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RECENT DEVELOPMENTS IN

MANAGEMENT ACCOUNTING
(TOPIC 1: PART 1)
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
BKAM 3033 Topic 1
practice

Management Accounting
Scope
Manage
resources
efficiently
Decision making

Provision of
information

Control
Planning
Direction setting
Change
Commitment
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MANAGEMENT ACCOUNTING SCOPE


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.
It is the process of accounting, which generates
accounting information from both financial
accounting and cost accounting and provides
essential accounting information to all departments
concerned
Management accounting is the process of
identifying, measuring, analyzing, interpreting and
communicating
accounting
information
to
department concerns to meet organizational
goals and objectives
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Providing information for decision making and planning


in revenue and cost projection of organization
Helps 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 goals
Measures 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
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Basis

Management accounting

Cost Accounting

Objectives

Its 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.

Scope

It has broad scope, and includes


financial and cost accounting.

Its scope is limited in cost determination


and record.

Sources of
data

It uses both quantitative and


qualitative data

It uses the quantitative data only.

Accounting
principles

No specific principles like


accounting and cost accounting.

Certain principles and procedures are


followed in cost determination and
allocation.

Nature

It uses past and present data in the


projection of future.

It uses both past and present data and


figure.

BKAM 3033 Topic 1

Basis

Management accounting

Financial Accounting

Objectives

Assist managers at all levels i.e. Make periodical report Outsiders like
internal users by providing necessary shareholders, government, customers,
accounting information.
suppliers, managers

Sources of data It uses data, which are subjective, It uses data, which are historical, quantitative
descriptive and related with future.
, and related with past.
Accounting
principles

No such principles for preparation and Governed by GAAPs. Therefore, all


presentation of reports. Therefore, organizations prepare the financial reports in
reports differ from one organization to the same manner.
another.

Reporting

Reports are prepared in certain time Financial reports are generally prepared at
interval according to need of the end of the fiscal year to report
management.
stakeholders.

Legal
compulsion

It is voluntary. It is applied to increase It is compulsory


management efficiency for attaining organization.
organizational objectives.

Performance
measurements

It

in

every

business

measures the efficiency and It measures the overall efficiency and


performance
performance of organization.
of various departments and divisions.
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Stage
Ongoing
Transformation

4
3

Transformation
Transformation

2
1

Transformation
Source: IFAC, 1998
Stage 1

Stage 2

Stage 3

Stage 4

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Focus
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Management Accounting
Change
Stage 1
(Before 1950)

Stage
2
(19651985)

Cost determination
Financial control
Management planning
and
control
Reduction of waste

Stage
3
(1985
Value creation
Stage
4
1995)
(1995
onwards)

Change in the
Profession
Scorekeepers

Bean counters

Internal consultant
-business partner
-business analyst
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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)

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The Prior
Business
Environment
Financial

reporting

The
Contemporary
Business
Environment

and cost
Common emphasis
on standardisation &
Std cost
The accountants as
functional expert and
financial scorekeeper

View of cost acctg as


a tool for the
development and
implementation of
business strategy
The accountant as a
business partner

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Blocher, Chen, Lin

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Computer-Integrated
Manufacturing

Service Vs. Manufacturing


Firms
Emergence of New
Industries

Change
Global Competition
Focus on the Customer
Cross-Functional Teams
Continuous Improvement

Information and
Communication
Technology
Product Life Cycles
Total Quality
Management
Time-Based Competition
Just-in-Time Inventory

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Todays management accountants need the


following skills:
Solid knowledge of both financial and
management accounting
Analytical skills
Knowledge of how a business functions
Ability to work on a team
Oral and written communication skills

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WHAT FACTORS DRIVE CHANGE OF MA


External
Customer oriented
(competition)
Technology
Globalization
Customer-oriented (competition)

Internal

Organizational
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Focus on customer satisfaction

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Core competencies and work characteristics


of the organisation
Modern production technologies changes in
product costing practices
IT capital budgeting
E-commerce new ways of operating

Design of MA systems

Style of management
Existence of TQM programmes

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Merger and acquisition


Organizational restructuring
Corporate failures enhanced corporate
governance

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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.

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Drivers of convergence include:


Global competition
Information technology (e.g. ERP systems)
Standardization by transnational companies
Global consultancy

Use of global textbooks

At the micro level accounting information


may be used in different ways due to
influence of different national and local
cultures.
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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.
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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.

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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.

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