Summary
Summary CIMA BA2 Notes
- Everything you need to pass BA2 - Detailed 66 pages of notes, complete with diagrams, graphs and formulae - My score: 87%
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Chartered Institute of Management Accountants Certificate Level BA2BA2 Fundamentals of Management Accounting
Structure
The context of management accounting (10%): Chapter 1
• The context of management accounting
Costing (25%): Chapters 2-5
• Cost identification and classification
• Analysing and predicting costs
• Overhead analysis
• Marginal and absorption costing
Planning and control (30%): Chapters 6-10
• Budgeting
• Standard costing and variance analysis
• Integrated accounting systems
• Performance measurement
• Preparing accounts and reports for management
Decision making (35%): Chapters 11-14
• Risk 1: summarising and analysing data
• Risk 2: probability
• Short-term decision making
• Long-term decision making
• Advanced budgeting • Decision making with risk
• Advanced costing • Divisional PM
• Basic cost classification • Integrated accounting systems
• Basics of budgeting • Investment appraisal
• Break even analysis • Key factor analysis
• Budgeting • Overhead absorption
• Business mathematics • Performance management and control
• Context of management accounting • Short term decision making
• Costing • Standard costing and variance
• Costing systems
Jack Gould 1 of 66
,Chartered Institute of Management Accountants Certificate Level BA2
The context of management accounting
MANAGEMENT ACCOUNTING
• Accountancy involves the measurement, analysation and reporting of (non-)financial information
to help managers, shareholders and other interested parties make decisions about organisations.
• CIMA Terminology definition of management accounting: “the application of the principles of
accounting and financial management to create, protect, preserve and increase value for the
stakeholders of for-profit and not-for-profit enterprises in the public and private sector.”
• Value: the essential aspect of management accounting is to ‘create (…) and increase’ the
value of an organisation.
• Relevant information: providing relevant information to management of organisations, who
use this to make decisions which ultimately create and increase the value of the organisations.
• Communication and influence: it is important for management accountants to communicate
effectively in order to influence the decision making process.
• Trust: management must trust the information provided as they will act on it.
THE GLOBAL MANAGEMENT ACCOUNTING PRINCIPLES
• Business environments are constantly changing, meaning it is vital for organisations to respond
quickly in order to ensure they maintain and improve their competitive position and stay
successful. With vast amounts of data available - from a variety of sources - a challenge is how
to turn data into useful information which can enhance decision making.
• Good information and quality decision making is crucial to organisations; effective management
accounting is concerned with improving decisions and building successful organisations.
• The four Global Management Accounting Principles (drawn by CIMA together with American
Institute of Certified Public Accountants, AICPA) are not a statutory requirement, but rather guide
best practice in management accounting:
• Influence: management accounting begins and ends with conversations; communication
provides insight that is influential to help organisations encourage integrated thinking and lead
to better decision making.
• Relevance: information is relevant; management accounting makes relevant information (past,
present or future; financial or non-financial; from internal or external sources; or using social,
environmental and economic data) available to decision makers when they need it.
• Trust: stewardship builds trust; accountability and scrutiny make the decision making process
more objective.
• Value: impact on value is analysed; management accounting connects the organisation’s
strategy to its business model.
MANAGEMENT INFORMATION
Data and information
• The key to successful business is good decision making; and the foundation of good decision is
the creation of good, relevant information.
• Immediately after collection, data is typically not in a form that conveys useful information:
• Data: facts which have been record but not yet processed into a form which is suitable for
making decisions; such as numbers, letters, symbols, raw facts, events and transactions.
Technological advances have resulted in organisations generating huge quantities of data.
• Information: information is the result of processing, sorting and analysing of data in context;
data made understandable and useful to the recipient, who may then improve the quality of
their decision making. Information is data that has been processed to give it meaning.
Characteristics of good information
• Information is provided to management to assist with planning, controlling operations and making
decisions; optimal decisions are more likely to occur when founded on quality information.
• The ‘ACCURATE’ acronym illustrates the characteristics of good information
• Accurate: degree of accuracy depends on the purpose of the information; such as accuracy to
the nearest £ or nearest thousand £s. Information should be sufficiently accurate given time
and cost constraints, and managers should be aware of the degree of accuracy.
• Complete: decision-making managers should have all information needed, but not excessive
or necessarily all information; and it should be communicated to the correct person.
• Cost beneficial/effective: the cost of producing information should not exceed its value; the
difference in value of an informed decision supported by information, compared to a decision in
the absence of that information, equates to the money saved or earned as a result.
Jack Gould 2 of 66
,Chartered Institute of Management Accountants Certificate Level BA2
• Understandable: limited - or explained - use of technical language/jargon; consider the
understanding of the recipient of the information, particularly non-financial managers.
• Relevant: information should be relevant to its purpose, with redundant information removed.
• Authoritative: information should be trusted and reliable, so that managers can be confident in
their decision making.
• Timely: information should be provided in time to allow decision to be made; released quickly,
as out of date information can result in poor decision making.
• Easy to use: information should be accessible via appropriate communication channels;
consider the person using the information to make sure the information meets their needs
Decision making levels: information for different levels of management
• Organisations are generally split into three levels, with the decisions made at each level varied,
hence dictating that the nature and type of information required also differs at each level:
Strategic
• Top level management, making decisions concerned with the general economic situation and
which markets to operate in, which generally impact the entire firm.
