AC 312 ADVANCED MANAGEMENT ACCOUNTING Course Description and Scope Semester 2 January-May 2002 As the role of management accountants continues to evolve, it is recognised that the role must include the creation of information, not only for achieving operational excellence, but more critically for the formulation and implementation of strategy. The objectives of the course are to: (i) provide a theoretical framework to better understand management accounting practices, (ii) develop an understanding of how cost information can be used for decision making by describing and evaluating various costing systems, (iii) introduce various performance evaluation measures, focusing on those that are more effectively linked to value creation and strategy implementation, and (iv) highlight contemporary issues in management accounting theory and/or practice. Topics include organisational and behavioural framework, strategic cost management, variance analysis, contemporary cost management systems, decentralisation and evaluation of business units, transfer pricing, performance evaluation and compensation systems, and contemporary issues in management accounting. Lecture Schedule Week No. 1 2 3 4 Topics FRAMEWORK OF MANAGEMENT ACCOUNTING AND CONTROL Historical overview of management accounting Contingency Theory Agency Theory Organisational Control Systems STRATEGIC COST MANAGEMENT Activity-based management (ABM) Strategic Value Chain Analysis ABC analysis of value chain processes Managing value chain relationships with suppliers VARIANCE ANALYSIS FOR OPERATIONAL CONTROL Production variances: direct material, direct labour, and overheads Accounting treatment of variances Variance investigation Variance analysis in ABC environment VARIANCE ANALYSIS FOR MANAGING MARKETING EFFECTIVENESS Sales Variances: sales volume, mix, quantity, market-share and market size Customer Profitability Analysis Readings KA Ch 1 & 14 Readings 1-3 KA Ch 4 & 5 HFD Ch 5 Readings 4-5 HFD Ch 7 & 8 Readings 6-7 HFD Ch 16 Readings 8-9 1
5 6 7 9 10 11 12 13 CONTEMPORARY COST MANAGEMENT CONCEPTS Target costing Life-cycle costing CONTEMPORARY COST MANAGEMENT CONCEPTS Theory of constraints Quality costs Kaizen costing DECENTRALISATION AND EVALUATION OF BUSINESS UNITS Decentralisation Reasons for decentralisation Organisation of business units Performance measures for business units Return on investment (ROI) Residual Income (RI) Recess (Week 8: 24 February 3 March 2002 MEASURING VALUE OF THE FIRM: EVA TM EVA TM as value-based measure Financing approach and operating approach to calculate EVA Strengths and weaknesses of EVA Relationship to MVA MEASURING VALUE OF THE FIRM: THE BALANCED SCORECARD Four perspectives: customer, internal processes, innovation and learning, and financial Measures that link to strategy Balanced Scorecard compared to EVA TRANSFER PRICING AND CONTROL IN MULTINATIONAL OPERATIONS Transfer pricing Objectives Alternative transfer pricing strategies Control in multinational operations Multinational transfer pricing and tax considerations Performance measurement issues INCENTIVE AND COMPENSATION SYSTEMS Expectancy theory Pay-for-performance concept Types of incentive and compensation systems EVA-based incentive compensation system CONTEMPORARY ISSUES IN MANAGEMENT ACCOUNTING Management accounting and knowledge management Nonaka & Takeuchi s theory of organizational knowledge creation Barriers to & enablers of knowledge transfer Role of management accountant in knowledge management KA Ch 6 HFD Ch 12 & 19 Readings 10-11 KA Ch 6 HFD Ch 12 & 19 Readings 12-13 KA Ch 7 & Ch 9 pp.442-453 Ch. 10 HFD Ch 22 pp.788-793 Ch. 23 KA Ch 10 HFD Ch 23 Readings 14-17 KA Ch 8 & 11 HFD Ch 13 pp.462-470 Reading 18 KA Ch 9 pp.453-464 HFD Ch 12 pp.793-806 KA Ch 13 HFD Ch 23 Readings 19-20 Readings 21-24 2
Basic Text & Prescribed Readings KA HFD Robert S. Kaplan & Anthony A. Atkinson, Advanced Management Accounting, Prentice Hall, 3 rd edition, 1998 (Call No. HF5635.K15 1998) Charles T. Horngren, George Foster & Srikant M. Datar, Cost Accounting: A Managerial Emphasis, Prentice Hall, 10th edition, 2000 (Call No. HF5686.C8H816 2000) List of prescribed readings is provided at the end of this subject outline. References Ashton D., T. Hopper & R. W. Scapens (ed), Issues in Management Accounting, Prentice Hall, 2 nd edition, 1995. (Call No. HF5657.4.I86 1995) Barefield J.T., C.A.Raiborn & M.R.Kinney, Cost Accounting: Traditions and Innovations, South- Western, 3 rd ed. 1997. Blocher, E.J., K.H.Chen & T.W.Lin, Cost Management: A Strategic Emphasis, McGraw-Hill, 1999. Hansen D.R. & M.M.Mowen, Cost Management, South-Western, 3 rd edition 2000. (Call No. HF5686.C8H249 2000) (Chapter 13 Strategic Cost Management pp.488-541 is a supplementary reading for Week 2) Hilto, R.W., M.W.Maher & F.H.Selto, Cost Management: Strategies for Business Decisions, McGraw- Hill, 2000. HBFD Charles T. Horngren, Alnoor Bhimani, George Foster & Srikant M. Datar, Management