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Research for the TOPIC:

I. Managerial Accounting and Business Environment


1. Introduction To Managerial Accounting
2. Financial Accounting vs. Managerial Accounting
3. Need for Managerial Accounting Information
4. The Changing Business Environment

In partial fulfilment for the Book Report

For

MANAGERIAL ACCOUNTING

ACC 041

Submitted by:

AIZA L. BALBALLEGO

Submitted to:

PELILIA C. VELOSO, CPA, LLB, DBA

Professor
I. Managerial Accounting and Business Environment
1. Introduction To Managerial Accounting

Managerial accounting, or management accounting,


 is the branch of accounting that focuses on providing information for use by
internal users.
 Managerial accounting processes economic information to aid the
management in making decisions. It is not manadatory yet very important.
Without managerial accounting, a business would suffer in information
deficiency leading to uninformed decisions that are detrimental to the entity's
performance and even to its existence.
 As defined by the American Accounting Association,
"Managerial accounting involves the application of appropriate techniques and
concepts in processing information to assist management in establishing plans
and making rational decisions towards the achievement of the organization's
objectives."
Line and Staff Function
There are two broad functions in an organization: line and staff. Line function
is the one that is directly involved in the core operations of the company such
as sales and production. Staff function, on the other hand, provides advisory
and support to the organization.
Generally, management accountants exercise stafffunctions. They support the
company by providing information to enable decisions which are vital for the
company's performance and continuity.
The Chief Management Accountant (or controller) exercises line function
over his or her subordinates, and performs staff functions to the other
members of the management.
The Management
1. Top management - The top management or administrative level consists of the Chief
Executive Officer (CEO) and the board of directors (BOD). The CEO is also called
the managing director or president, and is selected by the board of directors from
among themselves. The BOD is selected by the shareholders to represent them in
managing the company. The top level management is in-charge with the overall
direction of the company. They set company goals, policies and long-term plans.
2. Middle management - Also known as executory management, the middle-level
management consists of departmental heads and branch managers. They implement
and execute the plans and policies set by the top managements. The middle
management is the intermediary between the top and low level management. They
report to the top management as well as communicate the plans of the top level to the
lower levels.
3. Low level management - The low level management or front-line management is
responsible in directing and controlling the day-to-day operations of the company.
They report directly to the middle management. The lower level management consists
of supervisors, foremen, and officers who are in-charge of directing workers and
employees.
Chief Management Accountant (Controller)
The Chief Management Accountant or Controller, sometimes "Comptroller"
especially in government agencies, is mainly responsible for the accounting aspects of
management planning and control. The controllership department carries out the
following functions:
1. Planning and control - such as making budgets and determining expectations
regarding future outcomes of alternative courses of action
2. Internal reporting and interpreting - accumulating and summarizing financial data
and disclosing its implications to different levels of management
3. Evaluation and consulting - assessing different alternatives giving advice to the
management to come up with appropriate decisions
4. Tax administration - supervising the formulation and implementation of tax policies
and procedures of the organization and evaluating implications of tax-related
decisions
5. External reporting - preparation of financial statements in accordance with
appropriate accounting standards to meet the information needs of external users,
especially the government
6. Protection of assets - implementing internal controls, insurance and performing
internal audits to protect the company from losing its assets because fraud, theft,
natural disasters, etc.
7. Economic appraisal - assessing the value the economic and social and government
influences, and interpret their effects or impact on the business
Often compared to the controllership function is the treasurership function. Both the
controller and the treasurer report directly to the company's head of finance. While the
controller's functions involve internal finance and accounting, the treasurer's
responsibilities involve external finance and cashfunctions.
The functions of the treasurer include: (1) provision of capital, (2) investor relations,
(3) short-term financing, (4) banking and custody, (5) credit and collections, (6)
investments, and (7) insurance.

2. Financial Accounting vs. Managerial Accounting

The differences between management accounting and financial


accounting include:
1. Management accounting provides information to people within an organization
while financial accounting is mainly for those outside it, such as shareholders
2. Financial accoting is required by law while management accounting is not.
Specific standards and formats may be required for statutory accounts such as in
the I.A.S International Accounting Standard within Europe.
3. Financial accounting covers the entire organization while management
accounting may be concerned with particular products or cost centres.
Managerial accounting is used primarily by those within a company or
organization. Reports can be generated for any period of time such as
daily, weekly or monthly. Reports are considered to be "future looking"
and have forecasting value to those within the company.
Financial accounting is used primarily by those outside of a company or
organization. Financial reports are usually created for a set period of
time, such as a financial year or period. Financial reports are historically
factual and have predictive value to those who wish to make financial
decisions or investments in a company. Management Accounting is the
branch of Accounting that deals primarily with confidential financial
reports for the exclusive use of top management within an organization.
These reports are prepared utilizing scientific and statistical methods to
arrive at certain monetary values which are then used for decision
making. Such reports may include:
 Sales Forecasting reports
 Budget analysis and comparative analysis
 Feasibility studies
 Merger and consolidation reports
Financial Accounting, on the other hand, concentrates on the
production of financial reports, including the basic reporting
requirements of profitability, liquidity, solvency and stability.
Reports of this nature can be accessed by internal and external users
such as the shareholders, the banks and the creditors.

