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Chapter 4

The document discusses the role of management accountants in organizations. It covers how management accountants help managers in various business functions and provides accounting information. It also discusses newly evolving management themes that are shaping developments in management accounting systems such as customer satisfaction, key success factors, total value chain analysis, and continuous improvement.

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Kibrom Embza
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38 views6 pages

Chapter 4

The document discusses the role of management accountants in organizations. It covers how management accountants help managers in various business functions and provides accounting information. It also discusses newly evolving management themes that are shaping developments in management accounting systems such as customer satisfaction, key success factors, total value chain analysis, and continuous improvement.

Uploaded by

Kibrom Embza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER FOUR

The Accountant’s Role in an Organization

Learning objectives:
After learning this chapter you will be able to understand:
• The major purposes of management accounting system
• The newly evolving management themes.
• The elements of management control & Accounting information.
• Organization structure & the management accountant

4.1 Introduction to Management Accounting


The term management accountancy is of recent origin. The term Management
Accountancy was first used in 1950 by a team of accountants visiting USA
under the auspices of Anglo-American Council of Productivity. The terminology
for Cost Accountancy has no reference to the word management accountancy
before the report of this study group.
The study of modern Cost & Management Accounting yields insight into both
the accountants’ role and the managers’ role in an organization.
➢ How are these two roles related?
➢ How can accountants help managers?
This part of the course addresses these questions.

4.2 Managers as Customers of Accounting


Management Accounting ties management with accounting. Managers are the
customers of Management Accounting. To maximize the value, accountants
must focus on the challenges facing managers as much as on the technical
aspects of accounting measurement.

The Value Chain of the Business Function


The value chain is the sequence of business functions in which utility
(usefulness) is added to the products or services of an organization. Managers
in all areas of the value chain are customers of accounting information. The
business functions in the value chain are (1) “Research & Development; (2)
Design of Products, Services or Processes; (3) Production; (4) Marketing;
(5) Distribution; (6) Customer Services; and (7) Strategy &
Administration”.

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Research & Development: The generation of, and the experimentation with,
ideas related to new products, services, or processes.
Design of Products, Services or Processes: The detailed planning and
engineering of products, services, or processes.
Production: The coordination and assembly of resources to produce a product
or deliver a service.
Marketing: the process by which individuals or groups (i) learn about the value
attributes of products or services, and (ii) purchase those products and
services.
Distribution: the mechanism by which products or services are delivered to
the customers.
Customer Services: The support activities provided to customers.
Strategy & Administration: Spans across all the individual business
functions. This category includes senior executives charged with the overall
responsibility for the organization. General administrative tasks such as
human resource management, legal matters, tax planning, and the like are
often included in the strategy and administrative function.
Accounting is a major means of helping managers:
(a) To administer each of the business functions presented above.
(b) To coordinate their activities within the framework of the organization as
a whole.

4.3 Broad Purposes of an Accounting System


Accounting Systems provide information for four broad purposes:
(a) Internal routine reporting for cost planning, cost control, and
performance evaluation.
(b) Internal routine reporting on profitability of products, services,
brand categories, customers, distribution channels, and the like.
(c) Internal non-routine reporting for strategic and tactical decisions,
and
(d) External reporting.
The accountants’ task of supplying information has three facets:
In most organizations; management accountants perform Scorekeeping,
Attention Directing, and Problem Solving functions. The first function
emphasizes the importance of the integrity of accounting information, while
the other two functions emphasize the helper role of the accountant.

Scorekeeping: The accumulation of data. This aspect of accounting enables


both internal and external parties to evaluate organizations performance and
financial position.

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Attention Directing: The reporting and interpretation of information that
helps managers to focus on operating problems, imperfections, inefficiencies,
and opportunities. It is associated with the current planning and control and
with the analysis and investigation of recurring routine internal accounting
reports.
Problem Solving: this aspect of accounting involves the concise quantification
of the relative merits of possible courses of action, often with recommendations
as to the best procedure. It is commonly associated with non-recurring
decisions, situations that require special accounting analysis of reports.

4.5 Newly Evolving Management Themes


Management accounting exists to help managers make better decisions.
Changes in the way managers operate require revaluating the design and
operation of the management accounting system.
Important management themes that are shaping developments in management
accounting systems include:
(a) The primacy of customer satisfaction;
(b) Linking planning and controlling to key success factors;
(c) Total value chain analysis;
(d) Dual internal/external focus; and
(e) Continues improvement.

