Sep 4, 2013
Accouting management business
Accounting Management (Business) is the practical application of management techniques to control and report on the financial health of the organization. This involves the analysis, planning, implementation, and control of programs designed to provide financial data reporting for managerial decision making. This includes the maintenance of bank accounts, developing financial statements, cash flow and financial performance analysis.
The process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions.
Nov 1, 2011
Management Accounting Quarterly
anagement Accounting Quarterly is a refereed online journal that contains in-depth articles by and for academics and practitioners of accounting and financial management.
Some of the subjects we cover are cost/management accounting techniques, ABC/ABM, RCA, GPK, statistical process controls, target costing, theory of constraints, methods of calculating stock options, techniques to improve accounting and finance education, new theories in finance and accounting, and much more.
Subscriptions
A subscription to Management Accounting Quarterly–which includes access to all back issues–is included in member dues. Subscriptions are available to nonmembers for $60.
Some of the subjects we cover are cost/management accounting techniques, ABC/ABM, RCA, GPK, statistical process controls, target costing, theory of constraints, methods of calculating stock options, techniques to improve accounting and finance education, new theories in finance and accounting, and much more.
Subscriptions
A subscription to Management Accounting Quarterly–which includes access to all back issues–is included in member dues. Subscriptions are available to nonmembers for $60.
management accounting
Data that (1) has been verified to be accurate and timely, (2) is specific and organized for a purpose, (3) is presented within a context that gives it meaning and relevance, and (4) that can lead to an increase in understanding and decrease in uncertainty.
The value of information lies solely in its ability to affect a behavior, decision, or outcome. A piece of information is considered valueless if, after receiving it, things remain unchanged. For a technical definition of information see information theory.
The value of information lies solely in its ability to affect a behavior, decision, or outcome. A piece of information is considered valueless if, after receiving it, things remain unchanged. For a technical definition of information see information theory.
Transfer pricing
Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property (including intangible property). Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other purposes. OECD Transfer Pricing Guidelines state, “Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions.”
Over 60 governments have adopted transfer pricing rules.[1] Transfer pricing rules in most countries are based on what is referred to as the “arm’s length principle” – that is to establish transfer prices based on analysis of pricing in comparable transactions between two or more unrelated parties dealing at arm’s length. The OECD has published guidelines based on the arm's length principle, which are followed, in whole or in part, by many of its member countries in adopting rules. The United States and Canadian rules are similar in many respects to the OECD guidelines, with certain points of material difference. A few countries, such as Brazil and Kazakhstan, follow rules that are materially different overall.
The rules of nearly all countries permit related parties to set prices in any manner, but permit the tax authorities to adjust those prices where the prices charged are outside an arm's length range. Rules are generally provided for determining what constitutes such arm's length prices, and how any analysis should proceed. Prices actually charged are compared to prices or measures of profitability for unrelated transactions and parties. The rules generally require that market level, functions, risks, and terms of sale of unrelated party transactions or activities be reasonably comparable to such items with respect to the related party transactions or profitability being tested.
Most systems allow use of multiple methods, where appropriate and supported by reliable data, to test related party prices. Among the commonly used methods are comparable uncontrolled prices, cost plus, resale price or markup, and profitability based methods. Many systems differentiate methods of testing goods from those for services or use of property due to inherent differences in business aspects of such broad types of transactions. Some systems provide mechanisms for sharing or allocation of costs of acquiring assets (including intangible assets) among related parties in a manner designed to reduce tax controversy.
Most tax treaties and many tax systems provide mechanisms for resolving disputes among taxpayers and governments in a manner designed to reduce the potential for double taxation. Many systems also permit advance agreement between taxpayers and one or more governments regarding mechanisms for setting related party prices.
Many systems impose penalties where the tax authority has adjusted related party prices. Some tax systems provide that taxpayers may avoid such penalties by preparing documentation in advance regarding prices charged between the taxpayer and related parties. Some systems require that such documentation be prepared in advance in all cases.
