Management Accounting Report: HSBC Holdings PLC Case Study

This report provides a comprehensive analysis of management accounting practices within HSBC Holdings PLC. It begins with an introduction to management accounting, differentiating it from financial accounting and highlighting its essential requirements. The report then delves into various management accounting systems, including price optimization, cost accounting, inventory management, and job costing, detailing their benefits and applications within an organizational context. It further explores different methods used in management accounting, such as performance reports, budget reports, and cost managerial accounting reports. The report also examines planning tools used in management accounting and how these tools can be applied for preparing and forecasting budgets. Finally, it addresses how management accounting systems can respond to financial problems, providing an evaluation of planning tools for solving financial issues. The analysis incorporates relevant examples and case studies to illustrate the practical implementation of these concepts within HSBC.

Management
Accounting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1 Management accounting and essential requirements of different types of management
accounting systems.................................................................................................................1
M1 Benefits of management accounting systems and its application within an organisational
context....................................................................................................................................3
D1 Management accounting systems and management accounting reporting is integrated
within organisation.................................................................................................................4
P2 Methods that are used for management accounting period...............................................4
TASK 2............................................................................................................................................6
P3 Appropriate techniques of cost analysis to prepare income statement for HSBC...........6
M2 Several range of management accounting techniques and appropriate financial reporting
documents.............................................................................................................................11
D2 Financial reports that accurately apply and interpret data for a range of business activities
..............................................................................................................................................11
TASK 3..........................................................................................................................................12
P4 Planning tools used in management accounting.............................................................12
M3 Planning tools and their application for preparing and forecasting budgets..................14
TASK 4 .........................................................................................................................................14
P5 Management accounting systems to respond to financial problems...............................14
M4 Responding to financial problems with context of management accounting...............16
D3 Evaluation of planning tools for accounting appropriately to solving financial problems16
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Management accounting is a systematic approach which is used by the organisation to
track the financial and statistical information. The information collected with the help of
managerial accounting system helps the business managers in their decision making process.
Every business uses accounting techniques to support strategy formation, business execution and
risk taking. In this report, the chosen association is HSBC holding plc. It is the 7th largest
multinational banking and financial services holding company. The company provides services
like Retail banking, corporate banking, investment banking, mortgage loans, private banking,
wealth management, credit cards and insurance (Zayed and Liu, 2014).
. In this respective report the areas which the company focuses are different management
techniques and reporting methods , planning tools used in management accounting. At last it
describe about how management accounting is used by business to solve their financial
problems.
TASK 1
P1 Management accounting and essential requirements of different types of management
accounting systems.
Management accounting involves providing informations regarding the scarce financial
resources and their allocations. These are the reports prepared as per the needs and requirements
of the organisation's. The company like HSBC is required to establish managerial accounting in
their business in order to predict about the future events, companies costs and revenues and this
would also help them in comparing overheads, hourly labour costs, productivity figures between
departments. These reports are based on management's informational needs and include
budgeting, break even charts, products cost analysis, trend charts and forecasting. For
maintaining this the company is required to cover all the types of management accounting which
are mentioned below :-
Difference between Management accounting and Financial accounting :
Management accounting Financial accounting
Management accounting is the one which is
prepared for the internal use of managers and
Financial accounting are the one prepared for
the used of stakeholders, creditors, banks and
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employees. government.
It does not involve any legal requirement. These are necessary to be prepared by the
limited companies.
Management accounting is prepared
considering specific areas of the business.
This provides us with the information on the
entire organisation.
Management accounting is prepared to
measure financial and operational
performance.
Financial accounting measures only financial
data.
Price optimisation system: It is a crucial component of price management which is used
by business to determine the customer's reactions on different prices of products and services. If
the company HSBC adopts the strategy of price optimisation they can easily identify the initial
pricing , promotional pricing and markdown pricing (Yang and Liu, 2017).
Initial pricing – This price optimisation tool works well when the organisation has a stable base
and long lasting life of their services.
Promotional pricing – This would helps the business to set temporary prices of their services to
build the customer base.
Discount pricing – This would help the business to sell short term services like insurance ,
credit facilities.
This strategy will also helps HSBC holding plc in saving time, providing with market
transparency and full control.
Cost accounting system: This strategy of management accounting helps in computing
the overall cost of operations and activities by evaluating prices of each units separately. It has
been designed by the managers to identify the flow of inventory (van Helden and Uddin, 2016).
