Impact of Business Environment on Management Accounting

Desklib provides solved assignments and past papers to help students succeed.

1
Advanced management accounting
Student id:
Student name:
Assignment code

2
Table of Contents
Introduction.................................................................................................................................................3
LO1: Analysis of the purpose for presenting and developing the financial information:.............................3
P1: Analysis for the purpose and the presentation of the financial statements from the various
stakeholders point of view:.....................................................................................................................3
M1: Evaluation that why and how the financial information should be appropriately developed and
presented for supporting the decision making and the financial planning within the organization:.......5
D1: Critical evaluation of the financial information supported by the effective and the appropriate
judgement:..............................................................................................................................................6
LO2: Evaluation for the use of the techniques of the management accounting for supporting the
performance of the organization.................................................................................................................7
P2: Evaluation for the use for the various microeconomic techniques of accounting for supporting the
organizational performance....................................................................................................................8
M2: Advantages and the disadvantages of the wide range of the management accounting techniques9
L04: Evaluation that how the changing business environment influences the management accounting: 11
P5: Evaluation of how the internal and the external factors change the business environment
influences the management accounting:..............................................................................................11
M4: Determines the impact of the different types of the changes and the decisions made to respond
to the changes:......................................................................................................................................12
D3: Critically evaluate the impacts of the changes and the support justified recommendations for the
future communication and the acceptances of the changes:................................................................13
Conclusion.................................................................................................................................................14
References:................................................................................................................................................15

3
Introduction
The current report is making the presentation in respect of the implementation of the advanced
management accounting in the business organization. The overall aim of the project is to develop
the proper understanding of the students and the other people about the use of the various
management accounting techniques for the evaluation of the performances of the company. The
assignment will be presenting the various ways that how the management accounting techniques
allows the management to take the effective decisions within the business organization. After
that the report is making the discussion in respect of the implementation of the various
management accounting techniques for supporting the organizational performance. The end part
of the assignment is making the discussion in respect of that how the changing environment of
the organization influences the impact of the management accounting on the organization:
LO1: Analysis of the purpose for presenting and developing the financial
information:
P1: Analysis for the purpose and the presentation of the financial statements
from the various stakeholders point of view:
Various stakeholders use the financial statements of the organization for the different purpose.
The stakeholders of the organization might be interested in the financial performances and the
other aspects of the company. In particular the stakeholders might be curious to take the
understanding in respect that how the performances of the company makes influences over them
and on their earnings and the other financial and the non financial interest (Baranenko, et. al.,
2014). The manager in which the financial information is generally used and then complied into
the financial statements and the reports heavily influences the perceptions that what these users

4
might expects and needs. Here is the list of the various stakeholders who uses the financial
statements for fulfilling their different needs;
Investors: Investors are the people who have invested or purchased the share and the stock of
the company. They are the people who need the financial statements of the company for making
the proper analysis that how the company is performing (Baranenko, et. al., 2014). The analysis
of the financial statement is also necessary so that the investors of the company can make the
decision in respect of what they can do with their funds which they have invested in the
organization. This will be completely depended on how the company is performing, the investors
will take the decision whether they should hold, buy more or sell their stocks or shares in the
company.
Senior management: The management of the organization makes use of the financial statements
to make the proper analysis in respect the various decisions making within the organization
(Baranenko, et. al., 2014). Proper analysis of the financial statements the management can take
the decisions in respect of analyzing the cost distribution in the organization. They can also take
the decisions in respect that in which area the cost cutting can be done for making the
improvement in the cost structure of the organization.
Employees: With the proper analysis of the financial statements of the company the employees
of the organization will take the understanding that if there employment is secure within the
organization or not. They analyze the ability of the company whether the company can make the
increment in their pay scale or not. Employees are also interested in knowing the financial
position of the company whether the company has the future plans for making the business

5
expansion and they looks for their career expansion of the employees in the organization (Chen,
et. al., 2014).
Government: Governing and the other regular bodies of the country and the state are interested
in the financial statements of the company to determine that how the companies are performing,
so that they can make plans for their industrial and the financial policies of the organization. The
tax authorities are generally interested in the financial statements of the company for making the
calculation of the tax burden which the company has to pay in the form of the tax to the
government of the country.
Creditors: They are the people who are interested in knowing the financial performance of the
company to take the understanding whether the company is in the position to pay or honor the
dues which the creditors are liable to recover from the company (Chen, et. al., 2014). Creditors
of the company generally make the use of the cash flow statement for checking the liquidity
position of the company or the ability of the company to clear-off the short term dues of the
company.
M1: Evaluation that why and how the financial information should be
appropriately developed and presented for supporting the decision making
and the financial planning within the organization:
Financial accounting allows the business organization to keep the proper track record for all the
business and the financial transactions conducting in the organization. It is the method or the
process which is used by the company to report and record all the financial and business
transactions within the organization. The accounting and the financial data of the organization is
generally recorded in the series of the financial statements of the company including the cash
flow statements, income statements and the balance sheet of the organization (Chen, et. al.,

