Management Accounting and Earnings Management

This assignment delves into the complex relationship between management accounting systems and earnings management techniques. It examines how companies might utilize management accounting information to manipulate reported earnings, potentially for strategic gain or to meet performance targets. The assignment likely covers topics like accrual-based earnings management, real activities manipulation, the role of fair value accounting, and potential implications for stakeholders.

MANAGEMENT AND
ACCOUNTING

Report
From:- Management accounting officer
To:- General Manager
Subject:- To produce the report for GM which will include management accounting and the
various methods available for costing and creating the whole report which will be useful for
organisation.

INTRODUCTION
Management accounting is that thing which help organisation to identify and record all
financial and non-financial information which make and help firm to make an effective decision
as whole and the concept help in making investment in proper manner. Through research the
management accounting department try to identify new markets in which company is going to
invest to receive higher returns or revenues. Sometimes entity face few issues just because of
changes in the policies and procedures of organisation, although with this industry goes to
minimise wasteful resources and use the maximum out of it so that higher rate of income can be
measured. Management accounting help company to know that how much finance or cash they
have to provide solution to many of the issues and problems. The report is based on CARWOW

which is serving society by selling new cars to customers in UK. The requirement of
management accounting and various methods used with this will be discussed in report.
Therefore with this, various planning tools are there and comparison will be there in between two
companies which will help them in solving financial problems in entity.
Task 1
P1 Different types of management accounting system.
Management accounting is that thing which help firm to gather information which should
have a relation with the business operations like sales data, stock changes and raw materials and
this all is being converted into useful information which will make in analysing data. Although it
also includes collecting the operational data and cost which will help in comparing budget
expenses with actual ones. The management in accounting department provide useful
information to senior managers so that they can make a adequate and proper decision for
company. It is quite different from financial accounting as it is consist of internal system of firm
which evaluate the steps of management and on other side another thing is there which provide
information and data to industry, somewhere with all such company can make a effective
decision and strategy. Management accounting is of Four types as they follows as:
Inventory management system: The management system makes different types f plans
and policies sometimes procedures as well which makes in making control over inventories.
Although it is a continuous process as the company CARWOW is in selling various cars to their
customers. Therefore the common problem face by inventory management is of over stock or
may be under stock. If the company is under stock then it is a issue for company as customers
will not get their car on time and they will not be satisfied with performance of entity. Over stock
means that company product of cars are going wastage when no customers is coming to take
services of firm, this bring the increase in cost of warehousing. For this the inventory control
software is there which help in tracking level of orders and deliveries as well. Implementing and
evaluating such method help the company to reduce the chances of over or under stock.
Although there is another method which can help company like Bar cod tracking as this means
that when a car or product is getting out from the inventory. As with bar code reader company
can know that product is delivered or not in proper way. Therefore EOQ is also there which

make firm to reduce the wastage in entity and make firm to perform in better way. Although
proper accounting help in reducing all the things been discussed.
Job costing system: Therefore in organisation there are various jobs which is increasing
the cost of company and such is very useful in firm which help entity to earn higher profits in
effective manner. Job costing system has the responsibility to identify such job in entity which
can provide higher income and productivity of firm can be increased in efficient manner. In
CARWOW providing services to customers in better way is the prime responsibility so it is
required by firm to take corrective action through this company can improve such.
Price optimization system: Pricing is the main factor in market, as price for the product
and cars should be set at reasonable price. Setting such make the customer to buy cars of
company. Higher prices of cars make companies to face negativity form market as consumers are
not having their will power or income to purchase such so they go with such products which is
being available at right prices. Prices should not be so low as because customers think that
quality product will not be it is and facility would be less in car, which bring down the sell of car
and also decreases the chances of earning profit. Thus Car availability at the reasonable prices
from others make customers to buy their product and services in effective manner which make
them satisfied.
Cost accounting system: This help company to calculate the accurate cost occurred in
producing the product so that profitability, inventory and control of cost can be done in effective
manner. Although this system help in assisting identifying the expenses which is crucial part and
thus help in reducing the wastage of resources in effective way. Somewhere this also help in
reducing cost of labour and material which directly has implication on earning higher profits in
company.
Although the various system of accounting help the company to maintain their finance in
better way so that they can use such when in need and can spend in right way as well.
Management accounting system help the company to attain their target and goal in effective way.
P2 Different methods for accounting reporting.
Accounting reporting in organisation is very much needed concept in various small
business enterprises like CARWOW. Management accounting reporting to senior managers in
company help firm to earn higher profits and monitoring and controlling can be done in effective

