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PRINCIPLES OF ACCOUNTING (BA1102)

LECTURE 9:
ACCOUNTING FOR MANAGEMENT

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LEARNING OUTCOMES
1. Describe the purpose and role of management
accounting.
2. Understand the managerial processes of
planning, decision making and control.
3. Understand the nature of good information.
4. Differentiate financial and management
accounting.
5. Explain the limitations of management
information in providing guidance for
managerial decision making.

Changes in Business Environment

• Global Competition
• Impact of Information and Communication
Technology (ICT)
• Product life cycle and diversity
• Focus on customer
• Cross-Functional Teams

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What is Management Accounting?

“The process of identification, measurement,

accumulation, analysis, preparation, interpretation and
communication of information used by management
to plan, evaluate and control within an entity and to
assure appropriate use of and accountability for its
resources …”
(Chartered Institute of Management Accountants)

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The Managerial Processes

• Management require information to help them in
implementing the following:

Establishing the objectives and

Planning formulating strategies that can
be used to achieve those
objectives.

Considering information that has

Decision making been provided and making an
informed decision

Information is used to take

control measures and to re-
Control assess and amend their original
budgets or plans.

Planning
• Planning forces management to think ahead
systematically in both the short term and the
long term.
• Establishing the objectives
• Formulating relevant strategies that can be
used to achieve those objectives.
• Mission of an organisation must be established
before planning can take place.

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Planning
• Key elements of a mission statement:
Purpose Why does the business exist?
Strategy What does the business provide
and how is it provided?
Policies & culture How does the business expect its
staff to act/behave?
Value What are the core principles of
the business?

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VISION
A Global University Impacting Society

MISSION
To nurture socially responsible talents deeply
rooted in MIB values, and committed to building
a global and entrepreneurial society in pursuit
of innovation, industry-relevant capabilities,
towards the fulfillment of Brunei Vision 2035.

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STRATEGIC OBJECTIVES
1. Quality education
2. Independent learners
3. Translational research
4. Quadraple Helix engagement

Values (π3ES)
Pious, Professional, Passionate, Innovative,
Engaging, Scholarly

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Planning
• Aims and objectives generated based on the
mission statement should be SMART.
Specific Well defined and understandable objectives.
Measurable Completion of objectives measurable.
Attainable Resources and skills available for objectives to
be achieved.
Relevant Objectives are relevant for those involved and
to the mission of the business.
Timely Timing of the completion of objectives is
achievable and reviews are performed
regularly.

Planning
• The objectives of an organization may be:

Profit making Non-profit

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Answer
Profit making firm
• Maximise
profits/shareholder wealth
• Minimise costs
• Maximise revenue
Non profit making firm
• Provide goods/services
• Minimise costs
• Satisfaction of donor

• Increase market share • Providing best quality

• Use resources efficiently • Use resources efficiently

Decision Making

• Involves a choice between alternatives.

• Considering information that has been
provided and making an informed decision
• Managers at all levels make decisions.

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Control
• Managers use the information relating to actual
results to take control measures and to re-
assess and amend their original budgets or
plans.
• Actual performance is compared with detailed
operational plans (e.g check whether the
company is over or under spending on
materials).
• Any deviation from the plans are identified and
corrective action is taken.

Nature of Good Information

• The successful management of any organisation
depends on information.
• Distinguish between data and information.
– Data: raw material for processing.
• On its own is meaningless
– Information: processed data

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Impact of Changes on Managerial

Accounting
• Accounting needs of organizations become more
complex.
– Examples of information need of management:
• setting prices; location; products
• deciding on whether to purchase or lease;
• deciding how many units to produce
• Challenges in providing relevant and useful
information.

Nature of Good Information

• Qualities of good information
– Accurate: Information should be accurate because
using incorrect information could have serious and
damaging consequences.
– Complete: A user should have all the information he
needs but it should not be excessive.
– Cost-effective: The benefits obtainable from the
information must exceed the costs of acquiring it.

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Nature of Good Information

• Qualities of good information
– Understandable: Information must be clear to the
user. Use of technical language or jargon must be
limited. Otherwise, the user does not understand and
cannot use the information properly.
– Relevant: Information must be relevant to the
purpose for which a user wants to use it.
– Accessible: Information should be accessible via
the appropriate channels of communication and to the
right people.

Nature of Good Information

• Qualities of good information

– Timely: Information should be provided to a
manager in time for decisions to be made based on
that information.

– Easy to use: Information should be easy to use for

the purposes intended.

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Nature of Good Information

• Most organisations need:

– Financial information
– Non-financial information (more
important)
– A combination of both

Nature of Good Information

• What information may the managers of a

business need?
Source Information needed
Competitors
Customers
Suppliers
Government
Employees

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Management vs Financial Accounting

Management Accounting Financial Accounting
1. Users and decision- Internal use External use
makers
2. Purpose of information To aid in planning, To record the financial
decision making and performance and
control position of the business
3. Legal requirements None Limited companies must
produce financial
accounts
4. Formats Management decide the According to company
best way to present law, accounting
information standards
5. Nature of information Most financial and non- Mostly financial
financial
6. Time period Historical and forward- Mainly historical
looking

Limitations of Management
Information
• Failure to meet requirements of useful
information may lead to inappropriate
management decisions.
• Not all information produced by accounting
systems is relevant to the decisions made by
management.
• External information can affect an organization
such as government actions, competitor actions,
customer satisfaction, weather.

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Limitations of Management
Information
• Managers will not always be guided by the
financial information.
– Non-financial information such as qualitative,
behavioural, motivational , environmental factors are
as important in relation to a decision as financial
information.
– The non-financial information are often more difficult
to estimate and quantify.

END

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