Principle of Financial Management: Importance of Management Accounting Techniques and Fraud Detection

Principle of financial
management

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Scenario A..................................................................................................................................3
Value of management accounting techniques........................................................................3
Techniques for fraud detection and prevention and approach to ethical decision making....3
Reflection...............................................................................................................................4
Scenario B..................................................................................................................................4
Financial ratios analysis of Morrison Supermarkets PLC for the year 2020, 2019 & 2018. .4
Application of data obtained in decision making.................................................................11
Outcomes of investment appraisal techniques utilized in taking actions to maximise ROI 11
Value of the techniques that is used in informed decision making......................................12
Long term sustainability through financial decision making...............................................13
Recommendations to improve financial sustainability........................................................13
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14
APPENDIX..............................................................................................................................15

INTRODUCTION
Financial management is the process which focusses on all the management function
from the financial perspectives such as procurement and optimum utilization of the funds. It
mainly refers to the application of the principles of management to the financial resources.
This report presents about the importance of management accounting and its techniques in
making informed decisions which helps in sustainable growth along with the ratio analysis of
the Morrisons plc.
Scenario A
Evaluating approaches, methods and the factors that helps an organization in making
effective decisions
Knowledge based approach- The knowledge-based decision-making approach uses
a pre-determined criterion to measure and ensure that the outcome for the desired topic is
optimal. The main objective of this type of decision-making process is to ensure that strategic
decisions are made by using an effective approach and thought process. It also involves a
collective understanding of the background about the concerned topic (Valaskova, Bartosova
and Kubala, 2019). The key elements of knowledge-based approach include open
communication between leaders and members, equal information access and mutual trust
within the organization. By adequate implementation of these elements, an organization is
bound to make strategic business decisions that will help in its achievement of goals and
objectives.
Formal approach- Formal approach of decision making is said to be the most
balanced approach because it involves clarity in allocation of tasks and responsibilities which
means that all the employees are aware of their duties which further helps in the making of
strong and effective decisions. The formal approach is time consuming but also has the
highest success ratio as compared to other approaches. Also, it helps in building equality and
long-term trust within the members of the company that further helps them in the
accomplishment of assigned goals.
Informal approach- Informal approach includes making decisions on the basis of
subjective, holistic and past experience. Informal decisions are faster to implement and
require less efforts & coordination but at the same time these decisions are riskier (Reid and
Sanders, 2019). It is generally suitable for small scale organization as it gives the reward of
high risk, high rewards. However, every company should take informal decisions after heavy
research and planning.
Role of the stakeholders with respect to decision making- Stakeholders are the
group of people that are interested in the performance of the company, it includes
shareholders, investors, creditors, government and customers. Thus, it is important for an
organization to consider its stakeholders before taking the final decisions, the firm must
refrain itself from taking complex decisions as it can affect its stakeholders in a negative
manner and further reduce the revenue of the business. Furthermore, the company must
consider the issues raised by the people and should make appropriate decisions b keeping
those points in mind.
Making or buying decisions- The make or buy decision can be defined as an
approach of making strategic decision between manufacturing or producing an item internally

or purchasing it from the external party like suppliers which is also referred to as outsourcing
(Ghazinoory and et.al., 2019). It is imperative for the business to analyze and interpret
whether it can achieve financial benefit through or making or purchasing and then take the
appropriate decision accordingly.
Limiting factor assessment- The limiting factor assessment involves the restriction
of an organization’s ability to increase its sales due to demand constraints or the availability
of production resources. Thus, an organization needs to take decisions on which factor should
it limit like raw materials, labor, money that would not affect its operations.
Key factor analysis- Key factor analysis is the method of decision making that
involves making strategic decision of using limited factors. It is concerned with the use of
limiting factors effectively and efficiently.
Stakeholder management and managing conflicting purpose of different kind of the
stakeholder groups
Effective management of stakeholder can be done by the company in complying or
considering various principles that are as follows-
Setting objective in order to achieve financial objectives- Setting of goals and
objectives is imperative for every organization to succeed as it helps the company in
developing a budget plan that it can follow to achieve financial success. The company must
make sure that it has set up SMART (specific, measurable, attainable, realistic, time bound)
goals and it can help in increasing their profitability.
Ethical FM- Ethical financial management means balancing, protecting and
preserving stakeholders’ interests. It is important to do so because ethics define what is right
and what is wrong which means that it I the duty of company to take care of its employees,
customers, government, investors and creditors, and to protect their interest within the
company. Moreover, the business should also follow its corporate social responsibility and
should not indulge in any unethical or illegal activities that cause harm to the society and its
stakeholders (Kostopoulos, 2019). It must not involve in forgery, manipulation and insiders
trading and should perform its financial/ business activities with complete honesty and
loyalty and should ensure complete transparency with its stakeholders by providing them
with accurate accounting information, financial reports and statements. This will be
beneficial for the business in long run as it will lead to building strong trust between both the
parties and help the firm in achieving long term success.
Maximizing wealth of the shareholders- It reflects that shareholders must provided
with maximum return and it is counted as the major objective of all the corporations. In
context of financial management, it means increasing the price or value of an entity’s
common stock. In order to achieve this objective, managers’ takes into account risk and the
timing attached with the expected earnings per share for maximizing price of company’s
shares. When this has been properly implemented, management would also leads to