Over 60 governments have adopted transfer pricing rules.[1] Transfer pricing rules in most countries are based on what is referred to as the “arm’s length principle” – that is to establish transfer prices based on analysis of pricing in comparable transactions between two or more unrelated parties dealing at arm’s length. The OECD has published guidelines based on the arm's length principle, which are followed, in whole or in part, by many of its member countries in adopting rules. The United States and Canadian rules are similar in many respects to the OECD guidelines, with certain points of material difference. A few countries, such as Brazil and Kazakhstan, follow rules that are materially different overall.
The rules of nearly all countries permit related parties to set prices in any manner, but permit the tax authorities to adjust those prices where the prices charged are outside an arm's length range. Rules are generally provided for determining what constitutes such arm's length prices, and how any analysis should proceed. Prices actually charged are compared to prices or measures of profitability for unrelated transactions and parties. The rules generally require that market level, functions, risks, and terms of sale of unrelated party transactions or activities be reasonably comparable to such items with respect to the related party transactions or profitability being tested.
Most systems allow use of multiple methods, where appropriate and supported by reliable data, to test related party prices. Among the commonly used methods are comparable uncontrolled prices, cost plus, resale price or markup, and profitability based methods. Many systems differentiate methods of testing goods from those for services or use of property due to inherent differences in business aspects of such broad types of transactions. Some systems provide mechanisms for sharing or allocation of costs of acquiring assets (including intangible assets) among related parties in a manner designed to reduce tax controversy.
Most tax treaties and many tax systems provide mechanisms for resolving disputes among taxpayers and governments in a manner designed to reduce the potential for double taxation. Many systems also permit advance agreement between taxpayers and one or more governments regarding mechanisms for setting related party prices.
Many systems impose penalties where the tax authority has adjusted related party prices. Some tax systems provide that taxpayers may avoid such penalties by preparing documentation in advance regarding prices charged between the taxpayer and related parties. Some systems require that such documentation be prepared in advance in all cases.
Throughput accounting
Throughput Accounting (TA) is a principle-based and comprehensive management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting. It is an approach that identifies factors that limit an organization from reaching its goal, and then focuses on simple measures that drive behavior in key areas towards reaching organizational goals. TA was proposed by the late Eliyahu M. Goldratt[1] (deceased 11 June 2011) as an alternative to traditional cost accounting. As such, Throughput Accounting[2] is neither cost accounting nor costing because it is cash focused and does not allocate all costs (variable and fixed expenses, including overheads) to products and services sold or provided by an enterprise. Considering the laws of variation, only costs that vary totally with units of output (see definition of T below for TVC) e.g. raw materials, are allocated to products and services which are deducted from sales to determine Throughput. Throughput Accounting is a management accounting technique used as the performance measures in the Theory of Constraints (TOC).[3] It is the business intelligence used for maximizing profits, however, unlike cost accounting that primarily focuses on 'cutting costs' and reducing expenses to make a profit, Throughput Accounting primarily focuses on generating more throughput. Conceptually, Throughput Accounting seeks to increase the velocity or speed at which throughput (see definition of T below) is generated by products and services with respect to an organization's constraint, whether the constraint is internal or external to the organization. Throughput Accounting is the only management accounting methodology that considers constraints as factors limiting the performance of organizations.
Management accounting is an organization's internal set of techniques and methods used to maximize shareholder wealth. Throughput Accounting is thus part of the management accountants' toolkit, ensuring efficiency where it matters as well as the overall effectiveness of the whole organization. It is an internal reporting tool. Outside or external parties to a business depend on accounting reports prepared by financial (public) accountants who apply Generally Accepted Accounting Principles(GAAP) issued by the Financial Accounting Standards Board (FASB) and enforced by the U.S. Securities and Exchange Commission (SEC) and other local and international regulatory agencies and bodies.
Throughput Accounting improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (throughput, investment (AKA inventory), and operating expense — defined below).
