1 1 Accounting The Business Process Dr Clive Vlieland-Boddy

2 Where does value come from Business objective Profit Market share Shareholder value Social value

3 StrategyEvaluation Feedback Forecasting The Functions of Management

4 Costing & How Management use it Effectively

5 5 Purpose of Information Financial Accounting Help investors, creditors, and others make investment, credit, and other decisions Historical Data Management Accounting Help managers plan and control business operations Present & Future Data

6 Financial Accounting Much of the information is financial. Preparation of Historical Financial Statements Maintain ledger systems of accounting records Financial accounts are a source of management information but are insufficient for the management Controlled by Accounting Standards. GAAP and IFRS.

7 7 Management Accounting Decision making accounting to enable the right course of action to be taken. Performance measurement and control. The implementation of financial strategy decisions, setting targets for achievement and monitoring results. This deals with the matching of costs and incomes and a detail of recognising the cost build up of inventories through to sales.

8 Insufficiency of Financial Accounting Information: Profit statement does not answer questions such as: Which product sells best? How much profit do we earn from each product? Do we make a loss with any of our products? Are costs higher than expected and if so in which area? ………and many more

9 Strategy The Past Annual Report The Present Environmental Scanning of current product/service mix Budgets Forecasts The Future

10 Strategy Companies require a strategic plan From this can be projected the future of the company. We need to set financial objectives which harmonise this strategy. Management accounting is about setting these goals and putting in place benchmarks.

11 Strategy Management create strategy. It is their job to identify the mid to long term objectives. From these the company has to develop a structure to achieve those goals. Some will be financial some not

12 Functions of Management

13 Strategic Cost Management Developing strategy Building resources and capabilities Implementing strategy

14 The Concept of Strategic Management  Ongoing process, evaluates and controls the business and the industries in which the company is involved.  Assesses its competitors and sets goals and strategies to meet all existing and potential competitors.  Reassesses each strategy regularly.

15 Mission & Objectives  Describes the company's business vision: unchanging values and purpose of the firm, forward-looking visionary goals that guide the pursuit of future opportunities.  Define measurable financial and strategic objectives: Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

16 6 Supporting Factors 1.Action Planning 2.Organization Structure 3.Human Resources 4.The Annual Business Plan 5.Monitoring and Control 6.Linkage.

17 Why Does Management Need Information To make plans Monitor performance Make decisions Ensure the company is working together to achieve its goals and objectives

18 Planning and Controlling What is planning? Setting goals Predicting results Deciding how to attain goals

19 Planning and Controlling What is control? Deciding and taking actions Deciding on performance evaluation and feedback

20 Planning and Controlling What are budgets? They are quantitative expressions of a proposed plan of action. They aid in the coordination and implementation of the plan.

21 Continuous Improvement and Benchmarking Continuous improvement by competitors creates a never-ending search for higher levels of performance within organizations. Continuous improvement by competitors creates a never-ending search for higher levels of performance within organizations.

22 Coffee Break

23 Tools for management Budgets Forecasts Costing Structures & Variance Analysis Value Chain Balanced Score Card

24 What is Strategic Planning? A process of: Deciding on objectives of the organisation On changes in these objectives On resources used to attain these objectives Policies that govern the acquisition, use and disposition of these resources

25 Examples: Strategic Planning Selection of products Markets to sell the product in Required level of company profitability Purchase and disposal of companies Purchase and disposal of major fixed assets Total manning needs Raising new funds

26 Qualities of Good Information Understandable Relevant and purposeful Timely Accurate Complete but not excessive Communicated to the right person Value of information > Cost of producing it Communicated by appropriate channel

27 Value of Information Value of information helps in: Reducing unnecessary costs Adopting better marketing strategies Better analysis of cost drivers Optimising techniques

28 Management Vs Financial Accounting

29 Management Accounting This involves participation of management to ensure proper: Strategic planning Budgeting / Profit planning Financial management Financial control Audit

30 Management Accounting Application of principles of accounting and financial management to create, protect, increase value so as to deliver that value to the stakeholder

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32 What is Cost Accounting A system of recording data and producing information about costs, for the products produced by the organisation and or the services it provides. It is also used to establish costs for particular activities or responsibility centres.

33 Responsibility Accounting A system of providing financial information to management. The structure of the reporting system is based on identifying individual parts of a business which are the responsibility of a single manager

34 Hierarchy of Responsibility Centres Investment Centres Profit Centres Cost Centres Revenue Centres

35 Functional organizational structure IC= Investment Centre CC = Cost Centre RC = Revenue Centre

36 Impact of Responsibility Accounting On Management Information A responsibility centre affects the nature of management reporting. Managers need enough information to control their responsibility centres.

37 Exception Reporting Most reporting systems should only highlight areas where activity is not in line with expectations. In other words where there is either a positive or negative variance. If activity is in line with expectations then management need not to be troubled.

38 Harvard Referencing System You have to write a research report as assignment 7. This is 2,500 words, +/- 10%. It is recommended that you reference this in accordance with the Harvard Referencing system. This can be seen on my website.

39 Bye for now! I’m ready for some leisure time. Please ensure you Prepare for next session