Chapter 1 – Accounting performance measurement: a review of its purposes and practices
more attention for the use of non-financial measures of performance that can be used both
to motivate and report
Purpose chapter review roles and functions financial measures of organisational
performance and to outline their development.
Three functions for the use of financial performance measure:
1. As a tool of financial management, concerned with: (pre-define performance)
a. Efficient provision and use of financial resources to support the organisation.
(plan)
b. Managing the effective and efficient operation of the finance function.
(control)
2. Objective of a business organisation, performance measures to signify the
achievement of organisational objectives: (measure performance)
a. ROI
b. EVA
c. Profit
3. Mechanism of motivation and control within the organisation. (reward on
performance)
Financial planning and control essential part of the management process.
Financial plans: outline financial outcomes that are necessary for the organisations
to meet it commitments.
Financial control: plans are monitored and necessary corrective action proposed
when deviations are detected.
Three areas of focus for financial plans:
1. Cash flow planning: ensure that cash is available to do necessary payments.
2. Profitability: revenues higher than costs.
3. Assets and the provision of finance for their purchase.
Cash flow and profitability equal over life but on short term very different due to:
1. Acquisition of capital assets equipment is paid for immediately but benefits
stretching over a considerable future period.
2. Timing differences between payments and receipts.
Financial scandals
Creative accounting draws attention to the interface between management accounting
information (intern) and financial accounting (extern).
Result greater emphasis on operating information, financial numbers alone are
insufficient to reveal the financial condition SOX introduced.
Financial ratios do allow internal financial managers to keep track of a company’s
financial performance, and to adjust the activities of the organization.
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