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Management accounting and the business environment

Handout 1

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Management Accounting and Financial Accounting

Managerial accountingprovides informationfor managers of anorganisation whodirect and control

its operations.

Financial accountingprovides information

to stockholders,creditors and others

who are outsidethe organisation.

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Planning and Control Cycle

DecisionMaking

Formulating Long andShort-Term Plans

(Planning)

MeasuringPerformance (Controlling)

Implementingthe Plans

(Directing and Motivating)

Comparing Actualto

Planned Performance (Controlling)

Begin

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Differences Between Financial and Management Accounting

Financial ManagementAccounting Accounting

1. Users External persons who Managers who plan formake financial decisions and control an organisation

2. Time focus Historical perspective Future emphasis

3. Verifiability Emphasis on Emphasis on relevance versus relevance verifiability for planning and control

4. Precision versus Emphasis on Emphasis on timeliness precision timeliness

5. Subject Primary focus is on Focuses on segments the whole organisation of an organisation

6. Requirements Must follow prescribed Need not follow IFRSformats (e.g.IFRS) or any prescribed format

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Expanding Role of Management Accounting

Increasing complexity andsize of organisations

Rapid development andimplementation of technology

Regulatoryenvironment

World-widecompetition

Increasedemphasison quality

Factors thatincrease the need for

management accountinginformation

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The Changing Business Environment

A more competitive environment emphasising: Global competition New management tools New technology and business process

Business environment changes in the past

twenty years

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Increased importance of service industry and non-tangible assets

• Traditional costing derived from manufacturing

• Services now more important in many economies.

• Service industries provide new challenges and opportunities

• Competitive success related to intellectual assets and customer relations.

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Increased importance of service industry and non-tangible assets

• Shared service centres - centralisation of services such as accounting

• Increased use of outsourcing

• Changes in Public Sector Management– Governments demand new measures of

performance in the public sector

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Value Management and Environmental Sustainability

• Managing for value

– Awareness of shareholders value

– Shareholders value and customer value

– Understanding the cause and effect relationship

• Managing for environmental sustainability

– Understanding environmental sustainability issues

– Understanding the three motives of environmental sustainability as; compliance motive, eco-efficiency motive and strategic motive