Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith Chapter 1 Management accounting: information for managing resources and creating value

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 2 Australian organisations in the 21st century  Increasing global competition in the 1990s  Reduction/elimination of input tariffs, quotas and bounties  Deregulation of telecommunications industries  Corporatisation and privatisation of public sector continued

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 3 Australian organisations in the 21st century  Shift from primary production, to resources to service-based economy  Increasing customer demands  Rise of the internet and e-commerce  New organisational structures, strategies and management philosophies

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 4 What is management accounting?  …the processes and techniques that focus on the effective use of organisational resources, to support manager in their tasks of enhancing both customer value and shareholder value

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 5 What is management accounting?  Customer value ÙThe value that a customer places on particular features of a product or service  Shareholder value ÙThe value that shareholders or owners place on a business  Resources ÙFinancial and non-financial, including information, work processes, employees, committed customers and suppliers

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 6 Management accounting systems  An information system that produces the information required by managers to manage resources and create value  Includes regular estimates of the cost of goods and services, information for planning and controlling operations, and information for measuring performance  Ad-hoc information to satisfy managers’ short-term and long-term decision-making needs

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 7 Management accounting information  Focus is on the needs of managers within the organisation  Great flexibility in the nature of information supplied  Influenced by ÙProduction and service technologies, organisational structure, organisational size, level of sophistication of computer systems  Relevant to senior managers through to operational managers

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 8 Management accounting vs. financial accounting  Financial accounting ÙThe practice of preparing and reporting accounting information for parties outside the organisation  Costing systems are common to both financial and management accounting ÙA system that estimates the cost of goods and services as well as the cost of organisational units, such as departments

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 9 Management accounting vs. financial accounting

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 10 Management accounting within organisations  Most large organisations have a ‘finance function’ at the corporate level  Senior accountants ÙFinancial controllers, chief accountants, finance managers, GM of accounting, group accountant  Accounting staff may be found in each operating division  ‘Management accounting’ increasingly involves managers in other areas of the business

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 11 Processes and techniques of management accounting  Systems that support the organisation’s formulation and implementation of strategy  Information to help managers manage their resources, through systems of planning and control

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 12 Processes and techniques of management accounting  Estimates of the costs of an organisation's outputs, to support the strategic and operational decision making needs of managers  Contributes to activities that seek to improve the organisation’s competitive advantage

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 13 Management accounting and strategy  Management accounting can support the organisation's formulation and implementation of strategy  Mission statement ÙDefines the purpose and boundaries of the organisation  Vision ÙThe desired future state or aspiration of an organisation ÙUse by senior managers to focus the attention and energies of staff

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 14 Management accounting and strategy  Objectives ÙSpecific statement of what the organisation aims to achieve, often quantified and relating to a specific period of time  Strategies ÙThe direction that the organisation intends to take over the long term, to meet its mission and achieve its objectives ÙWays to manage the organisation's resources to create value for customers and shareholders

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 15 Management accounting and strategy  Major decisions ÙWhat business will we operate in? ÙHow should we compete in that business? ÙWhat systems and structures should we have in place to support our strategies?  Corporate strategy ÙDecisions about the types of businesses to operate in, which businesses to acquire and divest, and how best to structure and finance the organisation

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 16 Management accounting and strategy  Business (or competitive) strategy ÙThe way a business competes within its chosen market  Strategy implementation ÙPutting plans into place to implement and support business strategies

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 17 Management accounting and strategy  Competitive advantage ÙCost leadership ÙProduct differentiation  Management accounting systems should provide information to support the formulation and implementation of an organisation's strategies

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 18 Planning  A broad concept that is concerned with formulating the direction for future operations  Allows an organisation to consider and specify all resources needed in the future  Occurs at all levels of the organisation  A budget is an example of a short-term plan

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 19 Controlling  Involves putting mechanisms in place to ensure that operations proceed according to plan, and objectives are achieved  Management accounting information provides information for control by comparing actual performance against plans, targets or budgets  Control systems are the systems and procedures that provide regular information to assist in control

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 20 Planning and control

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 21 Costing goods and services  Estimates of the cost of producing goods and services are needed to support a range of operational and strategic decisions  Routine costing systems form part of the financial accounting system  Product costs are produced outside of the financial accounting systems, to better meet managers’ decision making needs

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 22 Contributing to competitive advantage  Management accounting may contribute to activities that seek to improve the organisation's performance in terms of quality, delivery, time flexibility, innovation and cost ÙThrough modern process improvement and cost management techniques ÙPerformance measures that focus on specific business strategies

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 23 Important considerations  Behavioural issues ÙAn awareness of the expected and unexpected outcomes of management accounting systems ÙA key purpose of management accounting systems is to motivate managers and employees to direct their efforts towards achieving the organisation’s goals ÙAn important motivational tool is the use of performance measures that reflect organisational objectives, and reward systems continued

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 24 Important considerations  The tradeoff between the cost and benefits of management accounting information  Costs ÙSalary of accounting personnel ÙCost of purchasing and operating computers ÙCost of gathering, storing and processing data, and ÙCost of managers’ time to read, understand and use the information continued

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 25 Important consideration  Benefits ÙImproved decisions ÙMore effective planning ÙGreater operational efficiency ÙBetter control, and ÙImproved customer and shareholder value

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 26 Management accounting responses to the environment  Conventional management accounting systems ÙIncludes budgeting, costing systems and financial performance measurement systems ÙIn wide use for many decades, and still be used in many organisations continued

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 27 Management accounting responses to the environment  Contemporary management accounting systems ÙIncludes activity-based costing, performance measurement systems such as balanced scorecards, cost management systems, such as business process reengineering, new approaches to customer profitability analysis and supplier cost analysis continued

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 28 Management accounting responses to the environment  Contemporary management accounting techniques have been developed over recent years, and support the adoption of new structures, systems and practices  Some organisations continue to use conventional management accounting systems, while others are in the midst of implementing contemporary systems

Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & Hilton Slides prepared by Kim Langfield-Smith 29 Key influences on management accounting systems