Introduction to

Management
Accounting and
Control
PROF ELEC 4

AUGUST 24, 2021

 Learning Objectives
After completing this chapter, you should be able to:
1. Understand the concepts of management,
accounting, and control
2. Define management accounting and management
control
3. Describe the role of a controller in an organization
4. Understand how companies structure the
management control function
5. Distinguish management accounting from
financial accounting
6. Describe performance measurement and
performance reporting
7. Describe major trends in the business environment
that shape management accounting and control
8. Understand the importance of ethical practice in
management accounting and control
The Concepts of
Management,
Accounting, and
Control
▪ A Definition of Management
▪ A Definition of Accounting
▪ A Definition of Control
A Definition of Management
- the act of getting people together to accomplish desired goals and objectives

Henri Fayol’s Five Functions of Management:

❑ Foresight and planning (prévoir)

❑ Organizing (organiser)
❑ Commanding and leading (commander)
❑ Coordinating (coordonner)
❑ Monitoring (contrôler)
PLANNING function
involves setting up
plans and forecasts
for the future. In
businesses
these are often
expressed in
financial terms and
are called budgets.

* Plan vs Forecast
ORGANIZING
involves arranging
the different
elements (assets,
funds, human
resources and
information) of an
organization into a
purposeful and
efficient order or
structure.
COMMANDING &
LEADING involves
influencing people to
reach a desired goal
either through
communication or
through structure.
COORDINATING
implicates that
managers must
harmonize and
integrate the
structures, the
processes, and the
activities performed
by the people in a
company.
MONITORING
means checking if an
organization’s
activities are
consistent with its
targets and
goals.
* Deviations from targets have to
be detected and reported, so that
appropriate corrective actions and
initiatives can be taken.
A Definition of Accounting
Accounting denotes the system that records, analyzes, and reports
all business transactions of a company in a systematic and
comprehensive manner in order to provide useful information to
users.
Accounting is a “system” because it comprises various elements that
are logically connected with each other: individuals (accountants) use
various tools (for instance computers and accounting software) and
follow certain procedures in order to produce its main output:
information.
A Definition of Control
Control is a device, a system, or an activity which helps you to influence an object.

Conceptual Elements of Control

1. A detector or sensor – a device that measures what is actually

happening
2. An assessor – a device that determines the difference between the
planned or expected and the actual situation
3. An effector – a device that influences the process if the assessor
indicates the need to do so (also called “feedback”)
4. A communication network – devices that transmit information
between the other three elements
Interplay Between the Four Elements
of Control
 Bringing it
Together:
Management
Accounting and
Management
Control
▪ Management Accounting
▪ Management Control
MANAGEMENT ACCOUNTING
Managers must plan, organize, command and lead,
coordinate, and monitor the activities of the business.

Management Accounting is the internal

accounting system that supports managers in
carrying out management tasks.
MANAGEMENT CONTROL
An organization must be controlled; that is, devices, systems, processes,
and activities must be in place to ensure that its plans and goals are
achieved.

While management deals with getting people

together for a desired
goal, control makes sure that management
actually reaches this goal.
 Management Accounting and
Management Control
MANAGEMENT ACCOUNTING MANAGEMENT CONTROL

- is the internal - assists managers in

accounting system that ensuring that a company
supports managers in reaches its strategic
carrying out management goals.
tasks.
Concept of Strategy
▪ It is the sum and combination of all intended activities to bring
about a desired future.
▪ It is the plan or route to reach the company’s goal(s).
▪ Cost leadership vs. differentiation
 Management Accounting and
Management Control
MANAGEMENT ACCOUNTING MANAGEMENT CONTROL

▪ An important tool for management ▪ It is a set of activities, systems,

control as it is the main information and processes by which managers
source for managers on their decision- influence other members of the
making. organization to implement the
▪ It is the language that communicates
company’s strategies.
past performance and future targets. ▪ It is not about formulating these
▪ It is the internal information system strategies, but it focuses on the
that supports the management control best possible execution of a
function, strategy formulation and goal company’s strategies.
setting.
 Interplay
Between the
Management,
Management
Control and
Management
Accounting
MANAGEMENT CONTROL
What exactly does it mean to assist managers in implementing a strategy?
What system or procedures do companies have in place to reach a certain goal?

Core elements of management control systems:

❑ Operational planning
❑ Budget preparation
❑ Resource allocation (capital budgeting)
❑ Performance measurement
❑ Evaluation and employee compensation
Elements of An operational plan is more

Management
detailed and guides what has to
be done, when, and by whom.

Control
Company
goals must be aligned with the
personal goals of managers and
employees as it will influence A budget is the financial expression
members of the organization to of an operational plan with the aim
implement a company’s strategy. of having a formal document
outlining the
financial targets for the next period.

Performance
measurement includes collecting
feedback by comparing own
performance with historical
Allocating resources means moving
figures or with competitors.
the limited funds
to those activities and projects of a
company that create the highest
value.
The Role of a
Controller in
an
Organization
▪ Skill Set of a Controller
▪ The Management Control
Function in a Corporation
The Role of a Controller in an Organization
Origin: From combination of the French word “compte” (for
“account”) and the English notion of “counterroller”
(somebody who checks scroll copies).