manner. This make company to complete their task on time. The different methods of accounting
reporting are as follows:
Inventory control reporting: This is being related to the evaluation of level of stock the
company is having in warehouses. Although this help firm to know that warehouses are properly
managed or not and thus it helps entity to identify that which section of the warehouse is
improvement required. This also accounts issues like over stocking and under stocking.
Therefore such kind of thing make company to analyse that sell activity is taking place or not in
entity and task is being completed on time. Issues with related to the delivery of products and
services is also come out by using this tool in effective manner.
Application: Therefore this concept is very useful for the company CARWOW. They can
manage the accounts of their warehousing as such reporting can help to take corrective measure
which can bring improvement in warehouses. Availability of products on time at the time of
demand make the customers happy and with such organisation also earn higher profitability in
proper manner. Chance of issues and problem can be reduced with such as this make a account
report of warehouse in efficient way.
Account receivable reporting: This tool helps in managing the cash flow of company in
proper manner. Although this help firm to know that from which people and party money has to
be receive. In such report all the information of debtors is included as this provide knowledge to
firm as from whom how much amount is taken as credit. Such thing help to reduce the issues and
consequences happening in flow of cash.
Application: In CARWOW company, they are also using such thing as this helps the company to
know as what amount is remaining which has to take from customers in within the time period
stated to consumer. This help in knowing appropriate time as weekly, monthly or quarterly. This
may help in getting the effective policy and procedure in organisation.
Account payable reporting: This method of management accounting is very helpful in
this concept as well as this make firm to know that to which people or party amount has to be
paid. This help in making perfect relation among the supplier of resources to produce the product
and making payment to supplier in correct format should be there. Although this method help
company to bring positive image of firm in the eyes and minds of suppliers and customers as
well.

Application: The CARWOW also uses such method they also maintain the payable reporting
which make firm to do business in smoother manner. Availability of resources on time make
firm to perform in better way all such bring a great goodwill of company. Receiving of payment
on time by supplier will make them to provide the resource to company on time which make a
healthy relation among them and most important Trust will come in between both.
Performance reporting: This is something which identify the performance level of
employees in organisation who are working in various divisions and somewhere it includes the
information and data as such this help the organisation in identifying the performance of
employees whether they are performing in proper manner or not. As this make company to find
where the pitfalls are and improving that in effective way.
Application: The company CARWOW can use such method as this help the company to
motivate their employees in great way so that they can perform in better way as they were doing
earlier. Knowing where the drawbacks are in organisation for employees and improving such
make firm to utilise and get work in proper manner. The person who is performing well in
organisation will be rewarded. This bring motivation in employees so that they work in right
track and in great way as well.
Budget reporting: Thus making of budget help company to know that which operation
part will take the most of amount in organisation. This is very much required by every company
to make as whether small or large company it is. It is a type of expense done in company to
perform something in firm, this helps to compare as well that estimated amount on expense is
quite equal to budget or not. Although this help the firm to utilise the fund in right way and
reduce the expense in correct format, with such entity can make a proper decision as well.
Application: The CARWOW has to make a budget for the operation department as expense is
going to be happen in company. A budget help firm to utilise their fund in effective way, decided
fund can make management to utilise such where it is required for the different task in company.
Available funds in hand of firm can bring strength the minds of company that they can perform
any task in easy manner and with this they can earn higher profits and attainment of goal and
objective can be there.

