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1
Management accounting: information for creating value and
managing resources
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Langfield-SmithOutlineAustralian organisations in the 21st
centuryWhat is management accounting?Management accounting vs
financial accounting informationManagement accountants within
organisationsManagement accounting and strategyPlanning and
controlImportant considerations in the design of management
accounting systemsManagement accounting responses to the changing
business environment
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithAustralian
organisations in the 21st centuryOrganisations have faced
increasing global competition since the early 1990s Corporatisation
and privatisation of public sector bodies competing with private
sectorRise of e-commerce, rapid changes in technology, reliance on
strategic alliances, business networks, global mobility of
labourRise of the service-based economyIncreasing customer
demandsClimate change issues
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-Smith
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
to accompany Management Accounting: Information for managing and
creating value 6e Slides prepared by Kim Langfield-SmithWhat 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
value1-*(cont.)
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
to accompany Management Accounting: Information for managing and
creating value 6e Slides prepared by Kim Langfield-SmithWhat is
management accounting? (cont.)Customer valueThe value that a
customer places on particular features of a product or
serviceShareholder valueThe value that shareholders or owners place
on a businessResourcesFinancial and non-financial, including
information, work processes, employees, committed customers and
suppliersDetermine the capabilities and competencies of the
organisation
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
to accompany Management Accounting: Information for managing and
creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting systemsSystems that produce the information required by
managers to create value and manage resourcesInformation provided
on a regular basis includesEstimates of the costs of producing
goods and servicesInformation for planning and controlling
operationsInformation for measuring performanceAd-hoc information
may also be supplied to satisfy managers short-term and long-term
decision-making needs1-*
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
to accompany Management Accounting: Information for managing and
creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting informationFocus is on the needs of managers within the
organisationFlexibility in the types of information
providedInfluenced byManagers information needs, nature of the
resources they manageDifferences in production and service
technologies, organisational structure, organisational size, the
external environment, level of sophistication of computer
systemsUsed by senior managers through to operational managers
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting and financial accounting informationFinancial
accountingThe practice of preparing and reporting accounting
information for parties outside the organisationCosting systems are
common to both financial and management accountingA system that
estimates the cost of goods and services as well as the cost of
organisational units, such as departments1-*
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting vs financial accounting1-*
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accountants within organisationsMost large organisations have a
finance function at the corporate levelSenior accountantsFinancial
controller, chief accountant, finance manager, general manager (GM)
of accounting, group accountantAccounting staff may be found in
operating divisions as well as corporate levelFinancial accounting
function may be distinct from management accounting
functionManagers from other functional areas may also undertake
management accounting activities1-*
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting processes and techniquesSupport the organisations
formulation and implementation of strategyContribute to improving
the organisations competitive advantage through process improvement
and cost management techniquesProvide information to help manage
resources through systems of planning and control Provide estimates
of the costs of an organisations outputs, to support the strategic
and operational decision needs of managers
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accountingand strategyManagement account ants contribute to an
organisations formulation and implementation of strategyVisionThe
desired future state or aspiration of an organisationUsed by senior
managers to focus the attention and energies of staffMission
statementDefines the purpose and boundaries of the organisation
1-*(cont.)
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting and strategy (cont.)Objectives (or goals)Specific
statements of what the organisation aims to achieveOften
quantifiedRelates to a specific period of timeStrategiesThe
direction that the organisation intends to take over the long term
to meet its mission and achieve its objectivesFocus on ways to
manage the organisations resources to create value for customers
and shareholders1-*(cont.)
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accountingand strategy (cont.)Major decisions in formulating
strategiesIn 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 to operate in, which businesses to acquire and
divest and how best to structure and finance the organisationIn
publicly listed companies, the choice of corporate strategy is
influenced by the expectations of major shareholders and securities
market1-*(cont.)
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accountingand strategy (cont.)1-*(cont.)
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-Smith
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accountingand strategy (cont.)Business (or competitive) strategyThe
way a business competes within its chosen marketDistinct business
strategies for each business unitStrategy implementationPlanning
and managing the implementation of strategyNew structures, new
systems, new production processes, new marketing approaches, new
human resource management policies
1-*(cont.)
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accountingand strategy (cont.)Competitive advantageAdvantages that
a business may have over another that are difficult to imitate,
achieved throughCost leadershipEconomies of production, superior
process technologies, tight cost controlProduct
differentiationSuperior quality, customer service, delivery
performance, product features
1-*(cont.)
