The Financial and Management Accounting Roles - Essay Example

Managerial Finance Explain the differences between the financial and management accounting roles (35% of marks) Accounting as such is used for maintaining the account of quantitative information about the transactions involving finances and resources. In other words it is the process of identifying, measuring, handling and communicating the financial information about different economic entities for being used by the concerned parties. How this information is used by the company and the persons handling the information helps in classifying it in managerial and financial accounting. Persons entrusted with both types of tasks play crucial roles in the development and progress of the company, but there’s some difference in the way information is gathered by the financial and management accountants and how this information is further processed to arrive at some decisions. Managerial Accounting: Managerial accounting helps the management in taking futuristic decisions, planning and evaluating the existing strategies of the company. These tasks become much easier when managerial accounting provides the information like; Financial reports for forecasting the futuristic trends Strength of the company as compared to competitors Standing of the company in the industry Customer satisfaction levels Effectiveness of the resources being used by the company Availability of alternative resources Optimum levels of production or services within the available resources Break even points for the production or services Need for diversification, setting up ancillary units Comparison of the performances, profitability, operating ratios over a period of time, e.g. for the last two years or over a decade Emphasis being given to quality standards Changes in operating ratios, sales figures as a result of adopting stringent quality standards Managerial accounting is in general used by the management team of the company for translating the trends and signals available from the financial information. Different levels of managers often use this information in somewhat different manner in their own wisdom. The information is often used for Break even analysis, Measuring and evaluating the monthly, quarterly or annual performances or Preparing the targets for production and services. Financial Accounting: This type of accounting gives an idea to people from outside the company as well as stakeholders from within the company to arrive at a decision regarding their decision to continue with the company or look for a better opportunity. Financial accounting provides information like; Profit and loss figures for the company over a financial year or select period of time Reserves and surpluses being maintained by the company Dividend payouts by the company in the recent past Nature of funding for the company e.g. debt or equity Proportion of dependence on finances from outside the company’s own reserves Number of stakeholders in the business Operating ratios for assessing the financial health of the company Adherence to the Generally Accepted Accounting Principles (GAAP) Number and types of external reports generated Judicious plans of the company for disbursing the profits Such information helps investors in looking for long-term or short-term targets for the investments being done in the ABX Company. It is worthwhile here to mention that individual shareholders, banking and financial institutions keep watch on the figures being communicated by the company from time to time. While on the one hand for an individual investor the dividend payouts and the price of the share in the stock market holds the key, the banking and financial institutions keep a close watch on a range of figures like operating ratios, profit margins, PE ratios etc. Therefore, even the dividend payouts and higher prices of company’s share on the stock exchanges may not be attractive enough for the banks and financial institutions to advance finances for expansion and diversification. The financial accountant helps in preparing all such reports for the outside to have a truthful glimpse of the company’s operations. 2. Explain the concepts of scorekeeping, attention directing and problem solving activities (15% of marks). Scorekeeping: As the name itself signifies, scorekeeping is essentially meant for keeping ‘score’ i.e. record of the performance of the ABX Co. The assistant taking on the management accounting responsibilities will help the management in framing strategies for future and controlling the functioning of the company by collecting data from different sources and reporting consolidated results to different levels of management, with comments regarding how ABX Co. is doing. For example, scorekeeping helps in tasks like keeping a tab on actual spending by the company under different head as compared to the budgeted amount. This helps the management in planning strategies to keep a tab on undue expenditure or revising the budget estimates for future. Attention Directing: This aspect is taken care of by the management accountant to invite the attention of the decision taking body in the management on particular aspects crucial for the growth of the company. While preparing comparative statements and placing relevant comments about the ongoing activities within the company, the new assistant being employed by ABX Co. will help the management in devising strategies by directing their attention on key areas and opportunities. At times, this implies that the management must not be too much obsessive about cost cutting measures and instead also focus on measures like investing in quality and value addition. Similarly the management account is also supposed to inform the management about excessive expenditure being done on strategically unimportant tasks or odd jobs, which could otherwise have been postponed for later. Problem Solving Activities: Company strategy, planning and control mechanism depends upon how the company prepares its response to a particular issue. For example, one particular problem might have more than one solution, leading to different sets of outcomes. The management account is supposed to study such aspects, prepare a list of alternative responses or solutions using comparative analysis and present a detailed report in front of the decision taking body. This helps the management is going for the best available decision. For example, ABX Co. is in the business of producing readymade meals for the food industry, and the changing food habits like the increasing trend of ‘fast food’ is fast replacing the traditional emphasis on the concepts like ‘staple diet’, it therefore becomes necessary on the part of the company to study such trends and prepare a matching response. 3. Describe the type of work the newly recruited management accountant could do and how this could benefit the business. Use examples drawn from this course - analysis of fixed, variable and semi-variable costs; Budgeting etc. to illustrate any points you wish to make (35% of marks) The newly recruited management accountant could be entrusted with a wide range of works benefitting the business and prospects of ABX Co. Some of the works could be; i. Preparing break even analysis for the new initiatives being taken up by ABX Co. This requires analysis of fixed, variable and semi-variable costs. This would also involve comparison with the results of similar analysis done the past and recording the historical trends. ii. Measuring and evaluating the monthly, quarterly or annual performances for different departments and the company as a whole. It is pertinent to note that the overall outcome of the company depends on the coordinated efforts of different departments and successful implementation of strategies prepared for these departments. While carrying out such exercise, the management accountant is also supposed to make comparisons of the actual costs with the projected costs. iii. Preparing the targets for production and services of different departments, which help in preparing a target for the company. This has to be done in keeping an eye on the resources as well as competitors. This also helps in keeping a close watch on the performance of the department supervisor and the concerned workforce. If required the concerned personnel could be asked to implement suitable strategies to improve their performances. iv. Overseeing the implementation of total quality management (TQM) policies and customer satisfaction strategies. The quality aspect has in fact one of the key parameters for remaining in business, retaining the customer base and taking on the competitors. v. Enlisting the strategies being adopted by competitors and suggesting a set of strategies to take on such competition. Today we are living in the era of globalization, which implies that the competitor could be a native company or a global company offering its products and services through the internet; therefore ABX Co. too needs to take into account this aspect as well. Collecting such data from different sources and preparing reports require that the new incumbent to the post of management account must be well aware of the latest advancement in the IT field together with the managerial and financial aspects. vi. Preparing a list of hard working employees, supporting individuals and organizations so that the management could suitably reward such efforts and motivate them to do even better in times to come. Such motivation goes a long way in providing strength to the organization and spreading good words about the company as, ‘worker friendly’ company. vii. Preparing a report on the latest environment standards, so that ABX Co. could continue to be seen as a responsible and ethical company in the society. Taking care of the waste and pollution determines the levels of respect being shown by the company for environment and social well being. Governments also encourage such companies by providing them adequate support, while reprimanding the non-performers. viii. Suggesting a set of marketing communication and sales promotion strategies for the management to ponder over. PR exercise and marketing communication not only helps in gaining loyal customers, but it also helps in brand building for the company. ix. Provide some idea to the management towards planning for diversification or expansion of the business operations x. Carrying out studies amongst the workforce, assessing their needs, aspirations and expectations so that the management could come out with some motivational strategies for the workforce. This in turn will result in better performances for the company. Read More