Management Accounting: Paradigm Shifts and Role of Management Accountants

This article discusses the differences between management accounting and financial accounting, and how management accounting has evolved over time due to external and internal factors. It also explores the role of management accountants in today's business environment and the use of tools like Balanced Scorecard. Additionally, it highlights the critical success factors for Qantas and presents a strategy map and Balanced Scorecard for the airline.

Assignment

1
By student name
Professor
University
Date: 24th Sep 2018.
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Contents
Part A...............................................................................................................................................3
Part B...............................................................................................................................................6
References........................................................................................................................................4
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Part A:
Management accounting is significantly different from financial accounting. Financial accounting
is more concerned about the reporting aspect from a compliance and regulatory point of view whereas
management accounting is mostly related to planning, cost management and decision making. An
analysis of historical data is done mixing it with future projections to come up with a roadmap for future
course of action and taking decisions based on the results (Abdullah & Said, 2017). Using various tools
available in management accounting, the management would be able to prepare of all scenarios and
plan their road to strategic objectives accordingly. But just like any other thing that requires to adapt
itself and modify according to changing dynamics in global business, management accounting methods
have also witnessed paradigm shifts over a span of several decades. In conjunction with the change in
scope and nature and method of management accounting, the role of management accountants has
also witnessed a tectonic shift. From number crunching, they have moved onto more consulting roles.
There are multiple reasons that have triggered to the development of more advanced new forms of
management accounting. Below are some the reasons that may have caused such changes:
 Factors outside of the organization or External Factors: Since a couple of decades or perhaps
more, the amount of competition in any given industry has increased significantly. The increase
in the number of market forces ensured that the customers have a lot to choose from. This in
turn changed certain aspects related to consumer behavior (Alexander, 2016). The change in
behavior now was required to be factored in differently by the business houses to cater to the
changing requirements and expectations. The faster the responsiveness of the businesses the
lesser would be the chances of dissatisfied customer or loss of brand image. Due to globalization
the conventional barriers to market entry in different countries were gone and trans-national
business became the new normal. This led to greater levels of uniformity in financial accounting
and presorting and thus its effects had to be felt in the management accounting sphere as well.
 Internal Factors: The internal dynamics and functional structure of an organization drive the
management accounting practices in many ways. With the use of management accounting many
segments of the enterprise such as core competencies of the business, the technical fields and
the cycle of revenue generation could be managed and planned more efficiently. If a change
takes place in the technology used to develop or manufacture a product or add certain
additional attributes to it, corresponding variations would also be required to be made to the
production process (Belton, 2017). Say for an example a production process that required 80
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percent of manpower would now after technology advancement might be having automated
process to 80 percent. This means that significant adjustment would be warranted in the
product costing methodologies. In the earlier days many business models which exists now were
not even conceptualized. An example of it would be e-commerce which would require a whole
new dimensions of costing principles and management accounting to be applied. There has
been a visible shift from use of conventional tools to more of those help benefit in customer
analysis, tracking and monitoring such as Total Quality Management (Ruth, 2018).
 Variations in organizational structure: If there are alteration in the organizational structure or
functional restructuring of functional departments or units of the company, modifications are
warranted in the way management accounting tools are to be applied in those environments.
The changes could be in forms like corporate restructuring, downsizing or amalgamations or
demerger etc.
The work of management accountants in today’s modern-day business environment requires
them to take into consideration multiple business factors such the behavioral traits of the
customers, the learning curve and level of expertise and technical knowledge of the workforce, the
pace of technological advancement etc. The stated global standards and best practices will aid to
the existing tools of management accounting (Ghofiqi, 2018).
Balanced Scorecard: It’s a widely accepted tool used by businesses to target certain key functional areas
of the business. These functions are first identified and then worked upon to achieve the desired
objectives out of it within or before set deadline. The method ensures the areas remain in focus. After
the target completion date, the improvement in the marked areas is measured in terms of tangible
business outcomes. Dr. Robert Kaplan and Dr. David Norton were the pioneers of developing this tool in
the year of 1992. There are several visible and measurable benefits of the Balanced Scorecard approach
among which we can list the major six indicators as follows:
Multiple initiatives and projects can be aligned: Balanced scorecard provides a robust framework for
developing a strategy and effectively communicating it to people who are responsible to do the job as
