Accounting in Organisations and Society

Accounting in Organisations and Society

Topic 5: Accounting for Management

 Accounting in Organisations and Society

Topic objectives
At the completion of this topic you should be able to:
1. Understand the broad roles of management and the activities these
may include
2. Explain the difference between a strategic plan and an operational plan
3. Identify the factors that need to be considered in the planning process
4. Expand your understanding of ‘value creation’
5. Describe Porter’s Value Chain and its relationship with ‘value creation’
6. Discuss the role accountants play in value creation
Accounting in Organisations and Society

Remember - Different stakeholders have

different information requirements
Recall from Topic 1
• In the accounting world, we tend to differentiate between
Internal and External Stakeholders
• In part we do this because information requirements are
different
• Traditionally these difference are recognised by
differentiating between
• Accounting for internal stakeholders – Management
Accounting
• Accounting for external Stakeholders – Financial Accounting
 Accounting in Organisations and Society

Different stakeholders
Accounting in Organisations and Society
have different
information requirements
Information about the following might be relevant to both internal and
external stakeholders:
• The organisation’s actual and projected performance.
• The organisation’s control of resources
• The organisation’s resource usage
• Organisational impacts on society and the environment
• Compliance with organisational goals, regulations and/ or
particular stakeholder expectations
• Implications of future plans, on various stakeholders
including ‘the environment’
 Accounting in Organisations and Society

Different stakeholders have different

information requirements
BUT Recall from Topic 1
What differs between external and internal stakeholders is the way
in which this information is-
o Used (its purpose)
o Presented
o Communicated
o Controlled (regulated)
Accounting in Organisations and Society

Focus of remaining topics

• Topics 6 and 7: Accounting to support internal management
decision making – Management Accounting

• Topics 8 to 11: Accounting information for External

Shareholders – Financial Accounting
Accounting in Organisations and Society

Section 1: What do managers

do?
 Accounting in Organisations and Society

So, what does management do?

Accounting in Organisations and Society

• To understand the type of information that will support managers

(generally speaking, management), we first need to understand the
role and responsibilities of the manager;

• Five Broad roles

1) Develops Plans
2) Organises
3) Makes decisions
4) Monitors performance
5) Revises plans in light of performance: (and the cycle
continues.)
Accounting in Organisations and Society

Planning - What types of plans might

businesses develop?

o Financial Plans
o Marketing Plans
o Operational plans – day-to-day short term plans
o Strategic plans – long-term plans
o Social and environmental management plans
 Accounting in Organisations and Society

Planning: Key factors to consider

• ‘Planning’ is the essential starting point to successfully
managing a business

o If planning is inadequate, performance outcomes are likely to

be inadequate

• Planning should be a continuous process which should start

well before an organisation commences operations

• The ‘plan’ provides a benchmark against which future

performance can be assessed
 Accounting in Organisations and Society

Planning: Key factors to consider

To ensure plans reflect the outcomes businesses value, various
factors should be considered:
• The organisation’s strategy
• Available resources and locations of resources
• Various stakeholders’ expectations
• Current and future technologies available
• The Economic, Social and Environmental
implications of various plans
• Existing and projected regulations relating to your
business
 Accounting in Organisations and Society

Planning: non-financial and long-term

considerations
If a business is to be successful– i.e. achieve its long term,
strategic goals - managers and accountants must
• Extend the focus of planning beyond the ‘financial’
• Plans should focus on non-financial factors such as -
• Service or product quality
• Employee and customer satisfaction
• Innovation
• Think about what the business wants to achieve in both the short
AND long term
Focus should be on Value Creation
 Accounting in Organisations and Society

Organising, decision-making and

monitoring, revising
No matter how well plans are prepared, management must
also undertake the following, for those plans to be
successful:
o Organising – identifying the most appropriate business processes and
activities required to undertake plans
o Decision-making – making decisions about how to undertake the
processes and activities required
o Monitoring performance – Identifying whether plans and goals are
being met and if not, why not.
o Revising – Using the information (feedback) from monitoring to alter
plans, activities processes or decisions
Accounting in Organisations and Society

Section 2: The benefits of high-

quality internal management

Value Creation
 Accounting in Organisations and Society

The benefits of high-quality management

Quality planning

Efficient and effective use of resources

Successful performance outcomes

Strategy achievement

Satisfying stakeholder expectations

These benefits all represent VALUE CREATION

for stakeholders
 Accounting in Organisations and Society

Stakeholder value creation – the focus

of successful business
Value creation for ALL stakeholders is becoming the primary
focus of successful business entities. For example:
• Focusing on creating value for customers helps sell products and
services
• Focusing on creating value for shareholders, in the form of increases in
stock price, insures the future availability of investment capital to fund
operations
• Focusing on creating value for employees helps business attract and
keep the best employees
• Focusing on creating value for society, community and the environment
ensures their preservation and maintains business reputation
 Accounting in Organisations and Society

How business’s create value –Porter’s

value chain
Click here to watch a video discussing Porter’s value chain
Accounting in Organisations and Society

Section 3: The management

accountant's role in supporting
management roles
Accounting in Organisations and Society

The management accountant's role in

supporting management
Management cannot fulfil its roles or support their
organisation as value creators without INFORMATION
• The role of the management accountant is to provide this
information
• Remember from Topic 1, this information needs to be:
o Relevant and timely to support the roles managers perform
o Detailed and specific to the tasks managers undertake
o Primarily current and future oriented
 Accounting in Organisations and Society

The management accountant's role in

supporting management
Management accountants provide information to assist
management to successfully plan, organise, make decisions,
monitor and revise
Some examples of management accounting information and
reports include:
o Planning – different cost and revenue estimates, budgets,
o Organising – production schedules
o Decision-making – product costs, weekly sales volumes
o Monitoring – performance measures, customer surveys
o Revising – all of the above
Accounting in Organisations and Society