Management accounting is an organization's internal set of techniques and methods used to maximize shareholder wealth. Throughput Accounting is thus part of the management accountants' toolkit, ensuring efficiency where it matters as well as the overall effectiveness of the whole organization. It is an internal reporting tool. Outside or external parties to a business depend on accounting reports prepared by financial (public) accountants who apply Generally Accepted Accounting Principles(GAAP) issued by the Financial Accounting Standards Board (FASB) and enforced by the U.S. Securities and Exchange Commission (SEC) and other local and international regulatory agencies and bodies.
Throughput Accounting improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (throughput, investment (AKA inventory), and operating expense — defined below).
Resource consumption accounting
Resource Consumption Accounting (RCA) is formally defined as a dynamic, fully integrated, principle-based, and comprehensive management accounting approach that provides managers with decision support information for enterprise optimization. RCA is a relatively new, flexible, comprehensive management accounting approach based largely on the German management accounting approach Grenzplankostenrechnung (GPK) and also allows for the use of activity-based drivers.
Background
Initially, RCA had emerged as a management accounting approach beginning around 2000, and was subsequently developed at CAM-I (The Consortium of Advanced Management, International) in a Cost Management Section RCA interest group[1] commencing in December 2001. Over the next seven years RCA was refined and validated through practical case studies, industry journal publications, and other research papers.
In 2008, a group of interested academics and practitioners established the RCA Institute to introduce Resource Consumption Accounting to the marketplace and raise the standard of management accounting knowledge by encouraging disciplined practices.
By July 2009, Professional Accountants in Business (PAIB) Committee of International Federation of Accountants (IFAC), recognized Resource Consumption Accounting in the International Good Practice Guidance (IGPG) publication called Evaluating and Improving Costing in Organizations and its companion document,
Costing Continuum // Levels of Maturity Copyright 2008 Gary Cokins All rights reserved. Used with permission of the author,courtesy of International Federation of Accountants-Professional Accountants in Business, International Good Practice Guidance p.23
Evaluating the Costing Journey: A Costing Levels Continuum Maturity Model. The guide focuses on universal costing principles and with the Costing Levels Maturity Model[2] acknowledges RCA attains a higher level of accuracy and visibility compared to activity based costing for managerial accounting information when the incremental benefits of RCA's better information exceed the incremental administrative effort and cost to collect, calculate and report its information. As stated in the IGPG, “A sophisticated approach at the upper levels of the continuum of costing techniques provides the ability to derive costs directly from operational resource data, or to isolate and measure unused capacity costs. For example, in the resource consumption accounting approach, resources and their costs are considered as foundational to robust cost modeling and managerial decision support, because an organization’s costs and revenues are all a function of the resources and the individual capacities that produce them.”[3]
Resource Consumption Accounting was also recognized in a Sustainability Framework Report issued by the International Federation of Accountants (IFAC), for having the capability of helping organizations “improve their understanding of environmental (and social) costs through their costing systems and models”.[4]
This Sustainability Framework highlights RCA under the sub-heading Improving Information Flows to Support Decision and informs readers that proper cost allocation can be built ‘directly into the cost accounting system’, thereby enhancing an organization's performance for “identifying, defining and classifying costs in a useful way”.[4]
[edit] Concepts of Resource Consumption Accounting
RCA concepts that distinguish it from other management accounting approaches include the following:
Germany’s GPK method of quantity-based operational modeling using fixed and proportional costs established at the resource level in a company (i.e., cost center/resource pools or value streams");[5]
Gordon Shillinglaw’s concept of attributable cost;[6]
Flexible use of activity-based drivers (only where needed) based on specific, and restrictive rules;
Value chain integration[7] of management accounting into operational systems;
Use of fundamental operations transactions as the primary source for financial and quantitative data (rather than the general ledger);
Replacing the principle of variability with the principle of responsiveness for operational modeling;[8]
Support for a multi-level, contribution margin-based profit & loss statement that supports managerial decision making without the cost distortions and complexity of inappropriate (not based on the principle of causality) allocations of cost.
