Notesale: Turn your study into money

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HULT International Business School
Managerial Accounting (ACC220)
Outline of the Required Book

Chapter 1 - Introduction to management accounting
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In order to succeed, businesses must focus on satisfying the needs of the
customer
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➔ the business mantra for the new area “customer is king”
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How are businesses organized ?
➔ limited companies, finance will come from the owners (SHH): direct cash investments or shares, but
also from lenders (banks), as well as though suppliers providing goods and services on credit
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➔ Each division is managed separately and will usually enjoy a degree of autonomy
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➔ Within each division however, departments are often created and organized along functional lines
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Successful business
constantly strive to improve their operational efficiency and revise their divisional structure
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How are business managed ?
➔ Changing business environment makes the role of managers more complex and demanding
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➔ Strategic management: tool developed in response to the managers needs
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Setting LT goals and ensuring that they are implemented effectively
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5 steps:
- Establish mission vision and objectives
- Mission statement:​ what business are we in ?
- Visions statement: ​what do we want to achieve ? (the business aspirations)
- Objectives must be developed in order to translate these into specific
commitments: clear targets, outcomes both challenging and achievable
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Ie
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This will be carried out in the contest of the
mission, vision, & objectives
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Select strategic options and formulate plans
- select what appears to be the best of the courses of strategies availables
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Perform, Review and Control
- Steps must be taken to exercise control where actual performance fails to match
earlier planned performance
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The changing business landscape
➔ Impact on the kind of business structures and processes adopted
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consultancy)
- the emergence of new industries
- the growth of e-commerce
- automated manufacturing
- lean manufacturing ​→ this involves a systematic attempt to identify and eliminate waste,
surplus production, delays, defects and so on in the production process
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The financial objective of a business
➔ enhance the wealth of its owners
➔ there are other objectives that may be pursued that related to the needs of other associated with
the business (ie
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- competition for the funds provided by the owners
- competitions for managers’ jobs → the owners have the power to replace the existing
management team with a new one
➔ satisfying the needs of other groups is usually consistent with increasing the wealth of the owners
over the long term
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be careful of the risks taken that improve the current year profit at the expense of future
profit
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Balancing risk and return
➔ The relationship between risk and return has important implications for setting financial objectives
of a business
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➔ the balance is not always met (ie
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What is management accounting ?
➔ Management accounting​: collecting and analysing financial and other information and then
communicating this information to those making decisions
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➔ the accountant must be aware of:
- whom the information is prepared for (​user groups​)
- what purpose it will be used for
➔ User groups: owners, customers, competitors, employees and their representatives, government,
community representatives, investment analysts suppliers, lenders, managers
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➔ the cost of producing this information i justified on the grounds that managers believe its useful
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providing a service
➔ MA is a form of service that relies on the use of estimates (meaning it contains a certain degree of
uncertainty)
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➔ Relevance: ​MA information should make a difference, meaning it should be capable of influencing
managers decisions
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➔ faithful representation: ​MA information should represent what it is supposed to represent
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- complete
- neutral​ (without bias)
- free from error
➔ Further qualities to enhance the usefulness of MA information:
- comparability​ → comparable business performance overtime and with other businesses
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verifiability → MA information should be provided faithfully and represent what it is
supposed to represent
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Phases of MA
➔ Phase 1​ ​- 1950s, Inward looking management attention
- competition was weak
- the main focus of management attention was on the internal process of the business
➔ Phase 2 ​- 50-60s, inward focus + ST planning control purposes
- management information remained inwardly focused
- short term plan and control purposes
➔ Phase 3​ - 70-80s, competition (robotics+tech) → waste reduction & cost control
- world experienced a considerable upheaval as a result of oil price and economic recession
- increased competition,, fostered by new techniques in robotics & computer-aided design
- greater concerns for controlling costs, waste reduction, various techniques developed to
reduce or eliminate waste
➔ Phase 4 - 90-00s, @www → shareholder value & customer need ​→ secure and maintain
competitive advantage
- a concern for a more effective use of resources, with particular emphasis on creating value
for shareholders by understanding customers need
- MA became more outwardly focused
- businesses with success maintain competitive advantage over their rivals thanks to a
greater understanding of the customers needs
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They use this information for:
- development objectives and plans
- various strategies available
- financial plans generation
- likely outcomes rewarded
- performance evaluation and control​ (business against agreed criteria)
- allocating resources
- efficiency and effectiveness
- optimum level of output; appropriate location of production facilities; optimum mix
of products
- appropriate type of investment
- eliminating costs and benefits

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Influencing managers behavior
➔ The various measures are intended to have a positive effect on managers decisions
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They should take into account all key aspects of performance, even though some of
them may be difficult to quantify
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From beam counter to team member
➔ MA are now taking a more proactive role within the business
➔ The enhance role of MA xhold add value to the business and improve its competitive position
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Management accounting and financial accounting
Management Accounting

Financial Accounting

Nature of the reports produced

specific purpose

general purpose

Level of detail

detailed

broad review of the performance

Regulations

no specific ones

accounting rule makers

Reporting interval

every time needed

yearly, 6M, 4M

Time orientation

future performance
past performance

backward looking ***

Range and quality of information

non financial nature as well

financial only

***event preparation of financial accounting reports for the past period typically requires making some
judgements about the future for example the residual value of a depreciating asset

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