...FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS By Evanti Firstadea (105020307121003) Rosyida Mardyana (105020307121011) University of Brawijaya Economics and Business Faculty Accounting Major FINANCIAL PERFORMANCE MEASURES AND THEIR EFFECTS INTRODUCTION The primary objective of for-profit organizations is to maximize shareholder (or owner) value, or firm value for short. Thus, the results-control ideal would be to reward each individual employee for doing what s/he does to increase firm value. However, because direct measurements of the individuals’ contributions to value creation are rarely possible, firms have to look for measurement and control alternatives. A commonly cited management axiom is: what you measure is what you get. This axiom works in practice because performance measures are linked to any of a number of incentives that employees value. Employees respond to these incentives. The measures, then, play valuable motivational, or decision influencing, roles. But what performance measure (or measures) should be used? At managerial levels of organizations, both at the corporate and entity levels, job responsibilities are both broad and varied. In common jargon, managers are said to be multitasking. Reflecting that task variety, the list of measures used in practice to motivate and evaluate managers’ performances is long. However, these measures can be classified into three broad categories. Two of these categories include summary, single-number,...
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...actions and achieving good performance, so the major purpose of modern management accounting is to support the strategy execution. However, for fulfilling this goal it is essential to design and implement effective performance measurement and management system in order to asses, control, and finally improve organizational performance. Unfortunately, still a lot of companies today use financial and accounting-based calculations as the ultimate measures of company performance although exclusively financial approach to performance is not sufficient any longer. The aim of the paper is to figure out the requirements that should be fulfilled by modern performance management systems. Thus, in the first part of the article the short review of contemporary approach to performance management was described, in the following part different opinions and discussions from the relevant academic literature were depicted and finally the comprehensive set of ten requirements was proposed. 2 Contemporary Approach to Performance Management In 1965 R. N. Anthony published his seminal work titled “Planning and Control Systems”, in which he introduced the concept of management control. His classic definition of management control was “the process by * Bartłomiej Nita, Ph.D. – Assistant Professor; Department of Managerial Accounting and Accounting for Management, Institute of Accounting, Faculty of Management,...
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...The current issue and full text archive of this journal is available at www.emeraldinsight.com/1176-6093.htm Research in management accounting innovations An overview of its recent development Nur Haiza Muhammad Zawawi Department of Accounting and Finance, University of Malaysia Terengganu, Kuala Terengganu, Malaysia and School of Accounting, La Trobe University, Melbourne, Australia, and Management accounting innovations 505 Zahirul Hoque School of Accounting, La Trobe University, Melbourne, Australia Abstract Purpose – The purpose of paper is to present a review of the literature on management accounting innovations (MAIs). Specifically, it explores recent developments in research on MAIs and offers suggestions for future research. The review differs from existing reviews by its specific focus on MAIs and the recent time period covered. In this paper, MAIs refer to the adoption of “newer” or modern forms of management accounting systems such as activity-based costing (ABC), activity-based management, time-driven ABC, target costing, and balanced scorecards. Design/methodology/approach – The paper presents a review of findings from journal articles published in 22 notable accounting journals. Findings – The review finds that research on MAIs has intensified during the period 2000-2008, with the main focus on exploring the extent to which a host of organizational and environmental factors influence the implementation and use of MAIs in organizations. In addition, research...
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...1. Discuss the role of accounting and accounting information with regard to control and performance evolution of modern organizations. In you discussion you should consider the positive impact and limitations of accounting and accounting information on MCS. The use of accounting information had been started from the traditional cost accounting developments and has undergone many revolutionary attributes such as ROI measure, capital budgeting, agency theory and transaction cost economics. The primary objective of for–profit organizations is to maximize shareholder value. Thus, the results control idea would be to reward each individual employee for doing what s/he does to increase firm value. However, direct measurements of the individual’s contributions to value creation are rarely possible. Therefore, firms have to look for control alternatives. Most firms base their higher managerial level results controls on accounting measures of performance. That is accounting profits and returns and their components. Short-term accounting profit and return measures provide imperfect, surrogate indicators of changes in firm value. Management myopia is an almost inevitable side-effect of the use of financial results control system built on accounting measures of performance. Management myopia can be avoided at top management levels by holding these managers accountable for increasing market valuations. When markets are informed and efficient...