Background
Initially, RCA had emerged as a management accounting approach beginning around 2000, and was subsequently developed at CAM-I (The Consortium of Advanced Management, International) in a Cost Management Section RCA interest group[1] commencing in December 2001. Over the next seven years RCA was refined and validated through practical case studies, industry journal publications, and other research papers.
In 2008, a group of interested academics and practitioners established the RCA Institute to introduce Resource Consumption Accounting to the marketplace and raise the standard of management accounting knowledge by encouraging disciplined practices.
By July 2009, Professional Accountants in Business (PAIB) Committee of International Federation of Accountants (IFAC), recognized Resource Consumption Accounting in the International Good Practice Guidance (IGPG) publication called Evaluating and Improving Costing in Organizations and its companion document,
Costing Continuum // Levels of Maturity Copyright 2008 Gary Cokins All rights reserved. Used with permission of the author,courtesy of International Federation of Accountants-Professional Accountants in Business, International Good Practice Guidance p.23
Evaluating the Costing Journey: A Costing Levels Continuum Maturity Model. The guide focuses on universal costing principles and with the Costing Levels Maturity Model[2] acknowledges RCA attains a higher level of accuracy and visibility compared to activity based costing for managerial accounting information when the incremental benefits of RCA's better information exceed the incremental administrative effort and cost to collect, calculate and report its information. As stated in the IGPG, “A sophisticated approach at the upper levels of the continuum of costing techniques provides the ability to derive costs directly from operational resource data, or to isolate and measure unused capacity costs. For example, in the resource consumption accounting approach, resources and their costs are considered as foundational to robust cost modeling and managerial decision support, because an organization’s costs and revenues are all a function of the resources and the individual capacities that produce them.”[3]
Resource Consumption Accounting was also recognized in a Sustainability Framework Report issued by the International Federation of Accountants (IFAC), for having the capability of helping organizations “improve their understanding of environmental (and social) costs through their costing systems and models”.[4]
This Sustainability Framework highlights RCA under the sub-heading Improving Information Flows to Support Decision and informs readers that proper cost allocation can be built ‘directly into the cost accounting system’, thereby enhancing an organization's performance for “identifying, defining and classifying costs in a useful way”.[4]
[edit] Concepts of Resource Consumption Accounting
RCA concepts that distinguish it from other management accounting approaches include the following:
Germany’s GPK method of quantity-based operational modeling using fixed and proportional costs established at the resource level in a company (i.e., cost center/resource pools or value streams");[5]
Gordon Shillinglaw’s concept of attributable cost;[6]
Flexible use of activity-based drivers (only where needed) based on specific, and restrictive rules;
Value chain integration[7] of management accounting into operational systems;
Use of fundamental operations transactions as the primary source for financial and quantitative data (rather than the general ledger);
Replacing the principle of variability with the principle of responsiveness for operational modeling;[8]
Support for a multi-level, contribution margin-based profit & loss statement that supports managerial decision making without the cost distortions and complexity of inappropriate (not based on the principle of causality) allocations of cost.
Lean accounting
The purpose of Lean Accounting is to support the lean enterprise as a business strategy. It seeks to move from traditional accounting methods to a system that measures and motivates excellent business practices in the lean enterprise.
Introduction
What we now call lean manufacturing was developed by Toyota and other Japanese companies. Toyota executives claim that the famed Toyota Production System was inspired by what they learned during visits to the Ford Motor Company in the 1920s and developed by Toyota leaders such as Taiichi Ohno and consultant Shigeo Shingo after World War II. As pioneer American and European companies embraced lean manufacturing methods in the late 1980s, they discovered that lean thinking must be applied to every aspect of the company including the financial and management accounting processes.[1] (See also, William Deming.)
There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company's accounting, control, and measurement processes. This is no different than applying lean methods to any other processes. The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors and defects, and make the process clear and understandable.