NEED FOR MANAGERIAL ACCOUNTING INFORMATION:


LEARNING OBJECTIVES OF THIS ARTICLE:
 What is the need of managerial accounting in organizations and business firms?
Every organization – large and small-has managers. Someone must be
responsible for making plans, organizing resources, directing personnel, and
controlling operations. Every where mangers carry out three major activities –
planning, directing and motivating, and controlling.
PLANNING:
 Planning involves selecting a course of action and specifying how the
action will be implemented.
 The first step in planning is to identify the alternatives and then to select
from among the alternatives the one that does the best job of furthering
the organization’s objectives. While making choices management must
balance the opportunity against the demands made on the companies
resources.
 The plans of management are often expressed formally in budgets, and
the term budgeting is applied to generally describe the planning
process. Budgets are usually prepared under the direction of controller,
who is the manager in charge of the accounting department.
Typically, budgets are prepared annually and represent management’s
plans in specific, quantitative terms.
DIRECTING AND MOTIVATING:
 In addition to planning for the future, managers must oversee day-to-day
activities and keep the organization functioning smoothly. This requires
the ability to motivate and affectively direct people. Managers assign
tasks to employees, arbitrate disputes, answer questions, solve on-the-
spot problems, and make many small decisions that affect customers and
employees.
 In effect, directing is that part of the manager’s work that deals with the
routine and the here and now. Managerial accounting data, such as daily
sales reports are often used in this type of day-to-day decision making.
CONTROLLING:
 In carrying out the control function, managers seek to ensure that the plan
is being followed. Feedback, which signals operations are on track, is the
key to effective control. In sophisticated organizations, this feedback is
provided by detailed reports of various types. One of these reports, which
compares budgeted to actual results, is called a performance
report. Performance report suggest where operations are not proceeding
as planned and where some parts of the organization may require
additional attention.
THE PLANNING AND CONTROL CYCLE:
 The work of management can be summarized in a model. The
model, which depicts the planning and control cycle, illustrates the
smooth flow of management activities from planning
through directing and motivating, controlling, and then back to
planning again. all of these activities involve decision making. So it
is depicted as the hub around which the activities revolve.
 Change is an inevitable part of life. Change is also an important part
of a business life; it allows a business to adapt to its environment
and to improve its market position. Change signifies the willingness
of the affected parties to embrace and function in a newly
established order and their commitment to effect and implement the
changes (Armstrong, 2004).
 The generic definition of change as defined by Hughes (2006) is
“any alteration in the status quo.” Changes within an organisation
may take place for many reasons. It is sometimes done in order to
introduce a new more efficient way of working or producing a
product. It is sometimes done to re-organise the organizations work
force. Organisations will evolve and change within the course of
their lives. Change management is referred to as the process of
which change is executed and developed within the organization.
Change is something that affects all business and therefore all
business managers must prepare their personnel and processes for
change.
Theories of Change Management
 Changes in the business environment are happening all the time and
organisations must change the way they operate to compete effectively in
their market. In order to change organisations must adopt change theories
and approaches however with so many different approaches available an
organisation must choose an approach that best suits its needs. Different
managers will have different theories as to how change should be
implemented and executed. Kurt Lewin is considered the forefather of
planned approaches to change.
Kurt Lewin’s Freeze Phases
 [Source: Higgs & Rowland, 2005]
 Lewins model shows that change involves a move from one static state
via a state of activity to another static state.
Beer’s Model
 Change is more complex than the Lewin model and requires a more in-
depth look at the process of change. Beer’s model focuses on a six-step
process to achieve effective change, these steps concentrate on ‘task
alignment ‘whereby employees’ roles, responsibilities, and relationships
are seen as the main component to bringing about effective change. The
stages are:
 Mobilise commitment to change through joint diagnosis.
 Develop a shared vision of how to organise.
 Foster consensus, competence and commitment to shared vision.
 Spread the word about the change.
 Institutionalise the change through formal policies
Kotter Model
 Kotter developed what he believed to be the eight critical steps to the
successful implementation of change these steps are:
 Establish a sense of urgency – Examining market and competitive
realities and identifying and discussing crises, potential crises and
opportunities.
 Form a powerful, guiding coalition – Assembling enough people with the
enough power to lead the change.
 Create a vision – Create a vision to help direct the change and develop
strategies for achieving the vision
 Communicate the vision – Use every medium possible to communicate
the vision and strategies to be implemented
 Empower others to act on the vision – Get rid of obstacles to change and
encourage risk taking and non-traditional ideas.
 Plan and create short term wins – Plan for visible performance results and
recognise and reward employees who are involved in the improvements
 Consolidate improvements and produce still more change – Hiring,
promoting and developing employees who can implement the vision.
 Institutionalising New Approaches – Develop the means to ensure
leadership development and succession.
Impact and Barriers
 If change is not implemented in the correct manner, the impact upon the
business can be devastating. Some of the workforce may decide to leave
as they do not agree with what is be implemented and that leaves
managers trying to fulfil orders or provide services with half a workforce
which puts pressure on the rest of the workforce.
 Communication is key to help reduce barriers, for any change strategy to
achieve its goal every member of staff within the organisation must be
constantly communicating with executive managers. If staff members
ask, “Why do we need to do this?” a manager must be able to give them a
valid answer.
 Change normally affects both a business’s internal and external
environments. Internally staff may feel that they have been left out of the
loop and are just being told that they must accept the change or the
reverse may happen the staff may be contributing heavily to the change
and helping to direct the new vision. Externally an organisation may
make an impact on their market by promoting a new service or product.
 There are a number of barriers to successful change – both in terms of
actually implementing the change and sustaining it. Employees must be
able to flourish within an every changing environment to allow them to
contribute to an organisations success. Lisette Howlett, (2009) states the
10 main barriers to successful change these are listed below:
 Not enough understanding about the change itself
 Lack of leadership
 Lack of focus and strong project management of the change
 No engagement and/or buy-in of key stakeholders
 No clear process for managing endings and beginnings, and co-ordinating
the change process
 Successes are not recognised, communicated
 Progress is not measured and the learning is not reviewed
 Change is very tiring and is often something that requires extra effort –
people need to see that this effort is paying off and their contribution is
valued
 All of these barriers can be overcome if the correct procedures are put in
place and communication is constant throughout the process. Employees
need to feel that they are major contributors to a company’s success and
will sometimes feel undervalued if they are not involved in the process of
change this can lead to hostility amongst the workers and feelings of
anger towards the management this in turn leads to barriers being erected
due to the fear of change.
Changes take many forms and create new challenges. For an industry as a whole,
it may well be that:
 Customers' needs and requirements change. They look for new, better and
cheaper products.
 New technologies become established. These encourage new firms to enter the
industry with better products and cheaper ways of doing things.
 Employees' skills need revising to take advantage of new technologies.
 New laws are passed that require changes in how businesses operate eg
introduction of a minimum wage, restrictions in working hours and tougher
health and safety requirements.
 Traditional sources of supplies of raw materials and components begin to look
less reliable.
 New supply sources emerge.
 Banks and other investors start to lose interest in financing the industry.
 Pressure groups start to take a greater interest in the industry's activities.
 The industry ceases to be able to attract new, high calibre recruits.
For individual firms within an industry, the external business environment also
includes their competitors, who may:

