The scenario of this report is determines that CIMA qualified management consultant have been commissioned to advise an underperforming organisation about value and importance of management accounting system. In this regard, it is required to construct advisory report by considering:
- Evaluate the purpose for presenting and developing financial information.
- Analyse the uses of management accounting techniques in order to support performance of a business.
- Discuss how changes in business environment may influence management of an organisation.
- Identify the standard and actual costs to control as well as correct variance.
Advanced management accounting tools and measurement aspects are adopted by organisation in terms of building the flexible structure of business. To track day to day transactions and multiple activities for execute the operations management accounting tools and systems plays vital role in organisational context (Groot and Selto, 2013). It is the process of preparing the management accounts, reports, defining strategies plans in terms of short term and long term decisions. It basically helps to identify and measure, analyse, interprets and communicates relevant information which remain essential in terms of management decisions and effective goals.
Importance of financial information respect of financial information for stakeholders, microeconomic techniques in application to association's performance is defined in this context. Costing concepts, factors of change and use of financial information subject to develop financial plans and decision making are illustrated in this report.
P1 Purpose of presentation of financial information from the perspective of various stakeholders
Information and details which remain associated with monetary funds and financial elements are considered financial information and data. There are some important elements and measurement tools used in wider organisational context to resolve and rectify the financial problems and plans. It is required for an organisation to present the financial information and details in such a manner so that stakeholders of organisation be able to demonstrate and defining the strategies and plans effectively and more practical manner.
There is type of accounting standards used in organisational context through which financial information can be produced. Some of the basic accounting standard are defined as follows;
Matching principle: This is the main accounting principles which contains the accrual concept. As per this principle expenses of the organisation must be match with the revenues.
Cost principle: This principle defines the point of at with the cost of acquiring of assets are considered within the organisation.
Revenue Recognition Principle: This principle says that only those income and revenues should be considering in accounting which are actually gained by organisation. Estimated income should not be considered in accounting.
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As per above principle the financial information and details are effectively developed and recorded for making plans and strategies.
Presentation of financial information remain associated with defining and elaborating the key financial structure and analysing the financial position of organisation. Moreover, financial information present relevant information and details in terms of defining the profitability, capital structure and financial position of organisation in better information. Financial information remains essential for type of stakeholders in various sections which are defined as follows:
Investors: Every data provided to investors of an organisation makes huge chance for investments to take necessary investment decision in the company (Sunarni, 2013). Investors used financial investment because, it enables them as male rational and prudent decisions in accordance to investments. Most of the time, investors used to check income statement as well as financial ratios before making any kind of decision.
- Investors need financial statements to analyse their equity investments as well as assist them to make informed decisions as to how to deal with corporate matters.
- They can also use ratio analysis metrics to determine how well a company handles their cash flow and short-tern debts.
Senior management: A financial statement is considered as formal record of all activities of a business. Financial statements are basically prepared at the closing of the year. The owner or senior finance offices (Auditor) used to make necessary decision regarding planning on the basis of financial position of the company. For this purpose, owner used to take into consideration of balance sheets of the company.
The main purpose of a financial statements is to deliver people with information regarding the business so that correct decision can be taken at the right time. It is not about the stakeholders who do a financial analysis through using those statements, while management also indulges in all those to exercise the information.
Lenders: It is the balance sheet which is one of the effective statements of a company’s financial position. Lenders often used to view it as the right depiction of the overall financial position and stability of a company.
Lenders basically have threes concern while evaluating a company request for extra loan funds. They want to determine how safe lending money to the company is, how much capital to lend and at what rate of interest.
P2 Various accounting microeconomic techniques in application to support organisational performance
There is type of management accounting techniques are used in management accounting in order to determine the management aspects and tactics. Main microeconomic accounting techniques are defined as follows;
Cost accounting technique: This is one of the important technique which helps to determine the cost of operations and functions by analysing the all over cost organisation. This technique contains type of costing methods which are used in organisational context to analyse the cost and estimated margin on goods and products. Cost analysis majorly associated with analysing the cost of type of sources which are incurred in manufacturing and production process of organisation. Mainly the cost which directly incurred in production process are only used in this context to analyse the cost of operations and gentleman (Papaspyropoulos and et. al., 2012).
Unit cost technique: this accounting technique is also one of the important management accounting technique which helps to determine the cost incurred to particular unit group. Unit cost techniques is manly used by small and medium size business and entities which deals in small units and products. It is essential for all managers and accountants to determine the cost of each unit and section to make effective pricing and profit margin policy. Unit costing basically helps to analyse the profitability and strategies to remove the irrelevant production cost.
Activity based costing techniques: this is one of the emerging cost accounting technique which is widely used in organisational context in terms of analysing the profitability of organisation. There are type of stages and allocation of resources categorised as per priority and requirement of functions and operations. Most of the accounting techniques are used to make effective strategies and plans. There are major 5 steps are defined in this context such as cost object, direct costs, overhead costs, cost allocation base and overhead rate. Overheads and expenses are allocated on the basis of activities and stages related to multiple cost drivers. Overhead costs are the main assumptions which are used under this costing technique.
Price optimisation technique: this is one of the management accounting techniques which contains the mathematical analysis and techniques in terms of analysing the different price of products and services (Scott, 2015). This is majorly helps to determine the estimated price and analyse the financial cost of operations and management in organisational context. This management accounting technique is mainly used in airline, casinos, hotels, banking, cat rental, cruise lines and insurance industries.
As per above discussed management accounting techniques it is occluded that these management accounting techniques not only assist the accounting procedures but also assist managers to make decisions and investment plans. Forecasting plans, analysing the growth opportunities and the associated management plans are some essential factors which are critically analysed with the help of these management accounting techniques.
Analysis of CB (Cash budget): A cash budget analysis is effective method of checking up on their firm’s financial position. It is primary study of cash movement within company during the period of time. Example of CB is given below:
Opening cash balance
received from debtors
From the above cash budget, it has been found that in the month of april they are getting a negative balance of -18393 because of their expenses. While, the other two months are having increasing growth of 17150 and 31815.