(a) Customer satisfaction is Priority one: Customers are pivotal to the


success of an organization. The number of organizations aiming to be
“customer driven” is large and increasing.

(b) Key success factors: are demanding ever-improving levels of


performance regarding several (even all) of the following factors:
Cost: organizations are under continuous pressure to reduce the cost of
the products or services they sell to their customers.
Quality: The quality of a product or service is its conformance with a
preannounced or pre-specified standard. Customers are expecting higher levels
of quality and less tolerant of low quality than in the past.
Time: Time has many components, including the time taken to develop
and bring new products to market, the speed at which the organization
responds to customers requests, and the reliability with which promised
delivery dates are met. Organizations are under pressure to complete activities
faster and to meet promised due dates more reliable than in the past in order
to increase customer satisfaction.

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Innovation: there is now heighten recognition that a “continuing flow of
innovative products or services is a prerequisite for the ongoing success of
most organizations.
Factors that affect directly customer satisfaction, such as cost, quality, time
and innovative products and services are termed “Key Success factors.”

(c) Total Value-chain Analysis: This theme has two related aspects:
(i) Treating each of the business functions as an essential and value
contributors, and
(ii) Integrating and coordinating the efforts of all business functions in
addition to developing the capabilities of each individual business
function.

(d) Dual internal/external focus: Managers operate in both an internal


and external environment. The internal environment includes the
physical, human, and information aspects associated with each of the
individual business functions and how those functions themselves are
coordinated. The external environment includes customers, competitors,
suppliers, and government bodies. Successful organizations need to be
“fast” in order to respond to changes in both their internal and external
environments.

(e) Continues improvement: Continues improvement by competitors


creates a ‘never-ending search” for higher levels of performance within
many organizations.
Phrases such as the following capture this theme:

➢ “ A journey with no end”


➢ “We are running harder just to stand still”
➢ “If you are going forward, you are going backwards’
➢
The Japanese term for “continuous improvement” is “Kaizen,” and Toyota
Motor Company uses the phrase ‘Kaizen Management” to describe its
“commitment to Progress.”

The high level of interest managers have in benchmarking also illustrate this
theme. Benchmarking is the continuous process of measuring products,
services, or activities against the best level of performance that may be
found either inside or outside the organization.

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4.6 Accounting as a Management Tool
Accounting helps planning, control, and decision making through budgets
and other financial benchmarks: Its systematic recording of actual results, its
analysis of cost behavior, and its role in performance evaluation.
Management accountants and controllers are staff management in most
organizations, staff managers exist to provide advice and assistance to line
managers, who are directly responsible for attaining objectives of the
organization.
Management Accountants have important ethical responsibilities that are
related to Competence, Confidentiality, Integrity, and Objectivity.

4.7 Organization Structure and the Management Accountant


A well-organized finance department is absolutely essential for the
efficient financial management of an enterprise. If finance department
does not operate well, the whole organizational activity will be ruined.

A self-explanatory organization structure of finance department in a large


organization is given below:

Board of
Directors

Managing
Director

production Finance
Production Marketing
Director Director/
Director Director
CFO

Controller Treasurer

Functions: Functions:

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1. Planning & Control 1. Provision of capital
2. Internal reporting 2. Short-term financing
3. Evaluation & consulting 3. Banking & custody
4. External reporting 4. Credit & collections
5. Protecting of assets 5. Investments
6. Economic appraisal 6. Foreign exchange management

Chief Financial Officer


The chief financial officer (CFO) – also called the finance director – is
the senior officer empowered with oversight of the finance operations of
an organization. The responsibility of the CFO varies among
organizations, but they almost always include the following four areas:
➢ Controllership/ financial control
➢ Treasury
➢ Tax planning
➢ Internal audit
In some organizations, the CFO also has responsibility for information
systems. In other organizations, an officer of equivalent rank to the CFO
– termed Chief Information Officer – has responsibility for information
systems.
Some people confuse the responsibility of the controller and the
treasurer. Their functions are listed above. The Controller is the
financial executive primary responsible for both the management
accounting and financial accounting. The Treasurer is the financial
executive who is primarily responsible for obtaining investment capital
and managing cash.

ENDS

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