6
2014). There are generally the three main areas in which the financial accounting statements of
the organizations help the management to take the effective decisions for the benefit of the
organization.
The financial statement of the organizations provides the baseline for making the proper analysis
and also the comparison between the financial healths of the organization. The strong financial
figure of the financial statements of the company allows the creditors of the company to make
the proper assessment about the liquidity, solvency and the credit worthiness of the business
organization (Datar, et. al., 2013).
Along with all the concept of the management accounting also helps the management to make
the effective decisions in respect of the proper allocation of the scare resources of the
organization.
Proper analysis of the income statements and the balance sheet of the company allow the
investors and the management to take the effective investment decisions within the organization.
D1: Critical evaluation of the financial information supported by the effective
and the appropriate judgement:
The management of the company has to make the proper assessment of the financial statements
of the organization if the company wants to make the proper assessment of the financial position
and the performances of the company. The management of the company generally makes use of
the Income Statements, Balance Sheet and the Cash Flow Statements for taking the effective
decisions in respects of the performance of the company (Datar, et. al., 2013). The organization
should make compliance with the generally accepted accounting principles for preparing the
error free financial statements of the organization. The management of the company generally

7
makes use of the three types of the financial statements for taking the effective decisions within
the organization.
Balance Sheet: This kind of the financial report provides the summary of the assets, liabilities
and the equity capital invested in the company. This report makes the analysis of how effectively
and easily the company can handle the changes or fluctuation in the revenue of the company.
The balance sheet also makes the identification of the trends of working of the receivable cycle
of the company, the replacement trend of the equipments and the period of change in the net
profits of the organization.
Income Statements: This statement is also called as the Profits and the Loss statements of the
company. This statement reflects the expenses and the revenue generation in the particular time
period of the company. Mainly the Income Statements of the company are prepared for
presenting the manner in which the company is performing.
Cash Flow Statements: This statement simply presents the outflows and the inflow of the cash
to and from the company in the particular period of the time. The money generally flows through
the operating, investing and the financial activities in the organization (Datar, et. al., 2013).
By the proper analysis of all the financial reports of the company helps in taking the decisions in
respect of the cost reduction and other decisions for the increment in the sales and the
profitability of the company.

8
LO2: Evaluation for the use of the techniques of the management
accounting for supporting the performance of the organization:
P2: Evaluation for the use for the various microeconomic techniques of
accounting for supporting the organizational performance
Microeconomic techniques is the branch of the techniques of the economics which are used by
the companies for analyzing the behavior of the individual and the firm and helps in taking the
decisions in respect of the allocation of the scare resources and their interaction with these firms
and the individuals in the organization (De Giovanni, 2012).
Various techniques used in the microeconomic for supporting the performance of the
organization are as follows:
Cost Volume profits: This kind of analysis is used by the organization for the proper
determination that how the fluctuations or the changes in the volume and the costs affect the net
and the operating income of the company. In the process of the CPV analysis the management
makes use of the following assumptions like sales prices, fixed cost and the variable cost per unit
remains constant for the calculation of the cost volume and the profit analysis in the
organization.
Flexible budgeting: This is the kind of the budget in the organization which generally flexes or
adjusts with the change in the activity and the volume of production taking place in the
organization. This flexible budgeting is more useful and sophisticated then a static budget. This
budget is also called as the variable budgeting (De Giovanni, 2012).