❑ Private enterprises in the US frequently have assigned the title of

“controller” to the top financial accountant who is in charge of
supervising accounting staff and preparing accounting information
for both internal and external decision makers.
❑ The modern controller is more of a business partner to
management.
 1. Reporting and documenting information
about company activities
2. Leading and coordinating planning and
budgeting activities
3. Measuring and analyzing the performance
of the organization, including variance
Controllers analyses
4. Consulting managers in decision making
perform the and other project work
following 5. Cost management

activities: 6. Performing investment analyses (capital

budgeting)
7. Processing data
8. Analyzing the organization’s economic
environment and the competition
9. Participating in strategic planning
10.Initiating continuous improvement actions
The Roles of Managers and Controllers
❑ Management control (as a task or
function) is a joint task carried out by
managers and controllers. Management
control happens right at the interface
between managers and controllers.
❑ A controller is considered the critical
counterpart to management. While
management is responsible for setting
goals, making decisions, and enforcing
these decisions, the controller is
responsible for supporting managers by
analyzing options, planning ahead,
monitoring past performance and
coordinating activities in order to ensure
goal achievement.
Skill Set of a Controller
A controller might act as an internal consultant to the manager and as the
economic conscience preventing managers from making inefficient decisions.

❑ Controller must be able to provide transparency to management:

transparency on the economic framework the business is operating
in, on the alternative routes available to realize set goals, and on
possible effects of these alternative routes.
❑ Controllers must be able to turn “data” into “information.” Data
becomes information only if and when it is goal-relevant and
purposeful.
❑ While managers predominantly are decision makers and motivators,
controllers need to assume the role of coordinators, sparring
partners, and economic think tanks.
Skill Set of a Controller

❑ Harvard emeritus Robert N. Anthony

states that “in practice, people with the
title controller have functions that are,
at one extreme, little more than
bookkeeping and, at the other extreme,
de facto general management”
❑ Stepping out of university with a degree
certificate in your hands will not make
you a perfect controller from day one.
Having studied management control
alone will not be sufficient to become a
complete controller. It will lay a good
foundation, though.
 The Management Control Function in a
Corporation
Where do we find controllers
in an organization?

Simply speaking, controllers

are found where managers
are. While there are different
management hierarchies in a
business, there are also
different hierarchies in
management control.
Management control
departments employ
accountants and controllers
with different skill sets.
 The
Management
Control
Function in a
Corporation
At Bayer, controllers are not only
found in the corporate center.
Also, in the business areas of
pharmaceuticals, consumer
health, and crop sciences,
controllers do their job. They
support operating managers in
the day-to-day business activities
of manufacturing and selling
products and services.
Management
Accounting vs
Financial
Accounting
▪ Financial Accounting
▪ Contrasting Management
Accounting and Financial
Accounting
 Management Accounting vs. Financial
Accounting
Accounting information
serves different
purposes, and its users
have different needs.
This
information variety can
be generated only if
the company’s
accounting system is
further differentiated.
 Contrasting Management Accounting
and Financial Accounting
Financial Accounting Management Accounting
Information External – investors, creditors, Internal – all management
users suppliers, government, and tax functions
authorities within the company

Purpose of Help investors, creditors, and Help managers plan and control
information others make investment, credit, business operations
and other decisions
Focus and time Reliability, objectivity, and Relevance and focus on the
dimension focus on the past future
 Contrasting Management Accounting
and Financial Accounting
Financial Accounting Management Accounting
Obligation for Mandatory Not mandatory
preparation
Type of report, Financial statements restricted Internal reports not restricted
regulation by accounting standards (IFRS, by accounting standards –
US GAAP, HGB, etc.) tailored to specific decisions

Presentation of Content and format highly Not standardized, individual

accounting standardized across companies contents and formats
information
 Contrasting Management Accounting
and Financial Accounting
Financial Accounting Management Accounting
Verification Annual independent audit by No independent audit
certified public accountants
Level of detail Summary reports primarily on Detailed reports on parts of the
the company as a whole company (products, customers,
market segments, etc.)

Frequency At least on an annual basis, Varying, often on a weekly or

sometimes quarterly monthly basis
Performance
Measurement and
Performance Reporting
▪ An Example of Performance Reporting
▪ Performance Measurement beyond
Financials
PERFORMANCE MEASUREMENT
In a general sense, performance is about goal achievement, and
performance can be expressed as the extent to which an entity (a
business, an individual) achieves set goals.

Performance measurement is a process or activity that aims at

collecting, analyzing, and evaluating data on the economic success
of a business organization, a division, or even individuals within an
organization. Having transparency about the performance of a
business is vital for managers and controllers. Without
transparency, you have no control over the organization.
PERFORMANCE REPORTING
Once you have measured the performance of a business it has to be reported,
ideally in a comprehensive and understandable form.

Categories:
1. Internal routine reporting - Information about the success of the
operations is provided with a defined regularity, e.g. in daily, weekly, or
monthly reports.
2. Internal non-routine reporting - Managers need information for decisions
that occur irregularly or even without precedent,
3. External reporting - This type of reporting is guided by laws and
regulations set by governments or standard setters.
An Example of Performance Reporting
An Example of Performance Reporting
 Management Accounting and
Management Control
MANAGEMENT ACCOUNTING MANAGEMENT CONTROL

▪ An important tool for management ▪ It is a set of activities, systems,

control as it is the main information and processes by which managers
source for managers on their decision- influence other members of the
making. organization to implement the
▪ It is the language that communicates
company’s strategies.
past performance and future targets. ▪ It is not about formulating these
▪ It is the internal information system strategies, but it focuses on the
that supports the management control best possible execution of a
function, strategy formulation and goal company’s strategies.
setting.
PERFORMANCE MEASUREMENT BEYOND
FINANCIALS
Apart from financials, performance measurement can include dimensions such as
time, quality, innovation, employees, customers, and other stakeholders.

In theory and practice, several performance measurement systems have

been developed, including:

❑ The DuPont system

❑ The Balanced Scorecard
❑ The Tableau de bord
❑ The EFQM-Model
❑ Value-based measurement