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...GAAP-based financial reporting: measurement of business performance charteredaccountants.com.au Professor Stephen Taylor, The University of New South Wales, Sydney, Australia The Institute of Chartered Accountants in Australia The Institute of Chartered Accountants in Australia (the Institute) is the professional body representing Chartered Accountants in Australia. Our reach extends to more than 53,000 of today and tomorrow’s business leaders, representing some 43,000 Chartered Accountants and 10,000 of Australia’s best accounting graduates who are currently enrolled in our world-class post-graduate program. Our members work in diverse roles across commerce and industry, academia, government, and public practice throughout Australia and in 107 countries around the world. We aim to lead the profession by delivering visionary thought leadership projects, setting the benchmark for the highest ethical, professional and educational standards and enhancing and promoting the Chartered Accountant brand. We also represent the interests of members to government, industry, academia and the general public by actively engaging our membership and local and international bodies on public policy, government legislation and regulatory issues. The Institute can leverage advantages for its members as a founding member of the Global Accounting Alliance (GAA), an international accounting coalition formed by the world’s premier accounting bodies. The GAA has a membership of 700,000 and promotes...
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...Rashmi Deshpande 008158722 Rashmi Deshpande 008158722 Financial Performance measures in a traditional business system Measuring the financial ability is a very important approach for any business entity in order to enhance its overall performance, profits and to maintain a financial stability. Financial performance measures are done in order to depict the company’s overall performance. This is done by performing some simple mathematical calculations. The most common way of measuring one’s financial measures is by calculating the financial ratios. These financial ratios can be used to compare the financial abilities of different companies. Thus these ratios are kind of scores based on which the companies are rated. These ratios can also help the company management in creating business plans and creating presentations for their customers and investors. Some of the common financial ratios used as financial measures are: The liquidity Ratios: These ratios are used to find out “how much ready cash or near cash a company has?” Some of the liquidity ratios are 1) Current ratio 2) Quick ratio The Profitability Ratios: These ratios measure the return on investment or the profitability. The most common profitability ratios are 1) Profit ratio 2) Earning power 3) Return on investment of Assets 4) Return on common equity. Asset Ratios: These ratios are used to measure the asset management ability. Some of the common asset ratios are 1) Inventory turnover 2) Days of receivable...
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...Management Accounting: Information for Decision-Making and Strategy Execution - 6.Edition - 2012 Anthony A. Atkinson, Robert S. Kaplan Pearson I have both Solution Manulas And Test Banks Of this Book Contact ahad2030@yahoo.com Chapter 1 How Management Accounting Information Supports Decision Making QUESTIONS 1-1 Management accounting is a discipline that designs planning and performance measurement systems, using financial and nonfinancial information, to help an organization develop and implement its strategy. The information must be relevant and helpful, and customized to serve multiple purposes, such as making decisions, allocating resources, and monitoring, evaluating, and rewarding performance. Information for the “plan” and “do” steps of the PDCA cycle includes prospective data on costs, profits, efficiency, and quality associated with alternative ways to produce or provide goods or services. Information for the “check” and “act” steps includes assessments of how well the organization is achieving its objectives. Common information requirements include measures of cost, quality, profitability, and timeliness. 1-2 A company’s operators, managers, and executives need information for their operational control and improvement activities, as well as on the performance of their individual processes, products, services, and customers. This information is important to direct managers’ attention to areas where improvement is needed, to provide feedback...
