Management Accounting Practice and Benefits From Newly Adopted Accounting Practices

Question:

Discuss About The Newly Adopted Accounting Practices Rules?

This report reflects the key understanding on the accounting practices and particular changes arise after implementation of newly adopted accounting practices and rules. In this report, key area of management accounting is related to the management accounting practice and benefits arise from the newly introduced accounting practice on the business organizations. With the increasing ramification of economic changes, management accounting practice has been changing throughout the time and it is becoming cumbersome process for accountant to comply with implemented rules and regulations in determined approach. In this report, various newly introduced accounting rules and adopted management process system have been taken into consideration. It is considered that management department has to ensure all the changes in accounting rules and regulation with a view to adopt new process system and process management in determined approach.  These accountants have to evaluate whether company is complying with all the rules and applicable standard while running its business effectively in organization (Muckstadt & Sapra, 2010).

As per the perception of Muckstadt & Sapra, (2010) it is reflected that with the increasing ramification of economic changes, management accounting practice has been changing and it is becoming cumbersome process for accountant to comply with implemented rules and regulations in determined approach. These changing factors are imposing the requirement on business to change their ways of operating a management of business.  There are several big organizations such as G.E. capital, Wesfarmers, Woolworth and Morrison plc. That has adopted changed management accounting practice in their accounting and reporting frameworks. These changed have been adopted with a view to strengthen the accounting and reporting frameworks of organization and increasing transparency of business functioning to their shareholders.

As per the perception of Christ, & Burritt (2013) it is reflected that there are several management accounting techniques which have been adopted by organizations such as cost management technique, ABC accounting technique, LIFO, FIFO methods, overhead absorption and apportions accounting technique and costing technique. However, accountants have become aware about these accounting techniques to manage their accounting practice in determined approach. Nonetheless, Multinational organizations set up different big rules and regulations for the management accounting practices with a view to strengthen the accounting and reporting frameworks and increasing transparency of business functioning to their shareholders. Ideally, when companies adopt different management accounting practice, then they have to evaluate various factors such as life cycle of business, size of business, regulatory requirements, modernisations of techniques and inventory management techniques.

Management Department’s Role in Adopting New Process System

 As stated by Needle, (2010) it is reflected that with the changes in economic factors and business conditions, accountant has various responsibilities of management accountant and other executives of management. Management accountant has covered not only accounting task to manage the business transactions but also play important role in playing financial tasks in determined approach. However, there are several reporting and analysis work which are played by accountant in an organization.

As per the views of Hada, Chakravarty & Mukherjee, (2014) it is divulged that Reporting of financial statement to stakeholders is an important functioning of organizations. The management accountant is responsible for preparation the management accountant is responsible for preparation of reports on the functioning of various operations and to identify the root causes of any deficiency in the operations. Also the accountant is required to apply the analytical skills to the data of the company to compare the actual results with the benchmarks and to report the deviations, if any with the suitable recommendations.

Formulation of Strategies: The management accountants are responsible to formulate the strategies for the management and the effective implementation of the same so as to achieve the targets and the goals effectively.

Decision Making: The decision making function is the most crucial function in any organization as it require good amount of information to take important decisions for the company. The management accountant provides material and necessary to the top level management.

 Interpretation of Information: Management accountant helps in the interpretation of financial information provided to the management so that it becomes easy for the managers to understand the operating results.

Advisor: Cost management is supposed to provide the best advice relation to various crucial matters on which management has to take firm decisions. The accountant is required to provide the advice which is best suitable to the company so as to improve the overall performance of the different functions of the company.

Change Manager: As organization has to adapt to the changes that are rapidly occurring in the environment in which it is operating, the management accountant will help the firm to cope up with the changes by identifying and assessing the need and implications of changes through provision of updated information (Christ, & Burritt 2013)

Performance measurement: The management accountant helps the organization in measuring the performance of overall organization as well as the performance of individuals of the management such as employees and the managers.

Organization That Adopted Changed Management Accounting Practice

As per the views of Iyer, et al. (2015) it is divulged that creation of customer’s value is very important business functioning of organization. It is considered that if amount paid by customer to buy goods and services from the market is high as compared to the satisfaction they get from the market then customer’s value would be high. It is further observed that in case if customers get high satisfaction from the purchased goods and services then in this customer’s value would be high. It is observed that accountant management could increase the overall client satisfaction if they implement proper management accounting system to record financial and non-financial transactions in determined approach. There are several companies such as G.E. capital, Wesfarmers, Woolworth and Morrison plc. who have created core competency in creation of customer’s value and shareholders wealth. These companies have developed organization culture by implementing proper level of policies and frameworks and delivering best level of services to clients. Customers in the market could evaluate the brand image and value chain activities of organization by understanding financial statements in determined approach.  Application of different level of accounting practice and developed accounting plans has helped G.E. capital, Wesfarmers, Woolworth and Morrison plc. to creation customer’s value in the market. This has not only increased overall clients buying habits but also enhance the brand image of company in market. This creation of customer’s value is key pillar for the success of organization and it could be created by increasing the overall quality of client and production efficiency in determined approach (Iyer, et al. 2015).

