LangfieldSmith7e PPT ch01

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
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
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.)

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
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
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
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
Management accounting vs
financial accounting

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
processes and techniques
• Support the organisation’s formulation
and implementation of strategy
• Contribute to improving the organisation’s
competitive advantage
• Provide information to help manage
resources through systems of planning
and control
• Provide estimates of the costs of an
organisation’s outputs
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.)

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
organisation’s mission and objectives
– Focus on the organisation’s resources to
create value for customers and shareholders
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?

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
Vision, mission and strategies
(cont.)

Vision, mission and strategies (cont.)

Strategy implementation
• Planning and managing the
implementation of strategy
• New structures
• New systems
• New production processes
• New marketing approaches
• New human resource management
policies
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
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

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
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

Planning and controlling

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
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 organisation’s goals
(cont.)
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.)
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

Contingency and institutional
theories
• Contingency theory
– The design of a management accounting
system is influenced by specific aspects of
the organisation’s context and a range of
other factors
• Institutional theory
– The design is influenced by institutional
forces, which explain similarities

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.)
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

Key influences on management
accounting systems

The changing focus of
management accounting

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

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

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Chapter 1

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

Copyright © 2015 McGraw-Hill Education (Australia) Pty Ltd

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