Cost accounting system would help HSBC in immediate saving and would also ensure that the
banks remains competitive in the longer term, and would also help them in fixation of price ,
controlling costs and facilitating short term decisions, especially during the period of depression.
Inventory management system: It is an ongoing process in the business which is used
for balancing inventory and it also helps in de terming that how much inventory is exactly
needed. Inventory management system helps the organisation's in keeping records of every items
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and assets. HSBC is required to install proper inventory management system in their banks to
ensure improved cash flow, better reporting and forecasting facilities, proper planning, enhanced
transparency and better organisation. In banking sector this would also help in advance user
security, active directory, assets depreciation etc.
Job costing system: It is beneficial in the computing the cost of each job which is assigned to
different activities. If HSBC adopts this strategy it can easily identify the following points :-
 It acts as a gauge determining the profitability of the job and helps for the future
customers or institution to decide whether to take up the job or not. It also gives us an
idea about the feasibility of the job (Tappura and et. al., 2015).
 Budgetary control comes into action when taken consideration of the various overhead
charges which are predetermined for each department.
 Job costing provides an easy computation of cost overheads for specific needs,and in a
precise manner. Job costing enables the supervisors to keep track of various factor such
as money, materials and the performance of the employees.
 Job costing acts as a form of analysis detailing all the type of costs that are present
throughout the manufacturing process. This includes the direct costs, the labour costs,
and the overhead charges.
Characteristic of good information system
 Reliable- It is essential for HSBC to implement the data that is relevant and reliable for
the organisation. Moreover this data need to be maintain as trustworthy for the
organisation that is accurate, consistent and related with facts that need to implement in
project.
 Accuracy- Data which is collected by the organisation needs to be accurate. So at time of
implement them in the project management of HSBC derive positive results in the
organisation.
 Up to date- In context of this data whereas organisation implement information that is
desirable and updated because there is constant changes are changed in information that
is present in the market.
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M1 Benefits of management accounting systems and its application within an organisational
context
Management accounting does not works on the principle of national accounting
standards. In this system the business owners design the management system by themselves in
order to carry out their business operations. Management accounting has certain benefits, these
benefits are usually concerned with the ability for companies to enhance their profitability and
performances. proper allocation of cost can also develop and creates competitive advantages for
the owner of the business (Scherbina, Afanasyeva and Lapina, 2013). These benefits would also
help HSBC in certain ways which are as follows :-
Reduce expenses: This helps the business in reducing their operational expense . It would
also helps the manager of HSBC to reduce the cost of operation by allowing them to evaluate
and identify that how much it cost to run the business.
Improve cash flow : Management accounting has a great impact on improving the
process of cash flow as it keeps complete records of all the floes of goods and services . This also
helps the company Like HSBC by allowing its manager to roadmap the financial budget which
will further reduce their unnecessary cash expenditure.
Business decisions : This will also help the manager of HSBC banks to improve their
business decision making process. The managers here will use quantitative analysis to assure that
the manager have the clear understanding regarding the business decision-making.
D1 Management accounting systems and management accounting reporting is integrated within
organisation
Management accounting system is interconnected with management reporting system
that helps them to make effective decisions in the organisation. It results for the improvement of
organisation (Parker, 2012). Example through which it is easy to understand cost accounting
system. HSBC analysis the total cost of their operations in order prepare the budget on the basis
of current financial position of an organisation which enhance productivity of their operations
and employees. Example- Cost accounting reporting helps an organisation to find actual cost of
their activities. But this are manage along with cost accounting system that creates issue for the
organisation as it is time consuming. While the results which are prepared by them helps HSBC
to find out profits margin which is earned by them through analysing their production cost.
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P2 Methods that are used for management accounting period
Management accounting is considered different methods that are used by HSBC in order
to keep records for every business transaction that take place in the organisation on daily basis.
This helps management to take relevant decision as on basis of information that is contain by
society in order to generate more profits in the organisation (Nielsen, Mitchell and Nørreklit,
2015). This reporting system are discussed as below briefly:
Types of reports :
Performance report : This reports are based on the performance of different factors like
operation, functions etc. that are performed by the organisation in order to achieve their desired
goals. This helps organisation to generate report of employees and functions that are done HSBC
as their routine work. Along with this it is also a part of management plans through which
management communicate with their employees. HSBC formulate performance management
card on daily basis in order to communicate with employees that help to overcome from different
issues by explaining weak points to employees.
