELLING NEWSPAPERS)

PLANNING = MOSTLY ABOUT FUTURE PLANS AND BUDGETING

CONTROLLING = FEEDBACK , IMPLEMENTING, EVALUATION 
 

Planning:
 Set up a goal (ex: increasing profit)
 Find alternatives to get there (ex: firing people, price rise, etc.)
 Choose one alternative
How implementation of the alternative works:
 You do planning: make a budget of expected costs and revenues
 You control it:
 Implementation: you implement your alternative and record the info in the financial
records
  You compare the actual costs/revenues with the budget you made (your expectancies)
 In case the result is bad, analyze why is that (maybe there has been a decrease in the
industry or people weren't convinced)
 
Management by exception = focusing on what went wrong instead of what went right
Variance = Expected results - Actual results
 
-> Companies use the accounting information in different ways (two similar companies can be
very different in terms of how they use the financial information they have at hand)
-> Feedback = examining past performance and exploring alternatives to improve further
performance
 
Other key terms:
 
Scorekeeping refers to the accumulation of data and the reporting of reliable results to all levels
of management. Examples: recording of sales, purchases of materials, and payroll payments. =
DATA KEEPING
 
Attention directing = Atempts to make visible both opportunities and problems on which
managers need to focus. Examples are highlighting rapidly underfunding its investment and
highlighting products with higher-than-expected rework rates or customer-return rates.
Attention directing = searching for opportunities to bring value to the business (not only to cut
costs)
 
Problem solving = Find best alternative among many

 
Resistance to management change = is usually behavioral rather than technical problems. A new
accounting system has to be analyzed in terms of its expected useful life. Still, people are not to
be neglected. When choosing one system we have to make sure it will be compatible with the
users and accepted by them. Also the way people might adapt depends on country.
 
Themes in the design of management accounting systems
=Reasons why we need new accounting/management systems
  

 
 Customer focus = the number of customer-driven businesses is increasing. = " We have
to put system in place to listen to our customers ".
=> The challenge is to continue investing in customer satisfaction (satisfied customers =
more sales)
 Value chain and supply-chain analysis:
Value-chain = set of businesses activities made to help deliver the most value for the
smallest cost.
  
The attributes of a management accountant:  
 Have an analytical mind
 Be critical
 Know how to lead and motivate people to be innovative
 Communicate clearly, openly and candidly with other colleagues
 Have a strong sense of integrity (trebuie sa faca ce e mai bine for its shareholders and
organization si sa nu manipuleze then financial info)
 They have both management and informational provision roles