ACC1AMD Accounting For Management Decisions
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In further chapter we will read Comparison of financial& management accounting
According to Burger (2008) “Accounting is the
language of business. A lot of people think it's just numbers, but it's really
a lot more than that. There are a lot of areas outside of numbers that need to
be looked at, processes and procedures, what the tone of the company is. Accounting
will take you in just about any direction in a company." ~ Wade Becker,
CPA, Beard, Miller Co. The job description of many professions is changing
nowadays. The skills to perform a certain job require more skills to perform a
particular job. If an example of Information Technology is to be taken then it
is realized that once they were left to do IT related jobs or make computers
work however, in today’s world IT professionals are now moving into higher
level management positions which require them to perform many other tasks which
may not be directly related to the their profession. Therefore, a stereotypical
role of an accountant was once considered a “number person” but today’s era
demands accounting professional to own and use interactive and communication
skills to help with the decision making process across all areas of a business.
In a managerial accounting world all professionals must communicate their ideas
to other companies using ways which are tactful and effective. Siegel (2000)
states that “Management accountants should be great communicators.” Durry C
(1992) believes that management accounting is “concerned with providing
information to managers –that is people inside an organization who direct and
control the operations.” In the 19th Century financial accounting was
considered to be the need of a society which later evolved to Management
accounting. Management accounting became a prerequisite for more detailed
information for stock control, product costing and decisions affecting the
future. Accounting is facing numerous challenges, as Elkington (1998) states
“business people must increasingly recognise that the challenge now is to help
to deliver simultaneously economic prosperity, environmental quality and social
equity.” All this is making business managers to re-examine the practices that
are currently led. Cokins G and Hicks D believe that Managerial accounting is
part of an organisations management information system. To follow any business
or an organisation aim managers engage in activities which involve an effective
cost model as it can be a great asset to an organisation. A business or
projects to be a success or failure three things need to be considered, for
example, cost, schedule and performance. A project should be continued within
the means provided otherwise stakeholders struggle to finance the project and
its abandoned.
Some reated links are; Cash flow management – introduction Accounting to measure business performance
A
success of a manager is when appropriate tools are employed and sound safe
decisions are made and follow on with applying substantial level of expertise
to have effective cost management. The world today is surrounded by
increasingly advanced technology such as computer assisted manufacturing and
flexible manufacturing systems. According to Cokins and Hicks organizations to
compete effectively need to understand the cost of each product or element of
their value chain from product design and purchase of material therefore
internal cost is very important as mentioned in Cokins and Hicks article
because it becomes critical for competitive action and increasing shareholders
wealth in the current globally competitive economy. Management accounting
systems are the benefactors of the precarious internal cost information. There
has been few criticisms leading to the literature of Management accounting
system and it has been labeled outdated and there has been criticisms linked to
its consistency as it has been thought that it does not provide consistent
information with the current strategic management paradigm. Cokins and Hicks
believe that systems designs elements should capture the fundamental
technology, promote a business based on effective cost model, quality and lead
time. Precise and appropriate cost information is critical to management’s
decision making procedures (Cokins and Hicks) and the literature being studied
reveals Management accounting system reflects the organizational complications
of the current world however traditional Management accounting systems do not
replicate current organizational era as all costing procedures were designed
around late nineteenth century. In traditional era product line diversity was
not very common and cost of materials and direct labour were the main
components of production cost but the environment today is surrounded around
advanced technology and automation and that has led the prime cost to be the
overhead component. The overhead costs are altering product cost because of the
old management accounting system techniques.
Management accounting needs a unique set of
skills and behaviour. According to Cokins and Hicks Accounting Management
framework gives business a planned approach to address all factors that will
manage accounts interface and todays reality. Cooper and Kaplan believe there
are six critical factors which play a crucial role in Accounting Management
framework which also backs Cokins and Hicks journal being studied for this
assignment. The first one is organizational structure. It includes factors such
as whom and how you manage accounts, why and how you organize around them. The
second account management success factor is people as they need the appropriate
skills, knowledge and skills to experience and perform the role. The third
factor is tools and technology as it must support the account management
processes and must balance “help” as “control.” The fourth one is compensations
structures as they can inhibit change or accelerate adoption. The fifth account
management success factors are processes and methodologies as they should align
with the customer, drive growth and opportunity plan and the last factor channels
and alliances must be managed effectively through the account manager
interface.it is up to an organization to structure their useful employees
around their key customers and that can create a deep impact on their
performance. First few deliberate decisions need to be taken in terms of
placement of accounts management resources such as market and territory. Cokins
and Hicks believe management team need to plan using methodology a number of
factors to create a ranking based on the business goal for the affiliation and
ability to deliver. Once these methodologies are selected they can play a vital
role in team structure and it will help to deal with issues such as ownership
or shareholders Cokins and Hicks discuss the difference between cost accounting
and managerial accounting and the strength of their article is that managerial
accounting is tied with GAAP whereas cost accounting is used within a business
to manage that particular business. Accounting standards of a country provide
guidelines to an accountant so they can be used while reporting economic
transactions of a business. United Kingdom accounting has improved a lot as
mentioned in the journal being studied for this particular assignment. Managers
have immense pressure to improve financial management practices to improve
service to the community and it is not only done on national level.