and Cost Accounting, Prentice Hall, 1999 (Call No. HF5686.C8M266) Simons, R., Performance Measurement & Control Systems for Implementing Strategy: Text and Cases, Prentice-Hall, 2000. Stewart, G.B, The Quest for Value, New York: Harper Collins, 1990. (Students are required to read Chapter 3 Market Reality is Informative --- See Reading #16 under Prescribed Readings) Tissen R., D. Andriessen & F. L. Deprez, The Knowledge Dividend, Prentice Hall, 2000. (This book by three KPMG authors provides a good account of how to create high-performance companies through value-based knowledge management). Young S.M., Readings in Management Accounting, Prentice Hall, 1997. (Call No. HF5657.4.R287r) Zimmerman J.L., Accounting for Decision Making and Control, Irwin, 2 nd edition, 1997. (Call No. HF5635.Z72) Newspapers and business magazines: The Asian Wall Street Journal, The Straits Times, Business Times, Fortune, Business Week, etc. Method of Instruction Lectures : 2 hours per week Tutorials : 2 hours per week Lectures commence in week 1 and end in week 13 Tutorials commence in week 2 and end in week 14 3
Course Assessment Continuing Assessments : 30% Final Examination 70% Total 100% Lecturer Office Room No. Tel Ext e-mail Teoh Hai Yap* 01C-92 5680 ahyteoh@ntu.edu.sg Chung Lai Hong B1A-15 4655 alhchung@ntu.edu.sg *Subject co-ordinator Prescribed Readings (1) B.Maskell and B.Baggaley, The Future of Management Accounting, Journal of Cost Management, Sept/Oct 2000, pp. 24-26. (2) R.J.Indjejikian, Performance Evaluation and Compensation Research: An Agency Perspective, Accounting Horizons, June 1999, Vol. 13 No. 2 pp.147-157. (3) D.Otley, "Management Control, Organizational Design and Accounting Information Systems," in D. Ashton, T.Hopper, and R. Scapens (eds.), Issues in Management Accounting, 2 nd edition, Prentice Hall, 1995, pp.45-63. (4) J.Shank and V.Govindarajan, Strategic Cost Management and the Value Chain, Journal of Cost Management, Winter 1992, pp. 5-21. (5) R.Cooper and R.Slagmulder, Strategic Cost Management, Management Accounting, March 1998, pp. 18, 20. (6) J.M.Ruhl, Activity-Based Variance Analysis, Journal of Cost Management, Winter 1995, pp. 38-47. (7) D. Emsley, "Redesigning Variance Analysis for Problem Solving", Management Accounting Research, 12, 2001, pp.21-40. (8) G.Foster, M.Gupta and L.Sjoblom, Customer Profitability Analysis: Challenges and New Directions, Journal of Cost Management, Spring 1996, p. 5-17. (9) J. Ness, M.Schroeck, R. Letendre and W. Douglas, "The Role of ABM in Measuring Customer Value: Part One", Strategic Finance, March 2001, pp. 32-37. (10) J. Ness, M.Schroeck, R. Letendre and W. Douglas, "The Role of ABM in Measuring Customer Value: Part Two", Strategic Finance, April 2001, pp. 44-49. (11) J.K.Shank and J.Fisher, Target Costing as a Strategic Tool, Sloan Management Review, Fall 1999, pp. 73-82. (12) J. S.Baxendale and M.Gupta, TOC and ABC, Management Accounting, April 1998, pp. 39-44. (13) C. Ittner, "Activity-based Costing Concepts for Quality Improvement", European Management Journal, Vol. 17, No. 5, 1999, pp. 492-500. 4
(14) P.A.Dierks and A.Patel, What Is EVA, and How Can It Help Your Company? Management Accounting, Novemb er 1997, pp.52-58. (15) S.D.Young, Some Reflections on Accounting Adjustments and Economic Value Added, The Journal of Financial Statement Analysis, Winter 1999, pp.7-19. (16) Stewart, G.B, The Quest for Value, New York: Harper Collins, 1990. Read Chapter 3 on Market Reality is Informative. (17) "EVA Storms Corporate World" Business Times Online, 23 April 1997. SPH Creates Best Value, Survey Shows The Straits Times, Tuesday 13 April 1999. Hey, Mr CEO, Watch that EVA, Will You? The Sunday Times, 15 August 1999. (18) R.S.Kaplan and D.P.Norton, Using the Balanced Scorecard as a Strategic Management System, Harvard Business Review, January-February 1996, pp.75-85. (19) R.M.Steers and Lyman W. Porter, Motivation and Work Behaviour, 5 th edition, McGraw- Hill, 1991. (20) Workers Here Value Human Touch The Straits Times 30 July 2000. Performance-Related Pay Works for Singapore The Straits Times 16 February 1994. Staff Appraisal Becoming More Crucial The Straits Times 19 March 2001. Staff Stock Options Distorting Market Returns The Straits Times 15 January 2001. Too Much of a Good Thing can be Bad The Straits Times 31 March 2001. F & N s Gratuity Plan Raises Eyebrows The Straits Times 17 February 2001. (21) W.P.Birkett, "Management Accounting and Knowledge Management," Management Accounting, November 1995, pp.44-48. (22) I. Nonaka, The Knowledge-Creating Company, Harvard Business Review, November- December 1991, pp.96-104. (23) R. Dzinkowski, The Measurement and Management of Intellectual Capital, Management Accounting (UK), February 2000, pp.32-34, 36. (24) Failed Again? Well Done The Sunday Times, August 22 1999. 10 Rules that 3M Lives By The Sunday Times, August 22 1999. Shut Up the Old, Open Up the New The Straits Times 22 March 2000. 5