Task 2
P3 Determine the marginal and absorption cost in company.
Income statement is that which includes the financial document of the company and
managing accounting and reporting is very needed concept of small business like CARWOW. It
is the summary of all revenues and expenses which has been incurred as various course of
business is there as operating and non-operating activities are included. Somewhere this helps in
calculating various net profits or loss in such particular years. The methods which has helped in
making statement as follows:
Absorption cost: Although this method which is being used with selling and
administration expenses which is required and considered in into income statement. Moreover
this also includes as cost of finished stock and this consists with the direct labour and material,
variable and fixed overhead etc. Somewhere this is being included in and method of costing is
very much significant for company and with such the adequate decision can be made and
reduction in wastage of resources ash to be there and use such in effective manner. Although this
is being used in traditional method of accounting. Therefore this also assist in minimising
wasteful activities which results into the traditional cost.
Marginal costing: Although this method includes such cost of the entity which is being
incurred due to additional production and due to their fixed cost is getting affected. Therefore
such type of thing is there which is included in the extra production result into variable cost that
has to be considered into income statement. Somehow cost is related to the labour and raw
material is being used to produce the additional portion of product.
Difference in between the marginal and absorption cost:
Differences Marginal costing Absorption costing
Meaning It is the decision making technique
of company which help in
discovering total cost of
production is as called as marginal
Allocation of the total cost into
cost centre which is being used in
to determine the total cost of
production which is being known

cost. as the absorption costing.
Cost recognition Variable cost is that in which is
being considered as the product
cost and thus the fixed cost is
known to be with period cost.
In this t is quite different from the
marginal cost as in this both fixed
and variable are considered as
product cost.
Overheads It is variable and fixed as well. Administration and selling and
distribution is bing included in this.
Profitability It is being measured by profit
volume ratio in this concept.
In this the fixed cost is included as
this gets affected with this in bad
manner.
Highlights In this the contribution was with
per unit.
Although in this net profit is done
with per unit.
Cost data Although it has been presented as
the total contribution made in
every product.
This is being used presented in the
conventional way in perfect way as
well.
There is calculation which is being according to the absorption costing:
Income statement for absorption costing method:
Selling Price £35
Unit costs
Direct Labour £5
Direct material £6
Variable sales overhead £1
Variable Production overhead £2
Production budgeted for the period is 600
units
Administration Cost: In this budgeted cost is £800 and Actual cost is £700
Production overhead: In this budgeted cost is £1,800 and Actual cost is £2,000

Selling cost: In this budgeted cost is £400 and Actual cost is £600
Income statement as per absorption costing:
Amount
Sales value (35*600) 21000
less:
Cost of Production 9600
Gross Profit 11400
LESS:
Fixed and variable cost:
variable sales overheads (600*1) 600
Admin & selling cost (700+600) 1300
Less: over absorbed fixed production overheads -100 -1800
Net profit 9600
Income statement as per marginal costing:
Amount
Sales value (35*600) 21000
less:
Cost of Production (6+5+2) -9100
closing stock (100*13) -1300
variable overheads -7800
Contribution 13200
less:
variable sales overheads (600*1) -600
fixed cost -2000
Admin & selling cost (700+600) -1300
-3900