Managerial accountants have to keep accountant
standards fair globally and that is mainly done through Accounting Standards
Committee. “What gets measured gets managed, What needs managed gets measured”
(Peter Drucker) famous quotes has cause many criticisms but if the practices
and development mentioned in Cokins and Hicks journal are to be analyzed, one
can conclude this quote has some truth. Managers of a business often use this
quote indicates that active management of businesses should be given importance
instead of accountability to gain desired goals. It will lead to survive in
today’s world of information age competition therefore businesses should ensure
they are using management systems resulting from their strengths. Any business
main task is to develop an active measurement system as it is main part of the
management process. Good management practices lead to using certain measures to
plan, implement and improve certain aspects of an organization. According to
Kaplan, (1994) measurement is a difficult task because it is not related to
science so there are no facts and does not have rules between variables.
Furthermore, systems which are used by management accountants will make sure
that actions are taken according to the strategies and objectives developed.
There has been an immense amount of research on management accountants and the
research evidence has proved that businesses which are using a developed
measurement system are developing and gaining profits therefore, Gates (1991)
states “an organizations objectives and severity of measures, varies, depending
on people, culture and past experiences of the organization.” The management
accountant was developed after 1980s and it was seen a golden era in management
accounting research as it saw new techniques and practices beneficial to the
management accounting. One of the techniques developed in 80s was strategic
management accounting and some of the processes which fall under the category
of strategic management accounting are activity based costing and balance
scorecard. The balance scorecard emerged after it was realized that there is a
need of an integrated system which can be used to measure both financial and
non-financial performances. It helps companies to view their performances on a
regular basis and it gave a clear view of what should be measured in order to
balance a particular business financial perspectives. The balance score card
consists of four functions known as learning and growth perspective. It means
how to achieve a certain organizations goals and how will a business will
sustain its ability to change and improve. the second perspective is financial
and its aim is to succeed financially and is mainly concerned with making a
good impression to shareholders. Another perspective is based on customers as
they can determine sales and to achieve business goals a good impression is to
be made upon customers. The last perspective is known as internal business
processes. It mainly deals with how to satisfy customers and shareholders and
what business processes must a certain business excel as. (Kaplan and
Norton:1996) Balance scorecard is one of the necessities for any organization
and it is used by the management to accomplish vision and strategies of an
organization and it has few other benefits too such as, making sure managers
are managing every single variable within an organization and are not working
upon favoritism. If more developments are to be discussed and strength of
Cokins and Hicks journal than one must not forget one of the major development
in an accounting field known as Activity-based costing. Kaplan and Cooper gave
this idea a new beginning as it was not very well known in previous years.
According to Kaplan (1996) manufacturing costs are determined by amount of
“activities” and the key to effective cost control is maintaining the
effectiveness of the activities ABC recognizes better cost pools for indirect
costs and then implies cost drivers to relate the expenses in the cost pools to
activities of an organization. ABC has become more popular in recent years but
faces a lot of criticisms too due to the fact that sometimes businesses face
difficulties in implementing this technique. ABC is enhanced further by
Activity-based management as they believe in planning and measurement and class
them as key factors in a competitive business environment.
To
conclude, If an organization has accounts managers or not a success can only be
achieved if a successful profile is valued. It can be done through an industry
as it will help determine to what extent an account manager is an industry
expert and the second is through customers as it is vital for an accountant to
understand the businesses being worked upon. The profession Accountancy has
seen many developments and criticisms however, since 1980s there has been many
changes in management accountancy. The new changes are focusing on measurement
tools within a business to manage its aims and objectives. Management
techniques are discussed briefly in this essay and they emphasize on Cokins and
Hicks journal that management decisions can be made better by using effective
management measurement tools and it leads to improving the management of an organization.
There can be problem with new measurement techniques as nothing in life comes
with a guarantee however, new ideas can be used on the basis of guess work and
the new contributions could be a way forward.
References:
Cokins, G. and D. Hicks (2007). Where Does ABC Fit Amongst the Clutter of Managerial Accounting? Cost Management, March/April, 21-28. Cooper, R. & Kaplan, R. (1988a). How Cost Accounting Distorts Product Costs. Management Accounting, April, 20-27. Cooper, R. & Kaplan, R. (1988b). Measure Costs Right: Make Decisions Right. Harvard Business Review, September-October, 96-103. Siegel G “management accountants: the great communicators” All business accessed 25th October 2013 www.allbusiness.com/accounting-reporting/managerial-accounting/696208-1.html 1st december 2000 Durry C, (1992) Management and Cost Accounting, 3rd edition, London:Chapman and Hall. Kaplan, R.S and Norton,D.P (1996), “using the balance scorecard as a strategic management system”, Harvard Business Review. Kaplan, R.S (1994) Management Accounting 1984-1994) development of new theory and practice, Management Accounting research, 5 (3/4): 113-156
Cokins, G. and D. Hicks (2007). Where Does ABC Fit Amongst the Clutter of Managerial Accounting? Cost Management, March/April, 21-28. Cooper, R. & Kaplan, R. (1988a). How Cost Accounting Distorts Product Costs. Management Accounting, April, 20-27. Cooper, R. & Kaplan, R. (1988b). Measure Costs Right: Make Decisions Right. Harvard Business Review, September-October, 96-103. Siegel G “management accountants: the great communicators” All business accessed 25th October 2013 www.allbusiness.com/accounting-reporting/managerial-accounting/696208-1.html 1st december 2000 Durry C, (1992) Management and Cost Accounting, 3rd edition, London:Chapman and Hall. Kaplan, R.S and Norton,D.P (1996), “using the balance scorecard as a strategic management system”, Harvard Business Review. Kaplan, R.S (1994) Management Accounting 1984-1994) development of new theory and practice, Management Accounting research, 5 (3/4): 113-156
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