Budget report : Budgets are prepared to compare the actual cost with the estimated cost
specifically in management accounting system. The main intention of budget is to control the
cost and expenses that are unnecessary bear by organisation. In context of HSBC it is essential
for them to control their expenditure in order to increase their profits. Finance department of
organisation develop budget in order to allocate their resources effectively. Along with this it
also helps them to reduce cost of operations and increase the availability of funds in the
organisation.
Account receivable ageing reports : This is an essential tool for the organisation that
helps to manage business with systematic approach. By maintaining this approach it is easy for
organisation to find out the number of debtors that are present in the organisation. It includes the
amount which is paid by customer and to measure time which is obscure by customers
(Kacharava, 2016). For HSBC it is essential for them in order to check the availability of funds.
Cost managerial accounting report : This report is prepared to know the cost of
amount spent on manufacturing the article . It provides full detail about the money invested in
carrying out business operations. Cambridge manufacturing Ltd. needs to prepared this to control
the cost which unnecessarily affects the profitability of the business and to understand the exact
expenditure of the organisations so that the optimization of resources can be done properly.
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Cost report : Cost accounting is essential for the organisation because it helps them to
calculate the amount that is expense by them for conducting particular project. They provides
whole detail that is invested by them in order to complete their operations. It is important for
HSBC to measure and control the cost that is unnecessarily increases the expenses of
organisation.
Inventory Managerial Report- This is the report which is managed by supervisors in
an organisation which considers about the availability of raw materials that is present in the
organisation. It is beneficial for HSBC because it helps them to deliver quick services in the
market. Along with this it helps them to manage raw material which are required to produce
goods.
TASK 2
P3 Appropriate techniques of cost analysis to prepare income statement for HSBC
COST: The term cost includes all factors that are measured on monetary basis. This refers to
the amount that are essential to paid for purchasing any item inside the organisation. Usually cost is
the evaluation of efforts, machine, materials, resources etc. that are essential for organisation to
manufacture a product or service (Gond and et. al., 2012). Moreover cost is the amount that is
required to complete a business or job. Marginal and absorption are two type of cost that helps an
organisation to prepare income statement.
Marginal costing : It refers to increase and decrease in the price of product through which
there is changes in the cost of organisation production process. This refers to the cost that is used for
producing specific units in the organisation. Sometimes there is change in variable cost of
organisation but fixed cost is always stable for all business (Gibassier and Schaltegger, 2015).
Calculation of profit using marginal costing:
Income statement under Marginal costing method for month of May & June
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Absorption costing: It refer to a cost accounting method that is used for find out the current
inventory value. For this is includes variable as well as fixed cost that is incurred during the
production process which governs that it include direct and in-direct cost, overhead cost etc. that is
used to measure the value of inventory.
Calculation of profit using absorption costing
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Material cost variances:
Given information is as follows-
Standard price(SP)- £10 @ per kilograms
Actual price (AP)- £ 9.5 @ per kilograms (20900/2200)
Actual quantity (AQ)- 2200 Kilograms
Standard quantity(SQ)- 1000 Kilograms
Material price variance (MPV)= (SP-AP) * AQ
(10-9.5)* 2200= £1100 F
Material usage variance (MUV)= (SQ-AQ)*SP
(1000-2200)*10= £12000 A
Material cost variance (MCV)= Standard material cost- actual material cost
Valuation of closing stock using LIFO
Date Reference Purchase Issues Balance (Inventory)
Units £/Units £ Total Units £/Units £ Total Units £/Units £ Total
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05/01 Previous balance
(inventory) 40 3.00 120.00
05/12 40 3.00 120.00
Bought 25 units
at £ 3.60 each 20 3.60 72. 20 3.60 72.00
05/15 20 3.60 72.
Issued 36 units 16 3.00 48. 24 3.00 72.00
05/20 24 3.00 72.00
Bought 20 units
at £ 3.75 each 20 3.75 75. 20 3.75 75.00
05/23 Issued 10 units 10 3.75 37.5 24 3.00 72.00
10 3.75 37.50
05/27 9 3.75 33.75
Issued 25 units 25 3.00 75.00
05/30 Issued 5 units 5 3.00 15.00 4 3.75 15.00
Valuation of closing stock by using weighted average method:
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Interpretation: While using LIFO method the closing units were valued at 3.75 and while
using and while using AVCO method it was valued at 3.45. This information is used by managers in
decision making as it helps to determine the cost. From both the methods AVCO should be used by
company as it shows less cost as compare to LIFO.
M2 Several range of management accounting techniques and appropriate financial reporting
documents.
