RECENT DEVELOPMENTS IN

MANAGEMENT ACCOUNTING

BKAM 3033 - Topic 1(a)

Lecture outline:
Management accounting
scope
The evolution of management
accounting
Management accounting
change
The gap between theory and
practice
BKAM 3033 - Topic 1(a)

Management Accounting
Management accounting is the branch of accounting,
which is concerned with supplying relevant information
to managers at appropriate time to enable them to
take decisions in organization.
It is the process of accounting, which generates
accounting information from both financial accounting
and cost accounting and provides essential accounting
information to all departments concerned.
Management accounting is the process of identifying,
measuring, analyzing, interpreting and communicating
accounting information to department concerns to
meet organizational goals and objectives.
BKAM 3033 - Topic 1(a)

Objectives of Management
Accounting

Providing information for decision making and

planning in revenue and cost projection of
organization
Helps managers to interpret financial data that are not
understand by internal users.
Management
accountants
are
crucial
in
an
organization that they become an integral part of
management
team
who
provides
necessary
information.
Helps managers in directing and controlling operations
through its attention in their function.
Motivating managers to achieve organization's goals
Measures the performance of managers, subunits and
employees within organization.
Assess organizations competitive position, and
working with the other managers to ensure
organization's long term competitiveness
BKAM 3033 - Topic 1(a)

Role of Managerial Accounting

To achieve its goals, organization acquires
resources, hires people, and then engages in
an organized set of activities.
It is up to the management team to make the
best use of the organization's resources,
activities, and people in achieving the
organization's goals.

Planning
Directing operational activities
Controlling
Decision Making

BKAM 3033 - Topic 1(a)

Differences Between Management And Cost

Accounting
Basis

Management accounting

Cost Accounting

Objectives

Its objective is to assist managers

providing accounting information for
decision-making.

Its objective is to determine and record

the cost of production of goods and
services.

Scope

It has broad scope, and includes

financial and cost accounting.

Its scope is limited in cost determination

and record.

Sources of
data

It uses both quantitative and

qualitative data

It uses the quantitative data only.

Accounting
principles

No specific principles like

accounting and cost accounting.

Certain principles and procedures are

followed in cost determination and
allocation.

Nature

It uses past and present data in the

projection of future.

It uses both past and present data and

figure.

BKAM 3033 - Topic 1(a)

Basis

Management Accounting Vs. Financial

Accounting

Objectives

Management accounting

Financial Accounting

Assist managers at all levels i.e. Make periodical report Outsiders like
internal users by providing necessary shareholders, government, customers,
accounting information.
suppliers, managers

Sources of data It uses data, which are subjective, It uses data, which are historical, quantitative
descriptive and related with future.
, and related with past.
Accounting
principles

No such principles for preparation and Governed by GAAPs. Therefore, all

presentation of reports. Therefore, organizations prepare the financial reports in
reports differ from one organization to the same manner.
another.

Reporting

Reports are prepared in certain time Financial reports are generally prepared at
interval according to need of the end of the fiscal year to report
management.
stakeholders.

Legal
compulsion

It is voluntary. It is applied to increase It is compulsory

management efficiency for attaining organization.
organizational objectives.

Performance
measurements

It

in

every

business

measures the efficiency and It measures the overall efficiency and

performance
performance of organization.
of various departments and divisions.
BKAM 3033 - Topic 1(a)

Evolution of the Focus of

MA
Stage
Ongoing
Transformation

4
3

Transformation
Transformation

2
1

Transformation
Source: IFAC, 1998
Stage 1

Stage 2

Stage 3

Stage 4

Focus
8

Management Accounting
Change
Stage 1

Cost determination
Financial control

Stage
2

Management planning
and control

Reduction of waste
Stage
3
Stage 4 Value creation
BKAM 3033 - Topic 1(a)

Change in the
Profession
Scorekeepers

Bean counters

Change

Change

Internal consultant
-business partner
-business analyst
BKAM 3033 - Topic 1(a)

