Practices to Improve Performance in Management Accounting

This report provides a critical analysis of practices used to improve performance in management accounting, using Aston Martin as a case study. It discusses the importance of budgeting, external reporting, investment appraisal, resource allocation, risk management, strategic tax management, project management, and financial controls.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION................................................................................................................................1
TASK.................................................................................................................................................1
CONCLUSION....................................................................................................................................3
REFERENCES.....................................................................................................................................4

INTRODUCTION
Management accounting is a process of which involves producing of management
accounts along with the reports which provide accurate financial information and show the
actual positions of a company which is help managers in decision making process which include
day to day activities (Ward, 2012). It is used as a management tool that look at transactions that
happen in and around a business while considering needs of a business. This report contains a
critical analysis of practices to improve the performance of management in organisation. To
understand the importance of these practices Aston Martin is used. Aston Martin is a British
based luxury sports car manufacturing company headquartered in Gaydon, Warqickshire,
England.
TASK
Performance of a company can be increased by using various practices which help
company to improve its financial performance and efficiency in utilizing its resources. Following
are some practices commonly used by Aston Martin:
 Budgeting: A budget is an estimate made by companies for future expense and revenue
which will be earned by companies in a near future. This budget is made and revaluated
on period basis (Parker, 2012). A budget is a concept of microeconomics which shows
companies trades and expected revenue from those trades and expenditure which will
be incurred in generating revenue. Budgeting is an important aspect of every business
organisation as it provides a roadmap to companies that how much they can bear
expenses, it provides a details of previous years expenses and help mangers to control
all those expenses which are not required by company. Aston Martin also uses budget
to make an estimate to check their cost in producing their cars, it helped managers of
Aston Martin to control their cost and increase their efficiency which resulted in earning
high profits.
 External Reporting: External reporting refers to issuance of company’s financial reports
to external stake holders, investors and other related entities that have a direct interest
in company’s performance and stability. It is important for a companies to present a
external report for their stakeholders, investors, lenders and creditors who have
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invested their money in companies operations, these reports includes company’s
financial statements which shows company actual position. It helps in improving
company’s performance as companies have to give report to their investors who invest
money in their business to gain confidence and raise funds for operations companies
need to maintain their financial positions, stability and growth. In Aston Martin mangers
used these external reporting tools to show their investor that how their company is
operating in order to raise funds and expand their business.
 Investment Appraisal: Investment appraisal is a technique which is used by a company
to evaluate the rate of return and attractiveness of a particular investment in which
company want to invest. It is used by companies to assess the rate of investment and a
feasibility of a project or portfolio decisions (Arroyo, 2012). Companies uses various
techniques to evaluate the appraisal of a investment, most commonly used technique
for this is a payback period which help managers to determine the accounting rate of
return of a particular assets. Aston Martin used this type of method to improve its
performance as they estimated the average rate of return of their investment in
advance which helped company to incur losses while going into merger.
 Resource Allocation: Resource allocation is process in which companies assign and
manage their resources in a better manner which results in the achievement of
organisational goal. It includes the management of company’s tangible assets such as
human capital, hardware, raw material etc. In this companies set a priority in order to
determine the most effective ways in achieving organisational goal resulting in the
improvement of company’s performance.
 Risk Management: Risk management is a process in which companies prepare
provisions in advance to mange future risk. This help companies to improve its efficiency
and reduce those risk as they already have estimated their risk. This help manger to
develop strategies which include the procedures to avoid those risks and minimize the
impact of these risks. Aston Martin used this tool to manage their risks and take
necessary decisions to go into merger with already established brands in order to
improve its performance.
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 Strategic Tax Management: Strategic tax management is used by companies to plan
their taxable income and minimize the taxable income within the guidelines of income
tax act. This type of tool is used by companies to reduce the tax rate and allow better
control over its resources when tax gets paid. It helped Aston Martin to reduce its tax
liability and reinvest the saved amount in business in order to increase the efficiency of
its production department resulting in delivering more cars in one year.
 Project Management: It involves the use of various procedures, policies and principles
which are established in order to direct its project to completion stage from its
conception stage (Merchant, 2012). It involves planning process in which is considered
as an essential part of any organisation before investing in any project. It is considered
as an important tool as it clearly defines a plan of a project before it begin and take
necessary precautions involved in achieving that particular task. Mangers of Aston
Martin uses this tool to define a plan before they begin the production of any new cars
which involves a huge investment and resources resulting in improving companies
health and performance.
 Financial Controls: Financial control is a process which helps companies to evaluate its
variances which are generated by the strategies and operational lines in a previous year
in a very systematic and objective manner. This kind of financial control help mangers to
take decisions by providing sufficient and useful data which guarantees in the
improvement of company overall performance as well as increase its profit and achieve
better position and have competitive advantages over its competitors.
CONCLUSION
The above report contains the detailed analysis of a company that uses various different
tools to improve its performance. It uses budget to compare its current year’s performance for
its previous year’s performance. From the above report in can also be established that
management accounting can help company to improve its financial performance and shows
accurate position of a company. This report also indicates the importance of financial controls
which helped organisation to grow and improve its performance.
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REFERENCES
Books and Journals
Ward, K. (2012). Strategic management accounting. Routledge.
Parker, L. D. (2012). Qualitative management accounting research: Assessing deliverables
and relevance. Critical Perspectives on Accounting. 23(1). 54-70.
Merchant, K. A. (2012). Making management accounting research more useful. Pacific
Accounting Review. 24(3). 334-356.
Arroyo, P. (2012). Management accounting change and sustainability: an institutional
approach. Journal of Accounting & Organizational Change. 8(3). 286-309.
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