Section 3: An example of management

accounting information supporting
management roles
 Accounting in Organisations and Society

An example of useful management

accounting information
You are the manager of a business that undertakes
customised printing for wedding invitations, brochures etc.
• You have just accepted a large job for the printing of 4,000 brochures
per month for the next 6 months
• The customer has asked if you could use environmentally friendly
recycled paper and vegetable based inks, which you don’t usually carry
• You are going to trial a number of paper and ink suppliers with the
intention of changing to more environmentally friendly inputs in your
printing process
• You will also have to complete a number of additional jobs also during
this 6 month period
 Accounting in Organisations and Society

Some tasks you might undertake and management

accounting information you would find useful
Planning Tasks
Schedule printing of
brochures to:
• Ensure ALL printing jobs
are able to be
completed on time
• Costs are minimised
• Quality is maintained
• Labour overtime is
minimised
Prepare a cost budget
(plan) which estimates the
costs of inputs that are
expected to be incurred for
this job
Possible Management Accounting Information
• Expected printing time required for brochures
• List of other printing jobs that need to be completed during
this time
o Estimated time to complete each of these jobs
o Expected inputs required for each job
o Employees allocated to each job
• Expected quantity of paper & ink required for each brochure
• Expected cost of paper and ink
• Expected labour time required
• Expected cost of labour
 Accounting in Organisations and Society

Some tasks you might undertake and management

accounting information you would find useful

Organising Tasks Possible Management Accounting Information

Ensuring paper and ink is • Delivery times for paper and ink suppliers
available as needed

Decision-Making Possible Management Accounting Information

Choosing the suppliers • List of different suppliers of environmentally friendly paper
from whom the new and ink and the costs they will charge
paper and ink will be • Information on the reliability of each supplier, the quality of
purchased their products etc.
 Accounting in Organisations and Society

Some tasks you might undertake and management

accounting information you would find useful

Monitoring Tasks Possible Management Accounting

Information
Ensuring the new paper Amount of wastage of:
and ink is of suitable • Paper
quality: • Ink
• Minimal wastage o this would be measured every time a batch of
• Acceptable quality of brochures was printed, to ensure any problems were
paper and ink identified as early as possible.

Number of brochures discarded due to poor quality inputs

(paper and ink)
• measured for every batch of brochures were printed
 Accounting in Organisations and Society

Some tasks you might undertake and management

accounting information you would find useful

Monitoring Tasks Possible Management Accounting Information

Ensuring the cost budget • Report of actual quantity and costs of inputs incurred
has been achieved o Actual quantity of paper and ink used
o Actual cost of paper and ink
o Actual labour time required
o Actual cost of labour
• Comparison of budget costs with actual costs to see if the
budget was achieved – differences are called cost variances
• Identifying reasons WHY there were variances between
budgeted and actual costs
 Accounting in Organisations and Society

Some tasks you might undertake and management

accounting information you would find useful

Look back at the suggested management information. You

will see that it is primarily
o Relevant and timely to support the particular tasks to
undertake
o Detailed and specific to the particular tasks to undertake
o Primarily current and future oriented
Accounting in Organisations and Society

Section 3: The management

accountant's role in supporting
management – accountability, value
creation and externalities
Accounting in Organisations and Society

The management accountant's role in

supporting management
As outlined in Topic 2, management accountants should
recognise their role is not only to provide information to support
management to create value for ALL stakeholders.
Management accountants should also support management by
providing information relating to:
o Organisational accountability – i.e. corporate social
responsibility
o Identification, reporting and measurement of externalities
 Accounting in Organisations and Society
The accountant’s role in managerial activities
Manager’s Role
Planning
What does the organisation want to
do/achieve?
Organising
Revises and
How does the organisation
achieve its goals and plans?
adjusts
Decision Making Determining
the best course of action from
Monitoring Performance
How is the organisation doing
relative to what it wanted to
achieve?
Accountant’s Role
(IFAC, 2011)
Framing business models.
Challenging conventional
assumptions of doing business
and redefining success in the
context of achieving sustainable
value creation.
Encouraging and rewarding the
right behaviours.
Ensuring that decisions are
supported by the necessary
information, analysis, and insights
Ensuring that monitoring and
reporting performance go beyond
the traditional ways of thinking
about economic success.
What the Accountant
does?
Sets objectives. Encourages
long-term sustainability (vs.
short-term approach).
Promotes a value added
approach.
Allocates resources to add value
and achieve goals.
Structures incentives to align
behaviour with organisational
goals
Provides cost information for
decision-making
Prepares forecasts
Undertakes analysis (e.g.
cost/benefit, scenario)
Sets targets/KPI’s
Budgeting and analysis
Benchmarking
Measurement Reporting
 Accounting in Organisations and Society

Accountability, Value creation and Externalities

– creates tensions for management
One final issue
• Ensuring organisational accountability, creating value for all
stakeholders and managing externalities may not be financially
cost-free for organisations in the short-term
o A business may need to spend on protecting the environment or
communities from any negative impacts from their activities
o This reduces profits in the short-term

• As a result, this may create tensions for management as they may

have to choose between
- Protecting the environment, society, workers and;
- Making profits
 Accounting in Organisations and Society

Accountability, Value creation and Externalities

– creates tensions for management
Some examples of these tensions
o Spending on disposing of waste in an environmentally
friendly manner;
o Spending to protecting natural resources (e.g. water
supplies) in communities where organisations have factories.

Why would businesses choose to use their resources to

protect the environment and society?
o See Topic 3 for the benefits of fulfilling Corporate Social
Responsibility