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Change in the Profession

Accounting is changing. You are no longer sitting
behind a desk just working on a computer, just
crunching the numbers. You are actually getting to be
part of the day-to-day functions of the business.
(Abbott Laboratories)
We are looked upon as more business advisors than
just accountants, which has a lot to do with the
additional analysis and forward-looking goals that we
are setting. We spend more of our time analyzing and
understanding our margins, our prices, and the
markets in which we business. People have a
sense of purpose, have a sense of I am adding value
to the company. (Caterpillar, Inc)

BKAM 3033 - Topic 1(a)

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Change in Profession
The Prior Business
Environment
Financial

reporting

and cost
Common emphasis
on standardization &
Std cost
The accountants as
functional expert and
financial scorekeeper

The Contemporary
Business
Environment
View of cost Act as a
tool for the
development and
implementation of
business strategy
The accountant as a
business partner

BKAM 3033 - Topic 1(a)

Blocher, Chen, Lin

12

Change in Profession
Todays management accountants
need the following skills:
Solid knowledge of both financial and
management accounting
Analytical skills
Knowledge of how a business functions
Ability to work on a team
Oral and written communication skills
BKAM 3033 - Topic 1(a)

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Evolution and Adaptation in

Managerial Accounting
Computer-Integrated
Manufacturing

Service Vs. Manufacturing

Firms
Emergence of New
Industries

Change
Global Competition

Information and
Communication
Technology
Product Life Cycles
Total Quality
Management

Focus on the Customer

Cross-Functional Teams

Time-Based Competition
Just-in-Time Inventory

Continuous Improvement
BKAM 3033 - Topic 1(a)

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WHAT FACTORS DRIVE CHANGE

OFExternal
MA
Customer oriented
(competition)
Technology
Globalization
Internal
Customer-oriented (competition)
Organizational

BKAM 3033 - Topic 1(a)

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WHAT FACTORS DRIVE CHANGE OF MA

External
Focus on customer satisfaction

BKAM 3033 - Topic 1(a)

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WHAT FACTORS DRIVE CHANGE OF MA

- Internal
Core competencies and work
characteristics of the organization.
Modern production technologies
changes in product costing practices
IT capital budgeting
E-commerce new ways of operating

Design of MA systems
Style of management
Existence of TQM programmes
BKAM 3033 - Topic 1(a)

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WHAT FACTORS DRIVE CHANGE OF MA

- Organizational
Merger and acquisition
Organizational restructuring
Corporate failures enhanced
corporate governance

BKAM 3033 - Topic 1(a)

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The Gap between Theory and

Practices

Management accounting practices

can be observed at the macro or
micro levels (Drury, 2008):
Macro refers to concepts and
techniques
Micro refers to the behavioral
patterns of use.
Tendency towards globalization at
the macro level.
BKAM 3033 - Topic 1(a)

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The Gap between Theory and

Practices

Drivers of convergence include:

Global competition
Information technology (e.g. ERP systems)
Standardization by transnational companies
Global consultancy
Use of global textbooks

At the micro level accounting information

may be used in different ways due to
influence of different national and local
cultures.

BKAM 3033 - Topic 1(a)

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The Gap between Theory and

Practices

Professional bodies play an important role to

bridge the gap between MA theory and
practice.
For example, CIMA stated its first objective as
to promote and develop the science of
management accountancy.
CIMA established the Technical Committee to
oversee a rigorous technical development
agenda.
Review developing practices and highlight whats
working and whats not.

BKAM 3033 - Topic 1(a)

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The Gap between Theory and

Practices

CIMA also worked with IFAC to develop the

concept of enterprise governance, focusing on
the balance between regulatory conformance
and business performance.
In Malaysia, NAfMA awards is introduced by
CIMA and MIA to promote best practices of MA.
The NAfMA awards recognize the best
practices in MA that lead to value creation and
excellent business performance based on the
MA concepts of IFAC.

BKAM 3033 - Topic 1(a)

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The Gap between Theory and

Practices

NAfMA award is a response to the criticism

by accounting practitioners and educators
on the ground that MA practices had
changed little over for almost 60 years (e.g.
Johnson & Kaplan,1987), despite radical
changes in the business environment.
The awards also reflects the shift from
number cruncher and corporate cop to
decision-support specialists and reflects
what it takes to compete in todays lean,
global, technologically-driven environment.

BKAM 3033 - Topic 1(a)

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