Related literature

This chapter presents related literature sources of all topics in Management

Accounting Services Part II.

Decentralization
Decentralization as an approach to development administration occupies an
important conceptual position within the development discourse. Yet the
assessment of decentralization in a significant share of the academic and
practitioner literature has shifted from marked optimism to one of caution,
even pessimism. This review presents a typology of decentralization reforms
in developing countries. It then explores the ideological and rhetorical
underpinnings of decentralization reforms and the complex set of political
realities and motivations in the centralized governments that are, rhetorically
or effectively, undertaking them. Four problematic issues and controversies
surrounding decentralization are explored in the concluding section,
including the impacts of decentralization on inequality, macroeconomic
stability and political accountability. In analyzing specific reforms, analysts
should attempt to explain the diverse impacts of decentralization reforms
and to elucidate the political dynamics of center-local relations.
(http://lkyspp.nus.edu.sg/wp-content/uploads/2013/04/wp16_06.pdf)
Segment Reporting
The Financial Accounting Standards Board (FASB) first issued the
Statement of Financial Accounting Standards No. 14 (SFAS 14), "Financial
Reporting for Segments of a Business Enterprise" in 1976, which required
firms to report certain financial information using the industry approach by
defining industry segments and also geographic segments in the financial
statements.
The FASB began reassessment of segment reporting in 1993 after
financial statement users raised concerns over the quality of segment
reporting under SFAS 14. The American Institute of Certified Public
Accountants (AICPA) Committee on Financial Reporting and the Association
for Investment Management and Research (AIMR) stressed the importance of
segment information and the shortcomings of SFAS 14 (AIMR 1993; AICPA
1994). These groups argued that it was important for a company to present
segment data in the same way it organizes and manages its business, and
criticized SFAS 14 for being too vague and circumvent able.
The current segment reporting regime, implemented in1997, is
regulated by Statement of Financial Accounting Standards No. 131,

Disclosures about Segments on Enterprise and Related Information (SFAS

131). Rather than the SFAS 14 segment-reporting regime derived from the
notion of industry and geographic segments, SFAS 131 introduced a new
model for segment reporting termed the management approach. This new
approach focuses on the way the chief operating decision-maker organizes
segments within a company for making operating decisions and assessing
firm performance.
Based on a FASB assumption that a primary objective of financial
reporting is to help investors, creditors, and others assess the amount and
timing of prospective cash flows (FASB 1978), this change in reporting
requirements was expected to provide financial statement users with a
better understanding of a firms overall performance, thereby improving their
ability to predict future cash flows (FASB 1997; AIMR 1993; AICPA
1994).Subsequently, in 2006, the International Accounting Standards Board
(IASB) issued International Financial Reporting Standard 8 (IFRS 8),
Operating Segments. IFRS 8 aligns segment reporting with the
requirements of SFAS 131 by requiring firms to implement the management
approach to disclose the financial performance of its operating segments.
The IASB believes that the management approach benefits users by allowing
them to see through the eyes of management. Even after 15 years post
implementation of the current segment reporting regime, the securities
Exchange Commission (SEC) is taking segment reporting seriously (AICPA
conference, 2012). For example, in June 2013, the SEC alleged that PACCAR
Inc. failed to report its operating results as required under segment reporting
requirements.
Under the SFAS 131 reporting regime, aggregated segment earnings
may be reported using non-traditional Generally Accepted Accounting
Principles (GAAP) measurements, as long as these are measures that the
firm uses internally, while consolidated firm-level earnings must be reported
with traditional GAAP measurements, even if a firm does not use these
measurements internally. As a result, the aggregated segment earnings
reported may not necessarily equate to a firms consolidated financial
information exactly. In other words, the whole may not equal the sum of its
parts. Consequently, firms are required to report a segment reconciliation
between aggregated segment-level earnings and consolidated firm-level
earnings, if they differ. Alfonso, Hollie and Yu (2012) show that, on average,
there are significant differences between reported consolidated firm-level
and aggregated segment-level earnings when differences exist.

The current prescribed segment reporting standard, after years of

application, is still debated in the accounting literature (e.g., Albrecht &
Chipalkatti, 1998; Nichols & Gallun, 1998; Berger & Hann, 2003; Botosan &
Stanford, 2005). Some aspects of its approach have been examined and the
results are mixed. Botosan and Stanford (2005) find that, whereas SFAS 131
has reduced analysts information acquisition costs, it has also led to greater
reliance on public information, resulting in greater overall uncertainty. In
addition, an increase in the magnitude of the error in the mean earnings
forecast suggests that analysts are less accurate post-SFAS 131. In contrast,
Berger and Hann (2003) find that SFAS 131 segment disclosures help
analysts develop more accurate earnings forecasts.