Their are several techniques are present in the organisation that helps an organisation to
prepare financial records in sequential and appropriate manner. In context of HSBC two methods
which are usually executes by them are marginal and absorption cost accounting system. It is
essential for every organisation to make effective management accounting system through which
it is easy for them to divide the resources specifically capital or finance between all departments
(Fullerton, Kennedy and Widener, 2014). So it is easy for them to accomplish their goals through
optimum utilisation of resources. Like the management of HSBC develops this framework in
order to make effective decisions due to which they develop effective budgets. Along with this it
motivates the employees of organisation to minimize the unnecessary cost that is impact on their
future performance.
D2 Financial reports that accurately apply and interpret data for a range of business activities
Financial statements refer to the preparation of profits and loss a/c, balance sheet, cash and
fund flow statement etc. This helps an organisation to evaluate their current financial position in the
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market. Therefore it is essential for management to adopt effective method of cost accounting in
order to attract and retain investor for longer period. In the present task different accounting methods
which includes marginal and absorption cost for an organisation. For this the income statement of
may by marginal cost accounting method is prepared. Net sale amount is $15,000 and in the amount
for marginal cost is $6400 along with closing stock of 3,200. Thus the net profit for this $1,050. at
last the sale for June month is 25,000 while the total marginal cost is $6,080. Thus net profit for this
5,750. Moreover the absorption method shoe that net profits is for $2,450 in the month of May and
for month of June it is $4,750.
TASK 3
P4 Planning tools used in management accounting
Budget
It is defined as statement showing income and expenses which are based on plans and
objectives of future (Elsukova, 2015). Finance is very important to operate long term and short
term activities, it shows revenues and expenses for upcoming events.
Budgetary control
It refers to the management of budget, and proper utilisation and control over funds by
managers. Financial managers set budget for organization to compare actual results by adjusting
performance. Budgetary control record actual figures to study performance of different cost
centres, it plays a vital role in planning and controlling of policies.
Planning tools used in budgetary control
Cash budget: It is defined as finance tool which estimates inflows and outflows of
organization for certain time period. This budget meet requirements or a company by providing
sufficient funds to operate activities. The activities which are going to undertaken by HSBC
should be considered first so that accordingly cash budget can be prepared, budget period is
basically divided into months to determine payment and receipts of cash showing expenses for
each month.
Advantages of cash budget:
It helps in cash budgetary planning and enables funds for management before operational
planning. It helps in forecasting future needs by raising funds. Cash budget control
expenditures which helps in not exceeding budget limit.
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Disadvantages of cash budget: Improper estimation affects cash budget and limit effectiveness
because of unavailability of proper knowledge. There are chances of manipulation in cash
budget by making early payments.
Master budget: It is defined as a expensive strategy which represents future sales, production
levels and capital investment. Master budget is developed to full-fill long term strategies of
HSBC including capital budget, cash budget and budgeted financial statements.
Advantage of master budget:
It is defined as an important eye of business which look after every necessity. It reveals how
much a company is earning and spending and shows negative or positive standing (Chuk,
Matsumoto and Miller, 2013). This budget equals to master planning by identifying problems
through which further effective planning can be considered.
Disadvantage of master budget:
The expenses of specific operation can not be analysed. Master budget is difficult to read and
update because so many numbers and categories and extensive descriptions are included in
budget.
Flexible Budget: It represents a budget which is adjusted and can be changed. Flexible budget is
more sophisticated then static budget, because its amount can not be changed. This budget can be
used to evaluate successful and unsuccessful areas of performance in HSBS (Christ and Burritt,
2013).
Advantage of flexible budget
It helps in enabling the management differentiation of actual output from expected output. It
provides an accurate basis between actual and expected activities. Flexible budget helps in
controlling overheads of department.
Disadvantage of flexible budget
This can increase cost of activities. The assumption of continuity can be affected in future. Due
to flexible budget organization can face problems in valuing benefits. It can not work effectively
in complex administration.
M3 Planning tools and their application for preparing and forecasting budgets
Their are various planning tools are considered for forecasting the budget. It includes master
and flexible budget that is used to minimize the expenses and useful for increasing the cost such as
profits and revenue for the organisation. Management and financial department of the HSBC
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prepares this budget in order to attain their goals efficiently (Carlsson-Wall, Kraus and Lind,
2015). Like flexible budget is useful for manager when there are dynamic changes are present in
market that helps to adopt changes quickly. This results organisation again perform and complete
their with more productivity. It helps them to reduce their expenses that are not essential for the
organisation.