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting and strategy (cont.)Strategic planningLong-term
planning, usually undertaken by senior managers with a three to
five-year timeframeInvolves corporate strategy decisionsDraws on
management accounting informationImplementing strategiesManagers at
all levels share the responsibility for implementationLong-term
plans need to be linked to budgeting systemsPerformance measurement
systems compare actual outcomes to budgets and other targets1-*
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithPlanningA
broad concept that is concerned with formulating the direction for
future operationsAllows an organisation to consider and specify all
resources needed in the futureOccurs at all levels of the
organisationA budget is an example of a short-term plan that
summarises the consequences of an organisations operating
activities for a specific future time period1-*
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Langfield-SmithControllingInvolves putting mechanisms in place to
ensure that operations proceed according to plan and that
objectives are achievedManagement accounting information provides
information for control by comparing actual performance with plans,
targets or budgetsControl systems are the systems and procedures
that provide regular information to assist in control1-*
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1-*Planning and controlling
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithCosting
goods and servicesEstimates of the cost of producing goods and
services are needed to support a range of operational and strategic
decisionsRoutine costing systems are a part of the financial
accounting system, so product costs are prepared to meet external
reporting purposesDifferent product costs may also be produced
outside of the financial accounting system, to better meet managers
decision-making needs These costs may not comply with GAAP or
accounting standards
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithSome
important considerations in the design of management accounting
systemsBehavioural issuesInformation may impact on individuals
behaviour, so management accounting systems may have expected and
unexpected outcomesA key purpose of management accounting systems
is to motivate managers and employees to direct their efforts
towards achieving the organisations goalsBudgeting systems,
performance measurement and reward systems may be used as
motivational tools1-*(cont.)
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
to accompany Management Accounting: Information for managing and
creating value 6e Slides prepared by Kim Langfield-SmithSome
important considerations in the design of management accounting
systems (cont.)There are costs and benefits of generating and
providing management accounting informationCosts includeSalary of
accounting personnel Purchasing and operating computersGathering,
storing and processing data Managers time to read, understand and
use the information1-*(cont.)
Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
to accompany Management Accounting: Information for managing and
creating value 6e Slides prepared by Kim Langfield-SmithSome
important considerations in the design of management accounting
systems (cont.)Benefits includeImproved management decisionsMore
effective planningImproved operational efficiency at lower
costBetter controlImproved customer and shareholder value1-*
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Copyright 2012 McGraw-Hill Australia Pty Ltd PowerPoint slides
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting design: contingency and institutional
theoriesContingency theory The design of a management accounting
system is influenced by specific aspects of the organisations
contextExternal environment, technology, organisational structure,
size, national and organisational culture, and
strategyInstitutional theoryThe design is influenced by
institutional forces, which explain similaritiesThe need to achieve
legitimacy within and beyond their organisationThe tendency for
firms to imitate good practice of other firms
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accounting responses to the changing business environmentBy the
1990s, many organisations realised that they needed to improve
their product and service quality, delivery responsiveness and cost
performance in order to improve market share and profitsAdoption of
new management structures, systems and practices, including new
management accounting techniques and systems1-*(cont.)
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creating value 6e Slides prepared by Kim Langfield-SmithManagement
accounting responses to the changing business environment
(cont.)Conventional management accounting systemsInclude budgeting,
costing systems and financial performance measurement systemsStill
widely used in many organisationsContemporary management accounting
systemssupport the adoption of new structures, systems and
practicesIncludes activity-based costing, performance measurement
systems (e.g. balanced scorecards), cost management systems (e.g.
business process re-engineering), new approaches to customer
profitability analysis and supplier cost analysis
1-*(cont.)
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Langfield-Smith1-*(cont.)
Management accounting responses to the changing business
environment (cont.)
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Langfield-Smith1-*Management accounting responses to the changing
business environment (cont.)
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Langfield-SmithSummaryManagement accounting supports managers in
enhancing customer value and shareholder valueSystems to support
formulation and implementation of strategyProcess improvements and
cost management techniquesInformation for planning and
controlProduct costs for strategic and operational
decisionsContemporary management accounting techniques have
developed to support new organisational structures, systems and
practices, as a response to a rapidly changing business
environment1-*
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Langfield-SmithProfessional accounting organisations and ethicsIn
Australia, management accountants may joinCPA AustraliaInstitute of
Chartered Accountants in AustraliaInstitute of Public Accountants
(formerly NIA)Chartered Institute of Management Accountants
(CIMA)Code of Ethics for Professional AccountantsFundamental
principles of the codeIntegrity ObjectivityProfessional competence
and due careConfidentialityProfessional behaviour1-*
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