Unlike most of the prior research, this paper focuses on the importance of
required segment reconciliations that are the focus of studies by Alfonso et
al. (2012) and Hollie and Yu (2012). We provide supplementary discussion on
how segment reporting choices may affect the profession.
(https://www.google.com.ph/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=7&cad=rja&uact=8&ved=0ahUK
Ewjy_ayv2d7PAhVLOo8KHd43BL0QFghGMAY&url=http%3A%2F
%2Fredfame.com%2Fjournal%2Findex.php%2Fafa%2Farticle%2Fdownload
%2F816%2F832&usg=AFQjCNE5dL0EsukmEu5rl5R7rvQleudpKg&bvm=bv.13
5974163,d.c2I)

Activity-Based Costing
Activity-based costing (ABC) is a method of assigning costs to products
or services based on the resources that they consume. Its aim, The
Economist once wrote, is to change the way in which costs are counted.
ABC is an alternative to traditional accounting in which a business's
overheads (indirect costs such as lighting, heating and marketing) are
allocated in proportion to an activity's direct costs. This is unsatisfactory
because two activities that absorb the same direct costs can use very
different amounts of overhead. A mass-produced industrial robot, for
instance, can use the same amount of labour and materials as a customised
robot. But the customised robot uses far more of the company engineers'
time
(an
overhead)
than
does
the
mass-produced
one.
(http://www.economist.com/node/13933812)

Balanced Scorecard

The Balanced Scorecard was originally a one-year multi-company study

(Kaplan & Norton, 1992a). The study concluded that in increasingly complex
business environment, dependence on only financial measures was no longer
adequate for managing organizations, especially where intellectual capital
and knowledge-based assets were critical for success. Kaplan and Norton
(1996c) defined Balanced Scorecard as a framework that helps organizations
translates strategy into operational objectives that drive both behaviour and
performance. The Balanced Scorecard strategic management system is
comprised of "a framework, core principles and processes that translate an
organization's mission and strategy into a comprehensive set of performance
measures strategically aligned with initiatives" (Inamdar et al., 2002, p. 21).
The measures and objectives are viewed across four dimensions of
performance: financial, customer, internal business process and learning and
growth. Every perspective has their respective objectives for three to five
years that are communicated throughout the organization and presented on
a strategy map (Kaplan & Norton, 1996c). The word balanced in the term
'Balanced Scorecard' is indicative of the balanced consideration given to long
and short-term objectives, financial and non-financial measures, leading and
lagging indicators and external and internal performance perspectives
(Kaplan & Norton, 1996b, 1996c: Hendricks et al., 2004).
Rimar and Garstka (1999) highlighted the need to articulate
organization's strategy. Even a clearly stated vision and strategy can be
interpreted differently by individual members in an organization. Developing
a Balanced Scorecard clarifies the significance of the strategy and translates
it into terms that are considered meaningful by the people involved. It
focuses on fundamentally changing the way organization is strategically led
and not with keeping organizational score. Kanji and Moura (2001)
concluded, "the Balanced Scorecard is more than a performance
measurement system. It is commonly adopted as a strategic management
system to describe the organization's vision of the future and create shared
understanding; clarify and update corporate strategy; communicate strategic
objectives throughout the organization; align customer need and business
objectives; work as a holistic model of strategy allowing all employees to see
how they contribute to organizational success; link strategic objectives to
targets and budgets; build a reward system that is geared to achieving
targets; and obtain feedback on the effectiveness of the strategic view" (p.
898).
(http://shodhganga.inflibnet.ac.in/bitstream/10603/55622/13/13_chapter
%203.pdf)

Quantitative Techniques

Capital Budgeting
Making a capital budgeting decision is one of the most important policy
decisions that a firm makes. A firm that does not invest in long-term
investment projects does not maximise stakeholder interests, especially
shareholder wealth. Optimal decisions in capital budgeting optimise a firms
main objective maximising the shareholders wealth and also help the
firm to stay competitive as it grows and expands. These decisions are some
of the integral parts of overall corporate financial management and
corporate governance. A company grows when it invests in capital projects,
such as plant and machinery, to generate future revenues that are worth
more than the initial cost (Ross et al. 2011; Shapiro 2005).
Aggarwal (1993) states that capital budgeting decisions are important
because of their long-term financial implications to the firm, and therefore
they are crucial. The effects of capital budgeting decisions extend into the
future, and the firm endures them for a longer period than the consequences
of operating expenditure. Some of the definitions of capital budgeting
includes the following: Seitz and Ellison (1999) define capital budgeting as
the process of selecting capital investments. According to Agarwal and
Taffler (2008) capital budgeting decisions possess the distinguishing
characteristics of exchange of funds for future benefits, investment of funds
in long- term activities and the occurrence of future benefits over a series of
years.
(https://www.google.com.ph/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUK
EwjqxfPA3N7PAhVBrY8KHei3CuwQFgglMAE&url=http%3A%2F
%2Fwww.springer.com%2Fcda%2Fcontent%2Fdocument
%2Fcda_downloaddocument%2F9783642359064-c1.pdf%3FSGWID%3D0-045-1407222p174825928&usg=AFQjCNGWj3lS_0nu8ThAWEWXvkVGQGCcPQ&bvm=bv.13
5974163,d.c2I)
Financial Management
Financial Statement Analysis