• The information needed is from ranging sources, such as market developments, economic
situation, emergence of new technology, competitor activity; and decisions will concern impact of
economic situation, acquisitions, investments, restructures, diversifying into new markets.
• Decisions at this level will:
• Have a large impact on the whole organisation
• Be long term decisions
• Be unstructured or infrequent
Tactical
• Middle level management forming a link between the strategic and operational levels, often
implementing the decisions made at strategic level to an area/division of an organisation. Tactical
level decisions thus deal with how to operate within the chosen market and cover issues
regarding products and customer service.
• Information required at this level thus has characteristics of both strategic and operational.
• The information required might be regarding product or service quality, pricing, customer service,
handling complaints, productivity measurements, consumer satisfaction levels, employee morale
and so on; while making decisions on these elements, or how to compete in a given market.
• Decisions at this level will:
• Have a medium impact on the organisation
• Be medium term decisions
• Act as a bridge between strategic and operational levels
Operational
• Lower level management often making more routine or day-to-day decisions; covering issues
such as inventory levels, wastage levels and production capacity.
• The information needed at this level is likely to be readily available, for instance the number of
rejects per machine, lead time for material delivery, number of labour hours available, inventory
management; with more structured, regular and routine decisions relating to operational capacity
and levels of wastage in production.
• Decisions at this level will:
• Have a small impact on the organisation
• Be short term decisions
• Be highly structured or frequent
Information Strategic level Operational level
Source Historical and forecasts; requiring more external information Historical; generally from internal sources but also typically more
readily available
Timeliness Longer timescale; timeliness is less crucial as decisions are Shorter timescale; timelinesses usually more important as
taken infrequently over longer periods of times of months or decisions are taken daily/frequently
years
Accuracy Information will contain more subjective estimates Information will be objective and accurate
Breadth Wide ranging information in different forms, coving many aspects Narrow focused solely on the decision to be made
of the organisation’s operations
Detail Highly summarised Tends to be more detailed
Jack Gould 3 of 66
, Chartered Institute of Management Accountants Certificate Level BA2
NON-FINANCIAL INFORMATION
• Information not given in terms of money is non-financial information, and it is important
management accountants provide both types to management; although financial information
such as profit is important for management because many objectives of a business are non-
financial in nature, performance measure should not focus on profit alone.
• Information is required by different users with different needs; also varying across organisations:
• Commercial: main objective is usually to maximise the wealth of its shareholders, with key
financial information required that focus on profit made by area, product or service
• Not-for profit:
• Public bodies: value for money provision of government services; albeit no profit elements,
financial information will still be required but focusing on cost management and efficiency.
• Charities: varied and subjective aims to measure, meaning that information required will be
varied and difficult to pinpoint
• Society: members of the public will have an interest in how organisations are run and perform,
as well as the impact to their community
THE PURPOSE OF MANAGEMENT ACCOUNTING
• The role of management accountants is usually expanded into three core elements:
Planning (for the future of the business):
• Involves establishing the objectives and goals of an organisation, and formulating relevant
strategies that can be used to achieve such objectives and goals.
• Strategic level planning: long-term planning carried out by the highest level of an organisation
• Tactical level planning: short to medium term planning carried out by middle management
• Operational level planning: short term planning for day-to-day or routine operations
• The main type of planning conducted by management accountants is preparing of budgets,
whereby an estimation of the revenue and expenses over a specified time period is made.
Control (the performance of the business):
• After planning is carried out, and budgets prepared, targets can be set to enable evaluation of
performance; without targets, it is difficult to assess how good or bad performance has been.
• Information based on actual results must be compared to planned targets, with the differences
between them calculated and reported to management, facilitating the control of operations.
• Performance measures allow management to focus on areas requiring attention and helps to
drive the business forward or to ‘add value’. Such performance measures include:
• Variances: comparison of actual results against budgeted targets
• Financial/profitability measures
• Non-financial measures
Decision making (that adds value to the business):
• Considering information that has been provided and using it to make informed decisions.
• Managers require reliable information to compare different courses of action available, to thus
understand the consequences of each action might be, and to thus make informed decisions.
FINANCIAL ACCOUNTING
• CIMA Terminology definition of financial accounting: “classification and recording of the
monetary transactions of an entity in accordance with established concepts, principles,
accounting standards and legal requirements and their presentation, by means of statements of
profit or loss, statements of financial position and cash flow statements, during and at the end of
an accounting period.”
Management accounting Financial accounting
No legal requirement; it is carried out at the discretion of A legal requirement of organisations is to produce financial
management statements which show a true and fair view of their financial position
Role is more loosely defined; main purposes are planning, Role is more clearly and narrowly defined; their purpose is the
controlling and decision making; the provision of any production of statutory financial statements/accounts for an
information to required by management to aid decision making organisation/entity
Not governed by rules or regulations; information may be Governed by rules and regulations; information must be presented
provided in any format in prescribed formats
Interact with both historical and future information, in all forms Interact with historical financial information
(financial or non-financial)
Provide information for internal use; focusing on the needs of Provide information available for external use such as the public or
management anyone interested; focusing on the needs of external stakeholders
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