The second (and more important) thrust of Lean Accounting is to fundamentally change the accounting, control, and measurement processes so they motivate lean change and improvement, provide information that is suitable for control and decision-making, provide an understanding of customer value, correctly assess the financial impact of lean improvement, and are themselves simple, visual, and low-waste. Lean Accounting does not require the traditional management accounting methods like standard costing, activity-based costing, variance reporting, cost-plus pricing, complex transactional control systems, and untimely and confusing financial reports. These are replaced by
lean-focused performance measurements
simple summary direct costing of the value streams
decision-making and reporting using a box score
financial reports that are timely and presented in "plain language" that everyone can understand
radical simplification and elimination of transactional control systems by eliminating the need for them
driving lean changes from a deep understanding of the value created for the customers
eliminating traditional budgeting through monthly sales, operations, and financial planning processes (SOFP)
value-based pricing
correct understanding of the financial impact of lean change
As an organization becomes more mature with lean thinking and methods, they recognize that the combined methods of Lean Accounting in fact creates a Lean Management System (LMS) designed to provide the planning, the operational and financial reporting, and the motivation for change required to prosper the company's on-going lean transformation.[2]
Up until 2006, the methods of Lean Accounting were not clearly defined because they had been developed by different people in different companies. A meeting was held at the 2005 Lean Accounting Summit (Lean Accounting Summit) conference including a number of leaders in the field, and a decision was made to develop a document called "The Principles, Practices, and Tools of Lean Accounting" (PPT) (Lean Accounting PPT). While the methods of lean accounting are continually evolving, the PPT lays out the primary methods of Lean Accounting and shows how they fit together into a Lean Management System. The PPT emphasizes not only the tools and methods of Lean Accounting, but also the need for focusing on customer value and the empowerment (or respect) for people. The PPT was published in Target, the Journal of the Association of Manufacturing Excellence (AME) in 2006. (Lean Accounting PPT article)
[edit] The Vision for Lean Accounting
Provide accurate, timely, and understandable information to motivate the lean transformation throughout the organization, and for decision-making leading to increased customer value, growth, profitability, and cash flow.
Use lean tools to eliminate waste from the accounting processes while maintaining thorough financial control.
Fully comply with generally accepted accounting principles (GAAP), external reporting regulations, and internal reporting requirements.
Support the lean culture by motivating investment in people, providing information that is relevant and actionable, and empowering continuous improvement at every level of the organization.
[edit] Why is lean accounting needed?
There are positive and negative reasons for using Lean Accounting. The positive reasons include the issues addressed in the "Vision for Lean Accounting" shown above. Lean Accounting provides accurate, timely and understandable information that can be used by managers, sales people, operations leaders, accountants, lean improvement teams and others. The information gives clear insight into the company's performance; both operational and financial. The Lean Accounting reporting motivates people in the organization to move lean improvement forward. It is often stated that "what you measure is what will be improved." Lean accounting measures the right things for a company that wants to drive forward with lean transformation.
Lean Accounting is also itself lean. The information, reports, and measurements can be provided quickly and easily. It does not require the complex systems and wasteful transactions that are usually used by manufacturing companies. The simplicity of Lean Accounting frees up the time of the financial people and the operational people so that they can become more actively involved in moving the company forward towards its strategic goals. The role of the financial professional moves from bookkeeper and reporter, towards strategic partnering with the company leaders.
At a deeper level Lean Accounting matches the cultural goals of a lean organization. The simple and timely information empowers people at all levels of the organization. The financial and performance measurement information is organized around value streams and thereby honors the lean principle of value stream management. The emphasis on customer value is also derived from the principles of lean thinking. The way a company accounts and measures its business is deeply rooted in the culture of the organization. Lean Accounting has an important role to play in developing a lean culture within an organization.
Introduction
What we now call lean manufacturing was developed by Toyota and other Japanese companies. Toyota executives claim that the famed Toyota Production System was inspired by what they learned during visits to the Ford Motor Company in the 1920s and developed by Toyota leaders such as Taiichi Ohno and consultant Shigeo Shingo after World War II. As pioneer American and European companies embraced lean manufacturing methods in the late 1980s, they discovered that lean thinking must be applied to every aspect of the company including the financial and management accounting processes.[1] (See also, William Deming.)