well as to those who will oversee its progress.
Enhanced reporting of performance: Performance dashboards are a crucial part of balanced scorecard
approach that can report facts and figures in a more appropriate and easy to interpret manner. This
eliminates redundancy and only important issues are available for the management to ponder upon.
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Better quality information: The management has at its disposal more refined piece of information using
several indicators of performance by which strategic objectives can be achieved. Decisions can be taken
because of this by the management in a shorter span of time, making room for modifications possible if
required without hampering the deadlines.
Better Strategic Planning can be done: Balance Scorecard portrays the entire flowchart of business as a
strategic map. This map can be then used to analyze and identify cause and effect relationship so that
issues can be redressed as and when they occur or in some cases even before they occur. This would
save the enterprise critical time and resource which becomes of paramount significance. It also
underscores the fact that the since strategic maps could be finalized and created, it means that there is
harmony between various operations and there is universal consensus as to what are the objectives to
be achieved. This is also an example of goal congruence (Coate & Mitschow, 2017).
Alignment of different segments of an enterprise: One of the most critical and beneficial aspects is that
the various units of the business and service or production functions get integrated into one. The
functions like risk management and budgeting computations are integrated to present the company
wide status of operations.
Better communication within the organization and improved execution rate: The strategies are more
likely to be executed within a set deadline and focus remain on it until the objectives are met. Because
of the strategy map everyone is made aware of the task at hand and acts accordingly. A complete
picture makes it comparatively less cumbersome to communicate certain aspects both within
departments as well as to their stakeholders including the shareholders (Wellmer, 2018).
Part B:
1) Following are the critical Success factors:
a) Constant focus of the management: The senior management of Qantas is very much committed
to its cause and maintains a strong vigil on the key performance indicators.
b) Highly trained Workforce: The on-board flight staff as well as ground staff are pro-active on their
job and have duly put on ground their learned skills and knowledge. They can also be seen to take
charge in evet of any unforeseen circumstances.
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c) Routes: Since profitability gets impacted most by the choice of routes and the frequency to be
offered on those routes, Qantas conducts good research and due diligence before taking a call on these
aspects.
d) Non-stop travels: Since civil aviation relies a lot on time management demands of customers,
shorter flight duration on long routes holds a key. Since the year 2006, the airlines have steered its way
into the long-haul flights segments has grown exponentially in terms of number of flights.
e) On-board flight services and promotions: Several revenues generating add-on facilities for
consumers have been initiated such as selections of seats, choice of meals, lounge access services and
hassle-free payment gateways. This makes life easier for customers as well as makes the airline earns
some extra bucks.
Following is the strategy Map:
Defined Target
Segment
Measure of
completeness
Time frame to achieve
it
Status or Progress
report
Operational
performance of
segment
Return on Invested
capital >10%
FY18-FY20 FY18 Return on
Invested capital > 10%
for all segments
Customer Constant improvement
in Net Promoter Share
FY18-FY20 Maintain NPS at
premium against
business rivals
People Improvement in
employee engagement
FY18-FY20 80% in FY18
Transformation $400 million per
annum gross income
FY18-FY20 $ 463 million in FY18
Innovation Identification of newer
products or services to
develop them,
introduce new
processes to optimize
capacity (Yadao, 2018)
FY18-FY20 New route from Perth
to London, Launch of
Premier Everyday
Credit card, Qantas
distribution program,
etc.
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3.Balanced Scorecard:
Strategic
Category/Objective
Measuring scale Scorecard Target
(Outcome Range)
Actual Result
Profitability or net
income of the group
PBT 50 %
(0-100%)
Achievement is Above
the set target
Margin of profit earned
from the Domestic
market in Australia
Cumulative domestic
income of Qantas
Domestic and JETSTAR
profit margin: EBIT
10%
(0-15%)
Achievement is Above
the set target
Safety of People and
Operational Safety
Measures taken for
people’s safety
Assessment related to
operational safety on
board the flights
15%
(0-22.5%)
Target Partially
achieved
Target Achieved
Customer Punctuality of flights,
Coverage and
frequency in the
domestic market, Net
Promoter Share
15%
(0-22.5%)
Partial Achievement of
Target.
Growth of business,
Transformation and
Projects
JETSTAR Japan
underlying PBT and
Qantas Transformation
benefits, 786 project
milestones
10%
(0-15%)
Achievement is Above
the set target
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References
Abdullah, W. & Said, R., 2017. Religious, Educational Background and Corporate Crime Tolerance by
Accounting Professionals. State-of-the-Art Theories and Empirical Evidence, pp. 129-149.
Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp.
411-431.
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
Coate, C. & Mitschow, M., 2017. Luca Pacioli and the Role of Accounting and Business: Early Lessons in
Social Responsibility. s.l.:s.n.
Ghofiqi, M., 2018. FORMATION OF VIEWS AND INTERESTS TO THE ACCOUNTANTS PROFESSION IN
MASTER OF ACCOUNTING STUDENTS OF JEMBER UNIVERSITY FORCE OF 2016 USING STRUCTURATION
THEORY ANALYSIS. THE 3RD INTERNATIONAL CONFERENCE ON ECONOMICS, BUSINESS, AND
ACCOUNTING STUDIES.
Ruth, W., 2018. 'Worrying': Companies' reporting of climate risks goes 'backwards'. The Sydney Morning
hearld, 20 September.
Wellmer, A., 2018. The Persistence of Modernity: Aesthetics, Ethics and Postmodernism. fourth ed. UK:
Polity Press.
Yadao, J., 2018. Forensic accountants and big data.
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