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Samenvatting Advanced Management Accounting
- Instelling
- Vrije Universiteit Amsterdam (VU)
Samenvatting van de collegesheets van Advanced Management Accouting met af en toe enkele aanvullingen.
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Voorbeeld 4 van de 44 pagina's
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Voorbeeld van de inhoud
Advanced Management AccountingDr. Eelke Wiersma
College 1: Introduction, Past and current issues in Management
Accounting
Management accouting:
- Is concerned with the generation, communication, and use of financial and non-
financial information for managerial decision making and decision control (G&S, Ch 1,
p.3).
- Decision making: reduce uncertainty for decision making
- Decision control:
assess profitability units/products
stimulate and reward employees
Q: Tension between decision making and control?
Q: When has information value?
Q: What are costs of information?
- Information is only useable if you use it in decision making or control.
- There is tension between decision making and control, because the same
information is used for both things, but they are quite different in origin.
Multiple roles of finance organization (Chang, Ittner and Paz (2014), JMAR )
Research questions paper survey of 832 CFO’s globally and different industries
What are the roles of the finance function?
What drives importance of different roles?
What drives effectiveness of different roles?
Roles of the Finance Organization
- Reporting, compliance internal, control, risk (RCCR)
Strengthen internal controls, compliance (= nakoming)
Manage mitigate (= verzachten) risk
- Performance management
Cost reduction
Integration of information
Measuring/monitoring performance
- Strategic partner (for CEO)
data for decision support
Set strategic directions
There is a gap between importance vs. effectiveness (graph sheet 11)
2 questions: * How important is the function/role?
* How effective is the function/role?
- Points of on which they are judged, by for example shareholders, are high in
effectiveness
Determinants of different roles
- Globalization
different regulations, coordinate activities
- Organizational structure
decentralization, interdependencies
- Size
Greater coordination requirements
Greater need for strong internal controls
- Environmental uncertainty
Greater need of information, creativity, quick decision making
1
,Effectiveness of finance roles (table 6)
- Effectiveness of one role strengthens effectiveness of other roles
E.g., if firm has more effective performance measurement role this has a
positive impact on RCCR effectiveness, etc.
- Effectiveness of roles strengthens when firms use Information System Integration
(ISI)
Company wide information systems (e.g., ERP system)
- Roles have positive effect on each other.
Balancing the dual responsibilities of BU controllers (Maas & Matjeka)
- BU = business unit
Changing roles controller over time
- Historic role: bean counter, prepare documents
- Improve “business orientation”,
Participate more in operational and strategic decision making
- Many scandals, new corporate governance regulations (e.g. Sarbanes-Oxley)
As an effect, controllers become more independent again
Theoretical model (M&M): H1
- Dual responsibility of BU controller
Local responsibility: add value to BU, identify opportunities
* Responsibility to local BU manager
Functional responsibility: Providing higher levels (e.g., concern controller)
with information about the BU, watchdog
(see, quote)
* Responsibility to HQ managers/controllers
- Business controller has to keep both parties statisfied. There is some trade-off
between the two.
- This paper is about the tension between these 2 roles.
- CEO & CFO have different rewarding structure, especially in bonusses.
Theoretical model: H2
- When functional responsibility is more important (and therefore local role less), data
manipulation will be less.
- Direct effect functional responsibility on data manipulation
- Manipulation
Slack building in budgets
Shift funds to meet performance goals, etc.
Theoretical model: H3
- Dual role increases Role conflict and Role ambiquity
- There has to be some range for the game for BU managers & controllers. A concern
controller does not want to know everything.
Theoretical model: H4
- Role conflict and Role ambiguity might lead to data manipulation (slack generating,
shift funds, etc.)
- Role conflict and role ambiquity are more or less the same.
Full model (Maas & Matejka)
2
,Results
- H2: direct - impact of functional responsibility data manipulation
* Role conflict: if you focus too much on the functional role, change of data
manipulation is getting higher.
- H3*H4: indirect + impact of functional responsibility data manipulation
- All hypotheses accepted, except H2
Thus only negative impact of high emphasis on functional responsibility
Data used
- 134 surveys of Dutch controllers working in decentralized units (thus BU controllers)
- Providing empirical support for most of the hypotheses.
- Limitations: measures for data manipulations might suffer from socially desirable
answers.
Evolution of Management Accounting
- Groot and Selto 2013, Ch. 1
- Basic message Ch.1 (p.3):
Management Accounting information became more complex over time due to
A) Level of integration of value chains (market-internal transactions)
B) Organizational structure (centralization-decentralization)
C) Increased complexity of production processes
More recent innovations are developed by consultants that try to sell
innovations, instead of developed by employees working in firms
MAS complexity over time
(18-20 Century)
- Figure is summary of
chapter 1, so it is important
- At the beginning only family
firms existed, were costs &
revenues were the only
important factors.
Management accounting practice
- Management accounting knowledge comes from practice: many MA models and
methods are developed in practice
18th century
Family businesses
3
, Integrated production
Financial results from transactions
Beginning 19th century
Multi-phased production systems: textiles and armories (functional
specialization)
Unit costing, productivity information, gross margins
Coordination between phases of production, improvement of efficiency
- Buy raw materials Converge in textile mills
End 19e century
- Large-scale production, improvement of communication: railroads, iron factories
and merchant en trading companies
- Scientific Management movement
Much more emphasis on collecting data, time and motion studies more staff
functions
- All systems that are based on “standard rates”
Variance-analyses, indirect cost allocation, CVP-analyses
Start 20th century
Large diversified companies: DuPont Powder Company and General Motors
(GM)
multidivisional structure (product-market combinations): Pierre Du Pont,
Donaldson Brown, Alfred Sloan
Centralized control with decentralized responsibilities
Q: basic problem of such large decentralized firms?
New MA instruments:
* Return on Investment (ROI)
* DuPont Chart (variance-analyses)
* Budgeting: return over a product’s life cycle
* Flexible reward systems
- Not only based on BU performance
- Bonus only when managers stays within GM
* Transfer pricing
And since the 1920s? Not much innovation since!
- 1950s:
Time value of money in investment decisions
Residual income (RI), include cost of assets in the profit measure
- 1980/90s:
Activity-Based Costing (increased competition, higher level of indirect costs
more IT, thus cheaper to collect cost drivers)
Balanced Scorecard (intangibles in measurement (CS, WS, learning)
Value-Based Management (include goodwill in asset base)
Summary
Use of management accounting information for different reasons (multiple
goals)
Information has value, but also costs
MA techniques were invented/used because there was a specific need for
* Often increased complexity, competition
Literatuur: - Chapter 1: Foundations of Management Accounting
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