 introduce new, superior methods of production


 change the ways in which they compete for business
 extend their target markets
 find new ways of attracting key employees.
One test of a firm and also of an industry is how well it recognises significant
changes and adapts to them.
Change must be managed, implemented, and executed in such a way that
there is always communication between staff and managers. This allows
for equilibrium and encourages growth and innovation within a company.
Each change management theory has its strengths and weaknesses and
each can be adapted to an organisations needs but I believe that managers
must invite all staff to offer ideas on a creating a new vision for the
company and thus driving the company forward as a whole.
Changes in the business enviornment
The business environment in which firms operate lies outside themselves.
It is their external environment, which is always changing. Some changes
are so dramatic that everybody notices them, but others may creep up on
an industry over the years and be largely ignored for too long.

Bibliography:
 Hughes, M. (2006). Change Management: A Critical Perspective.
Chartered Institute of Personnel and Development. ISBN: 1-84398-070-
3.
 Armstrong, M (2004). Managing Organizational Change in Nigeria
Manufacturing Enterprises: Lessons from the Unilever Nigeria Plc. AC
Associated Content. Retrieved from
http://www.medwelljournals.com/fulltext/?doi=ibm.2009.15.21
 Syque. (2007). Lewin’s Freeze Phases. Changing Minds. Retrieved from
 Higgs, Malcolm, and John Wren. The Leadership of Change: a Study of
Change Leadership within the UK Royal Air Force. Henley-on-Thames:
Henley Management College, 2005. Print
 Howlett, Lisette. “10 Common Barriers to Successful Change.” MLH
Consulting. 15 Sept. 2009. Web. .
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tm
 https://www.accountingverse.com/managerial-
accounting/introduction/managerial-vs-financial-accounting.html
 https://www.accountingverse.com/managerial-
accounting/introduction/what-is-managerial-account
 https://www.ukessays.com/essays/business/changes-in-business-
environment-important-business-process-business-essay
 http://businesscasestudies.co.uk/portakabin/responding-to-an-emerging-
market/changes-in-the-business-enviornment.html

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