Total 9300
The above statement shows that, absorption method is good for the companies and
CARWOW can use this for preparing the income statement of company. It can be seen in Box
that, there is a profit of company almost around the £9600 from this method and thus by applying
marginal cost method as it is being £9300. Although it can be seen like that £300 that is because
it is considered as the fixed cost in company. In marginal the profit is being showed after cutting
or reducing the fixed cost of this. This shows as fixed as different in the both methods.
Moreover, in this expenses which incur at the time of closing inventory in upcoming year.
Therefore, because of this factors are there which is being resulted into in profit marginal
and somewhere it is not appropriate for the company. Although it is required by firm to adapt the
marginal technique as because this helps in earning more profit in company. In general it is quite
much more effective in the international accounting standards.
Task 4
P5 Compare how organisation is opting management accounting system.
Although the business market is that which is changing with the time in great manner and
having a great impact on the organisation. Moreover the small business firms are facing many
problems like financial and non-financial activities, somewhere this the thing which is affecting
such in very great manner and thus profitability and productivity is also got affected with this.
Management accounting system is a type which can help in introducing problems and help in
overcoming those in effective manner and providing solution to those which can be resolved in
company. Even though the CARWOW can adopt such concept in their operation as they are
based on older techniques and it is being used by them still.
Difference in between the CARWOW and AUTOEBID
CARWOW AUTOEBID
The company is trusted among the customers The company AUTOEBID is also a trusted

as they buy high priced cars from CARWOW
as they help in getting such cars at lower
prices.
company in customers but they are not
powerful as the CARWOW is working.
Organisation does not take more time in
making delivery it takes almost 7 to 8 weeks in
making delivery of car
This company takes more time in delivery even
more then the CARWOW as AUTOEBID
takes around 11 to 12 weeks in making
delivery.
CARWOW deals in great companies and
provide better services to customers.
It deals with every type of car and provide
reasonable services but less effective then
CARWOW
This company is having their tie up with many
car providers and works effectively with those
firms.
AUTOEBID is having their tie ups in large
number but less then the CARWOW and they
also work effectively and such that's why it is
competing the firm CARWOW in great way.
Therefore it can be seen that traditional technology can make company to perform in less then
the CARWOW id having better productivity then the AUTOEBID in market. Although this has
been seen that common issues which is being faced by companies are as follows:
profitability: This is being the utmost goal of the company that they should receive the
profit in any how manner in the market. As increase in the cost of production can create a
problem for firm which has to be overcome by the company which bring strength in firms that
they can attain profits as well. Inventory with balanced structure of over stock or under stock.
Price: It is required by the companies to provide cars to customers on right prices so that
customer can bring their satisfaction with firm. Price is that which create problem as well in
earning profits. High prices will make customers to ignore and low prices make custom,er to
think that quality will not be there and with the reasonable price consumers can go to buy it.
Performance appraisal: When the employees of company is working effectively for
organisation then it is required by firms to provide reward for their performance and thus it has
to be there that appraisal should be there when effective working is there.

Apart form this there are several tools are also there which help to deal with financial
problems:
Benchmarking: It is required by firm to set the benchmarking as they have to perform in
between such, as this is being set for the various operational activities. The CARWOW reduce
such work which s not providing any benefit to firm.
Key performance indicators: it is a value which make company to know that which ways
will help in attaining their goal and objective. In such two methods are there as, high level KPI is
that which has focus on the performance of overall enterprise and low level KPI means that
where the activities of different section is taken as sales and marketing etc.
CONCLUSION
As the above report states that management accounting system is such which help
company to earn higher profits. Report is thus based on CARWOW which is the largest car
selling company and using of various tools which help in solving the issues faced in financial
and non financial. All such bring hurdles and issues in attaining goal and objective of company,
two methods are there which help in income statement. These are there as marginal and
absorption which has their own benefits at their places. Although the outcome is that with report
is absorption is the best method to earn profit.

REFERENCES
Books and Journals
Badertscher, B.A., 2011. Overvaluation and the choice of alternative earnings management
mechanisms. The Accounting Review. 86(5). pp.1491-1518.
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Bennett, M. and James, P. eds., 2017. The Green bottom line: environmental accounting for
management: current practice and future trends. Routledge.
Burritt, R.L. and Schaltegger, S., 2010. Sustainability accounting and reporting: fad or trend?.
Accounting, Auditing & Accountability Journal. 23(7). pp.829-846.
Cohen, D.A. and Zarowin, P., 2010. Accrual-based and real earnings management activities
around seasoned equity offerings. Journal of accounting and Economics. 50(1). pp.2-
19.