9
Cost Variances: Cost variance can be termed as calculation for the differences between the
actual cost and the budgeted cost that would be expected to be incurred in the organization. Cost
variances are mostly used in the organization for tracking the expenses which are incurred in the
organization for the particular project conducted in the organization (De Giovanni, 2012). The
cost variances are generally investigated, report and tracked by the cost accountant appointed in
the organization. This analysis in the business organization will helps the management of the
organization to take the possible steps for making the reduction in the sizes of variances between
the budgeted and the actual cost incurring in the organization.
Marginal costing: It can be defined as the micro economic technique used in organization for
calculation of the aggregate cost of production which generally changes with the change in the
volume of the output produced in the organization. This cost is fluctuating in nature and gets
decreased or increased with the change in the volume of production that will be taking place in
the company (De Giovanni, 2012).
Absorption costing: This can be termed as the cost accounting technique which is generally
used in the companies for the valuation of the inventory in the organization. This absorption
costing provides the accurate view of the cost which is incurred for the production of the final
output in the company then from the cost which is derived from the marginal costing. This
method of costing includes the variable as well as fixed production cost for the calculation of per
unit cost of the product produced in the company.
M2: Advantages and the disadvantages of the wide range of the management
accounting techniques:

10
Net present value: This technique of the management accounting is used by the companies for
calculation of the present value of the amount today which the company is expected to receive or
pay in the future period of time (De Giovanni, 2012). The cash flows from the future years is
generally discounted to the current period for finding its worth. On the other hand the biggest
problem for using this method is that this method requires the estimation about the future cash
flows and also for the expected cost of capital of the company. And this method is also not useful
for making the comparison between the different projects considering the different investment
amounts.
Internal Rate of Returns (IRR): The most advantageous feature of using this method is that
this method takes the consideration of the time value of the money while making the evaluation
of the projects. This method is also very simple to use. But on the other hand this method has
many disadvantages too. This method completely ignores the economies of scale. This method
also makes the impractical assumptions for calculating the reinvestment IRR rate. This method
also ignores the consideration of the various terms of the projects (Kaplan and Atkinson, 2015).
Pay Back Period: This method of the management accounting technique is used by the
company for calculating the payback period of the investments which means that in how much
time the company will make the recovery of the initial cost that is invested in the project. Most
advantageous feature of this method is that this method is very simple to use and is also easy to
understand. This method needs very fewer inputs and the efforts as compared to that of the other
methods used in the capital budgeting process. This method also provides the quick results and
can be more preferable in the companies which have the limited resources. This method also has
lot many disadvantages that implementation of this method ignores the time value of the money
and this method also not covers all the cash flows of the organization.

11
L04: Evaluation that how the changing business environment influences
the management accounting:
P5: Evaluation of how the internal and the external factors change the
business environment influences the management accounting:
The internal environment of the organization basically refers to the factors, events, people,
structure, systems and the conditions developed in the organization which are generally under the
control of the organization. The mission statements and the organizational culture and the style
of the leadership in the organization are the factors which are associated within the internal
environments of the organization. This internal environment of the organization will influence
the decision making and the organizational activities of the organization (Kaplan and Atkinson,
2015). This also influences the attitude and the behavior of the employees of the organization.
The internal factors of the organization influence the competitive strategy, size and the structure
of the organization. These internal factors also influence the internal working of the organization
and develop the positive relations between the various factors which are interdependent for the
positive performance of the company.
External factors which influence the organization on the large scale may include the economic,
political, technological and the social factors which influence the working of the organization.
The similar internal factors which influences the success of the organization are inevitable
characterize which influences the organizational relationship to that of the external environment
in the broad areas. An organization with the clear sense of the mission example: can explain it
better to whole world and it also aligns itself with different positive elements in separate areas
(Kaplan and Atkinson, 2015).

12
Leaders who communicate and learn what they have learned in the organization. The leaders also
develop the learning’s from the external environment and also communicate successfully
resulting in the change of the ideas which benefits both the organization and the outside
environment.
For example: Amazon an individual company which is transforming the process by which the
goods are sold and brought all over the world and has also developed the reputation for making
communication effectively with their customers and the suppliers (Kaplan and Atkinson, 2015).
Amazon is known as the customer driven ideas machine which has the belief that the customers
of the company are always right.
M4: Determines the impact of the different types of the changes and the
decisions made to respond to the changes:
The changes in the internal environment of the company like changes in the structure, people,
and events of the company influences the working structure of the organization this also
influences the working capacity of the employees in the organization. Like the changes in the
working environment of the employees of the influences the total productivity level of the
company (Corum, et. al., 2014). The big and the small structure of the organization also
influence the working conditions of the organization.
The political environment of the organization influences the tax structure and the other legal
compliances in the organization. The legal laws and the regulations influence the productivity
level of the company. The social environment influences the environment of the company in
which it is operating. The social environment influences the way or the manner in which the
company is serving the products and the services to the people living in the society.