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...Management Accounting and Financial Accounting Monitoring and controlling the business financial performances is imperative for the success of the business operations and its profitability. Management and financial accounting have tools that can help the company in different ways when trying to reach their goals. Financial accounting is the business tool that provides reports to the stakeholders, creditors, the government, and other individuals outside the organization and is based on past activities and historical results (Atkinson, Kaplan, Matsumura, & Young, 2006). Financial accounting summarizes information that concerns the whole company, reports are prepared on a regular basis, each report most follow specific guidelines in order to be consistent and it focuses on accuracy. Management accounting in the other hand is the business tool that provides financial and nonfinancial information to internal members of the business such as managers and employees. Management accounting helps internal members of the company with profit planning and budgets. It focuses in making current and future decisions in order to better the company. The reports provided by management accounting are prepared when needed and may not be required in a regular basis. Management accounting helps the company’s Chief Executive Officer (CEO) with controlling the company’s performance by measuring outputs produced and their efficiency. It helps by controlling expenses and costs and by organizing resources...
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...mission and strategy into operational objectives and performance measures for four different perspectives. The President would like for the managerial accounting team to continue research and explain how to use a balanced scorecard to measure unethical behavior with EEC. First as the team is going to obtain research in how to transition to a balanced scorecard let us review the first part of the research, as well. Definition of a Balanced Scorecard The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance (Balance Scorecard Institute). Any measurement system should be developed by the mission, goals, and objectives of the organization, in this case we are analyzing EEC (MUSE, 2010). After defining a balanced scorecard it has an integrated set of performance measures to support and are derived from EEC’s strategies. EEC’s performance measures will follow four categories: • Financial •...
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...Management Accounting Research Edited by Christopher S. Chapman, Anthony G. Hopwood and Michael D. Shields r 2007 Elsevier Ltd. All rights reserved Management Accounting and Operations Management: Understanding the Challenges from Integrated Manufacturing Allan Hansen and Jan Mouritsen Copenhagen Business School, Denmark Abstract: Innovations in operations management, like just-in-time, total quality management, automation, have produced a new manufacturing paradigm that challenges management accounting design and practices. The new manufacturing paradigm, which we conceptualise as integrated manufacturing, focuses upon the lateral flow of products and services, and thereby confronts management accounting ideals of hierarchical flows of information for planning and control. In this chapter, we take a closer look at management accounting research and the responses that have been made to the challenge from the new operational practices. We examine the extent to which changes in management accounting practices are observed, and the way in which design changes are recommended within organisations committed to the new manufacturing paradigm. Furthermore, we reflect upon the role of accounting as a management tool in integrated manufacturing, and on possible future research questions, so as to enrich our knowledge of the management accounting/operations management interface. Introduction Innovations in operations management (OM) have challenged management accounting (MA)...
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...EMPIRICAL INVESTIGATION OF THE EVOLUTION OF MANAGEMENT ACCOUNTING PRACTICES by Magdy Abdel-Kader University of Essex and Robert Luther University of Bristol WP No. 04/06 October 2004 Address for correspondence: Magdy Abdel-Kader Department of Accounting, Finance and Management University of Essex Colchester Essex CO4 3SQ UK E-mail: mabdel@essex.ac.uk 1 An Empirical Investigation of the Evolution of Management Accounting Practices Magdy Abdel-Kadera and Robert Lutherb a: Department of Accounting, Finance and Management, University of Essex, Wivenhoe Park, Colchester, CO4 3SQ (Correspondence address) b: Bristol Business School, U.W.E., Bristol, BS16 1QY The authors are grateful for the constructive comments of participants at the EIASM conference on New Directions in Management Accounting: Innovations in Practice and Research, December 2002, Brussels. Financial support from the Chartered Institute of Management Accountants is acknowledged with gratitude. 2 An Empirical Investigation of the Evolution of Management Accounting Practices Abstract This paper investigates and reports on the status of management accounting practices in UK industry. The analysis operationalises the IFAC statement on Management Accounting Concepts and its description of the evolution of management accounting. The results, based on responses from 123 practising management accountants, suggest that the management accounting employed in many UK industrial companies is not particularly...