TASK 4
P5 Management accounting systems to respond to financial problems
Unforeseen expenses: This can be expressed as huge problem and due to this expenses
can go beyond and face fund problems. There are various type of unforeseen expenses such as
rising bills this leads in increasing pressure on organizations.
Weak fund management system: It define different types of fund management problem
due to non handling of proper budget. This can affect growth and sustainability of HSBE in
market place.
Financial problems: It indicates financial pressure which causes worries and stress, the
accounting management of HSBC determine problems which causes difficulties to organization.
Financial problems can be easily eliminated by creating a proper budget how to spend money
and where to spend the funds. Main priorities are focused before useless expenditures it enhances
better spending choices (Bromwich and Scapens, 2016).
Financial Governance: It is a way through which company collects and monitors
information about finance. The poor financial governance include fraud, material errors and poor
decision making . The accounting management can manage this through internal controls,
financial policies, internal and external audits.
Benchmarking: It is a process of analysing performance of organization against another
business. This technique differentiate plans and policies of organization with its competitors.
This process is effective for HSBC in managing funds for upcoming events so that it can adopt
best plans. Benchmarking provides support to managers by determining expenditures by
comparing strategies with its competitors. With the help of this method an organization can
easily maintain its expenses in uncertain times.
COMPARISON
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Basis HSBC UBS
Financial It I an issue which can be faced by
each and every organisation. In
HSBC, the problem of finance is
facing by the management due to lack
of fund for implementing other tasks.
This problem is also faced by the firm
cause of its revenues and they are
decreasing continuous basis. Another
reason of these financial issues are the
plans and policies of the institution
which are not set up events and
management of the company in an
effective manner.
This organisation is also facing
financial issues cause of spending more
fund more then returns or profits. This
is a strong investment fund so this issue
did not highly affect it. But there are
little unfavourable impact are shown on
its business.
t
Method to
solve
As the defined problems, these
financial issue can be minimize an
resolved by using and applying
effective management accounting
systems, tools and techniques like
benchmarking. It can be beneficial to
deal with these kind of problems in
effective manner. It is an approach
which help inn making comparison
among process, policies with
developed sector and offer solution to
deal and overcome these issues. If the
management if the company follow
these methods then they can make
appropriate plans and policies for the
effective running of the management.
In UBS, within this situation of
financial problem, the management of
the company can used KPI(Key
performance indicator) to short out the
issue. With the help of this method the
management of the company can make
concentration the activities of the
company. By following this method
and system of management accounting,
the organisation can earn high revenue
to make investment on effective
activities.
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Similarity- Both companies which are HSBC and UBC faced financial issue in their
organisation which will impact on their performance. In order to overcome financial issue both
organisation uses KPI and benchmarking. Both are effective and useful methods which will
support an enterprise in dealing with such type of issues. As it will further support companies to
gain better outcomes within given time duration.
M4 Responding to financial problems with context of management accounting
In present market or world, manager of multi-national organisation use different types of
planning tools that helps them to solve the financial problems within appropriate manner. HSBC is
operating their business at global level which determines that they faces challenges on regular
whenever there is change in the global economy. Implement of management accounting not only
helps to explore alternative of financial problems but also helps them to improve the efficiency of
their operations (Ascioglu and et. al., 2012). Further effective management accounting system helps
them to predict out the problems that create hindrances in future of the organisation.
D3 Evaluation of planning tools for accounting appropriately to solving financial problems
Managers which are working with HSBC uses different types of planning tools which
includes cash budget, master budget and operating budget this helps them to respond positively
for different financial problems. This budget helps them to control or handle several problems
that impacts on profits of organisation. Along with this budgets helps HSBC to manage their
funds within appropriate manner. It helps them to increase their growth and success through
bringing more productivity in its activities and operations. At last it also helps them to overcome
from the weak points of the organisation. When an organisation faces failure because of issues
that are faced by them during their production activities. It is the result of ineffectiveness of their
tools such as KPI, benchmarking etc. therefore HSBC first need to analysis the stability and
sustainability of tools that are implemented by them.
CONCLUSION
By combining all the above points it is concluded that managerial accounting plays
crucial role for the success and growth of the organisation through developing different kinds of
reports such as balance sheet, cash flow, cost accounting and price optimisation technique etc.
for the organisation. Skilled and effective accounting manager prepare proper budgets that helps
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to deal from future complexities in systematic manner. Further different tools are implemented
such as benchmarking, KPI etc. for solving different financial issue of organisation by assisting
employees to increase their performance.
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