Shareholders are the key persons of company who make investment and provide capital to run the business. With the help of effective accounting management practice, company could increase the overall transparency of business and showcase the real earning to its stakeholders. It is further observed that if company increase the earning per share then it will eventually increase the overall shareholder’s health. Companies like G.E. capital, Wesfarmers, Woolworth and Morrison plc. have been offering high amount of earning per share to its shareholders. Morrison plc. offered 1.23 points average EPS to its shareholders since last five years data. On the other hand, Woolworth and Wesfarmers shared approximately 1.92 points average EPS to its shares. Company could increase the shareholders health by offering dividend, bonus shares and other retained earnings for the betterment of shareholders earning. However, various companies such as BP Billiton and Rio Tinto instead of offering dividend to its shareholders plug back all the profit earned in the business functioning of organization. This process will not only increase the overall value capital of the organizations but also provide high level of value creation to shareholders who invested their money in organization. It is observed that if company must focus on maximization of company’s performance and increasing the overall value of capital. If companies fail to create value of investment then it will decrease the value of company in shareholders’ mind. However, each and every companies issues dividend, shareholders rights issues and other right to its shareholders with  a view to establish proper level of nexus between company’s welfare and shareholders wealth in effective manner.  This shareholders wealth could be increased if company have proper level of harmonization in plugging back of profit and distributing overall earning to its shareholders (Iyer, et al. 2015).

Different Management Accounting Techniques Adopted by Organizations

As stated by Muckstadt & Sapra, 2010 it is reflected that after evaluating these two issues given above, it could be inferred that if organizations are making proper level of efforts then these two issues could be mitigated in determined approach. It is evaluated that company needs to identify the best possible efforts method such as issues of stock options, issues of right shares, dividend and other benefits to shareholders to increase the overall shareholders wealth.  It is considered that shareholder’s wealth is completely dependent upon two factors such as distributions of company’s benefits to shareholders and increase in the invested capital of company. Another issue is related to providing customer’s satisfaction to clients in the market. If company re-engineering its value chain activities to increase the effectiveness of overall efficiency of business then it will also increase the client satisfaction and brand image of company in the market.

It is observed that if company manages its resources such as financial, operating and other resources in effective manner then it will result to following benefits to organization such as creation of synergy in market, development of core competency and offering high level of quality and management of business (Muckstadt & Sapra, 2010).

Resources management is the system of management of resources of company in easy and determined approach with a view to create value of investment and efficiency of business.  With the help of this resources management of business, company could reduce the wastage and by products of business. However, there are several techniques and methods which are very crucial for the management of business resources in company such as ABC costing technique, cost management method and absorption and appropriation of expenses in different department and determining the economic batch quantity by establishment of Economic order quantity of business. However, management of resources is done by using LIFO and FIFO method in inventory management technique (Hansen, 2011).  It is considered that LIFO, FIFO and setting economic order of quantity is the most common method which company could use with a view to reduce the wastage and overburden of inventories in warehouse of the business. There are several companies such as G.E. capital, Wesfarmers, Woolworth and Morrison plc. who have been using inventory management business technique to maintain proper level of inventory in warehouse.

Target costing:  This is the technique which is used to determine the margin company needs to earn after selling products and services. This target costing also helps company to reduce the complexity of business and reduce the byproducts (Baker & English, 2011).

Responsibilities of Management Accountant and Other Executives of Management

Activity Based Budgeting- This is the budgeting process which helps organization to prepare budgeting process to analysis the cost attributable for the different department of organization. This Activity based budgeting assists company to evaluate the revenue and other associated cost of particular department and organizations in determined approach. This Activity based budgeting will help company to evaluate the historical budget information and prepare an effective inventory management plan. This will not only help in reducing overall cost of particular process system but will organization to create core competency in the production of organization This Activity based budgeting  provide effective control on the management of expenses and inventory management of business. Nonetheless, this is very costly process and may result to increment in overall production cost for the particular time period (Lambert & Pezet, 2011).

Total quality management: This technique is developed with a view to increase the total quality of offered goods and service for the better satisfaction of clients. This TQM assists in increasing the overall efficiency of business and customized overall goods and services in determined approach. This TQM method is used by organization to set up particular standards and quality benchmark to increase the overall efficiency of business.

Resource levelling: This technique is developed with a view to increase the overall efficiency of company to increase the satisfaction of clients managed in order to handle the constraint effectively.

Six sigma: This is the set standard which is used by company for the quality check or proof reading of work. This Six sigma process is highly used by GE capital to evaluate its value chain activities (Hirst, Thompson & Bromley, 2015).

Logistic management: This process is used to manage the flow of goods and services from one place to another place. This logistic management implement efficient business functioning and decrease the complexity of value chain activities.

Allocation of cost is different department is very necessary task for determining the cost of productions and units produced. However, there are several methods such as ABC costing, traditional costing and other methods to make bifurcation of cost in different department in determine approach (Dunning, 2014).

Direct Method: This method is most common method in which all the cost is directly bifurcated into different department of organization.

Step down Method: In this method all the associated department and functions share the expenses and overhead cost in different particular department.

Reciprocal Method:  With the help of this method, proper allocation of expenses in different department is based on the recognition of corresponding services to the service departments. However, this method is complicate and result to high level of complexity to determine the reciprocal allocation of indirect expenses in concerned department (Needle, 2010).

Important Functions of Management Accountant

However, it is evaluated that direct cost is allocated directly to the concerned department but allocation of indirect cost is based on the different cost drivers such as variable cost, number of hours and labour machinery working (Boxall & Purcell, 2011).

The cost is allocated by using cost actual labour or machinery working in the business process of organization.

References

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