Management Accounting Information Systems

 Provide information, both financial and nonfinancial, to

managers and employees inside an organization

 Is tailored to the specific needs of each decision maker and is

rarely distributed outside the organization

In contrast with: Financial accounting reports

 communicate standard format economic information

 provide information to individuals and organizations

external to the organization (shareholders, creditors,
regulators, and governmental tax authorities
Three broad classes of organization decision making:

- Planning (ex ante)

- Organizing

- Controlling (ex post)

I. Planning (focus on what will I do?):

 product planning
 production
 strategy development

II. Organizing (focus on how I will carry out my plan?):

 focus on how to develop the organization´s systems and

supportive infrastructure that will develop, produce and
deliver goods and services

 the information required often focus on assessing the potential

of alternative systems to achieve the organization´s
objectives (prospective product quality, service levels provided
to the customers)

III. Controlling (focus on how am I doing and how does

my performance compare to plan?):

 measuring and evaluating the performance of

organization systems and entities
 identify how each unit contribute to the organization´s
objectives
Information used and organization level

Senior Management

Financial Information Used

Nonfinancial Information Used

Operations
Basic Features - Financial and Management accounting

Financial Accounting Management accounting

Audience External: stockholders, creditors Internal: workers, executives

Tax authorities

Purpose Report on past performance to Inform internal decisions made

external parties; by employees and managers;
provide a contracting basis for feedback and control on operating
owners and lenders performance

Timeliness Delayed; historical Current; future oriented

Restrictions Regulated; rules driven by gene- No regulations; systems and in-

rally accepted accounting prin- formation determined by manage-
ciples and governmental authori- ment to meet strategic and operatio-
ties mal needs

Type of in- Financial measurements only Financial plus operational and phy-
formation sical measurments on processes, tech-
nologies, suppliers, customers, and
competitors

Nature of Objective, auditable, reliable, More subjective and judgmental; va-

information consistent, precise lid, relevant, accurate

Scope Highly aggregate; report on Disaggregate; inform local decisions

entirely organization and action
Management accounting – brief history

 Cost accounting systems for pricing decisions

 First used by Railway companies by end of 1800 cent.

 Large complex costing systems for different products,

services and customers

 Emergence of large integrated companies (DuPont, General

Motors and others) in beginning of 1900 changed focus from
cost accounting to management accounting for coordinating
activities and allocating resources

 The emergence of the visible hand (Chandler, 1977) trying to

better the performance of the market mechanism (lower
transaction costs)

 By 1920 (stock market failures) focus on development of new

and better financial statements to meet the new regulatory
external reporting requirements

 In the 1970s under intense pressure fro Japanese automobile

companies interest turned to developing more
comprehensive management accounting systems that
reported on strategic dimensions such as quality and service
Emergent and more important aspects and
concerns in management accounting:

 The growth of service sector industries

 Government and not-for-profit organizations
 Behavioral implications of management accounting
information
 Ethics and management accounting
Ethics and management accounting

 laws of society define certain decisions as illegal (for instance

for safety or environmental protection reasons)

 social standards (though not illegal) rule out certain types of

behaviour as unacceptable – boundary systems and belief
systems (subcontracting, etc.)

 corporate values (prescriptive and descriptive)

 accounting bodies have codes of conduct

 personal ethics systems through family, culture and religion