There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company's accounting, control, and measurement processes. This is no different than applying lean methods to any other processes. The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors and defects, and make the process clear and understandable.
The second (and more important) thrust of Lean Accounting is to fundamentally change the accounting, control, and measurement processes so they motivate lean change and improvement, provide information that is suitable for control and decision-making, provide an understanding of customer value, correctly assess the financial impact of lean improvement, and are themselves simple, visual, and low-waste. Lean Accounting does not require the traditional management accounting methods like standard costing, activity-based costing, variance reporting, cost-plus pricing, complex transactional control systems, and untimely and confusing financial reports. These are replaced by
lean-focused performance measurements
simple summary direct costing of the value streams
decision-making and reporting using a box score
financial reports that are timely and presented in "plain language" that everyone can understand
radical simplification and elimination of transactional control systems by eliminating the need for them
driving lean changes from a deep understanding of the value created for the customers
eliminating traditional budgeting through monthly sales, operations, and financial planning processes (SOFP)
value-based pricing
correct understanding of the financial impact of lean change
As an organization becomes more mature with lean thinking and methods, they recognize that the combined methods of Lean Accounting in fact creates a Lean Management System (LMS) designed to provide the planning, the operational and financial reporting, and the motivation for change required to prosper the company's on-going lean transformation.[2]
Up until 2006, the methods of Lean Accounting were not clearly defined because they had been developed by different people in different companies. A meeting was held at the 2005 Lean Accounting Summit (Lean Accounting Summit) conference including a number of leaders in the field, and a decision was made to develop a document called "The Principles, Practices, and Tools of Lean Accounting" (PPT) (Lean Accounting PPT). While the methods of lean accounting are continually evolving, the PPT lays out the primary methods of Lean Accounting and shows how they fit together into a Lean Management System. The PPT emphasizes not only the tools and methods of Lean Accounting, but also the need for focusing on customer value and the empowerment (or respect) for people. The PPT was published in Target, the Journal of the Association of Manufacturing Excellence (AME) in 2006. (Lean Accounting PPT article)
[edit] The Vision for Lean Accounting
Provide accurate, timely, and understandable information to motivate the lean transformation throughout the organization, and for decision-making leading to increased customer value, growth, profitability, and cash flow.
Use lean tools to eliminate waste from the accounting processes while maintaining thorough financial control.
Fully comply with generally accepted accounting principles (GAAP), external reporting regulations, and internal reporting requirements.
Support the lean culture by motivating investment in people, providing information that is relevant and actionable, and empowering continuous improvement at every level of the organization.
[edit] Why is lean accounting needed?
There are positive and negative reasons for using Lean Accounting. The positive reasons include the issues addressed in the "Vision for Lean Accounting" shown above. Lean Accounting provides accurate, timely and understandable information that can be used by managers, sales people, operations leaders, accountants, lean improvement teams and others. The information gives clear insight into the company's performance; both operational and financial. The Lean Accounting reporting motivates people in the organization to move lean improvement forward. It is often stated that "what you measure is what will be improved." Lean accounting measures the right things for a company that wants to drive forward with lean transformation.
Lean Accounting is also itself lean. The information, reports, and measurements can be provided quickly and easily. It does not require the complex systems and wasteful transactions that are usually used by manufacturing companies. The simplicity of Lean Accounting frees up the time of the financial people and the operational people so that they can become more actively involved in moving the company forward towards its strategic goals. The role of the financial professional moves from bookkeeper and reporter, towards strategic partnering with the company leaders.
At a deeper level Lean Accounting matches the cultural goals of a lean organization. The simple and timely information empowers people at all levels of the organization. The financial and performance measurement information is organized around value streams and thereby honors the lean principle of value stream management. The emphasis on customer value is also derived from the principles of lean thinking. The way a company accounts and measures its business is deeply rooted in the culture of the organization. Lean Accounting has an important role to play in developing a lean culture within an organization.
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