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...Accounting, Organizations and Society 28 (2003) 127–168 www.elsevier.com/locate/aos Management control systems design within its organizational context: findings from contingency-based research and directions for the future Robert H. Chenhall Department of Accounting and Finance, Monash University, Clayton, Victoria 3168, Australia Abstract Contingency-based research has a long tradition in the study of management control systems (MCS). Researchers have attempted to explain the effectiveness of MCS by examining designs that best suit the nature of the environment, technology, size, structure, strategy and national culture. In recent years, contingency-based research has maintained its popularity with studies including these variables but redefining them in contemporary terms. This paper provides a critical review of findings from contingency-based studies over the past 20 years, deriving a series of propositions relating MCS to organizational context. The paper examines issues related to the purpose of MCS, the elements of MCS, the meaning and measurement of contextual variables, and issues concerning theory development. A final section considers the possibility that contingency-based ideas could encompass insights from a variety of theories to help understand MCS within its organizational context. # 2002 Elsevier Science Ltd. All rights reserved. 1. Introduction The three purposes of this paper are to provide a review of empirical, contingency-based research as it has developed...
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...MANAGEMENT ACCOUNTING: AN OVERVIEW Learning Objectives Distinguish between managerial & financial accounting. Understand the evolution of management accounting. Explain about the IFAC model. Understand how managers can use accounting information to implement strategies. Explain about Relevant Lost & Relevant Regained. 2 Learning Objectives Distinguish between managerial & financial accounting. Understand the evolution of management accounting. Explain about the IFAC model. Understand how managers can use accounting information to implement strategies. Explain about Relevant Lost & Relevant Regained. 3 Accounting System (accumulates financial and managerial accounting data) Managerial Accounting Information for decision making, and control of an organization’s operations. Internal Users Financial Accounting Published financial statements and other financial reports. External Users Managerial Accounting Users of information Managers within company Regulation Financial Accounting Interested outside parties Required. Must comform to Not required because for internal GAAP which is regulated by use only FASB and SEC. Basic accounting system plus Almost exclusively from the Source of Data various other sources basic accounting system Reports often focus on subunits. Reports focus on the enterprise Nature of Reports Based on a combination of in its entirety. Based on and...
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...Traditional performance measures slowly become insufficient tool in describing sophisticated and growing complexity among contemporary business organizations. They mainly concentrate on financial performance aspects such as: sales results, overhead absorption rate, return on investment, earnings per share and many other profitability ratios. Therefore management accounting evolved beyond these framework, as a solely profit measurement method, by including non-financial factors in the performance analyse. It is immensely difficult to justify the best approach, which business should operate, as management accounting techniques escalate in large extent and the choice depends on organizational profile. By evaluation of some performance measurements in this essay, it will be easier to understand their existence and apply acquired knowledge in the future, as a management accountant professional. Considering divisional organizations it is important to distinguished between the managerial performance, where only directly controlled items includes, namely direct costs (which level depends on manager’s efficiency and acquired leadership skills) and divisional performance measurement because outcome of manager performance might not reflect the market recession that division is struggling with (Drury, 2008). Therefore in order to presents reliable view of division performance the assumption should be appointed on controllable contribution. Drury arguments that: 2it measure the ability...
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...Int. J. Business Performance Management, Vol. 5, No. 1, 2003 1 Implementing performance measurement systems: a literature review Mike Bourne* and Andy Neely Centre for Business Performance, School of Management, Cranfield University, Cranfield, MK43 0AL, UK E-mail: m.bourne@cranfield.ac.uk *Corresponding author John Mills and Ken Platts Centre for Strategy and Performance, Institute for Manufacturing, University of Cambridge, Mill Lane, Cambridge, CB2 1RX, UK Abstract: Currently, there is a great interest in performance measurement with many companies attempting to implement the balanced scorecard. However, there is also evidence that many of these implementations are not successful. This paper reviews the different performance measurement system design processes published in the literature and creates a framework for comparing alternative approaches. The paper then proceeds to review the literature on performance measurement system implementations and concludes that the performance measurement literature is at the stage of identifying difficulties and pitfalls to be avoided based on practitioner experience with few published research studies. This paper is the first of two, the second going on to consider performance measurement implementation from the point of view of the change management literature. Keywords: Performance measurement; management process implementation. Reference to this paper should be made as follows: Bourne, M., Neely, A., Mills, J. and Platts...
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