Management Accounting and
Control: Concepts Definitions
Concept Definition
Managerial reporting system The human brain in our body. A
management reporting system is a part of
a management control system that
provides business information. This
information can be in the form of reports
and/or statements
Agency relationship A situation in which one individual (the
agent) acts on behalf of another individual
(principal) and is supposed to advance the
principal’s goals (through providing effort)
Franchising A franchise is a type of license that a party
(franchisee) acquires to allow them to have
access to a business's (franchisor)
proprietary knowledge, processes, and
trademarks in order to allow the party to sell
a product or provide a service under the
business's name
Centralized purchasing A situation where firms purchasing goes
through one central department.
Department managers submit requests for
approval, and the procurement staff retains
control of the budget. There are heavy
vertical reporting lines to allow HQ to
take operational and strategic decisions
and to instruct business units.
Decentralized purchasing A situation where a multi-site firm has a
purchasing policy that allows individual sites
to choose and manage their own supplier
base. There are lighter vertical reporting
lies and also focus on horizontal
reporting lines across markets.
Sensitivity The extent to which (the expected value) of
the PM changes with changes in the agent’s
effort
Precision The extent to which (the expected value) of
the PM is influenced by factors outside of
the control of the manager
Verifiability The extent to which it is ex ante clear how
the PM is calculated
Congruence The extent to which PM reflects
contributions to overall firm value
Delegation Delegation occurs when someone with
authority confers upon another person the
power to do a particular task. Delegation is
usually a one-way street - superiors
delegate authority to subordinates.
Control: Concepts Definitions
Concept Definition
Managerial reporting system The human brain in our body. A
management reporting system is a part of
a management control system that
provides business information. This
information can be in the form of reports
and/or statements
Agency relationship A situation in which one individual (the
agent) acts on behalf of another individual
(principal) and is supposed to advance the
principal’s goals (through providing effort)
Franchising A franchise is a type of license that a party
(franchisee) acquires to allow them to have
access to a business's (franchisor)
proprietary knowledge, processes, and
trademarks in order to allow the party to sell
a product or provide a service under the
business's name
Centralized purchasing A situation where firms purchasing goes
through one central department.
Department managers submit requests for
approval, and the procurement staff retains
control of the budget. There are heavy
vertical reporting lines to allow HQ to
take operational and strategic decisions
and to instruct business units.
Decentralized purchasing A situation where a multi-site firm has a
purchasing policy that allows individual sites
to choose and manage their own supplier
base. There are lighter vertical reporting
lies and also focus on horizontal
reporting lines across markets.
Sensitivity The extent to which (the expected value) of
the PM changes with changes in the agent’s
effort
Precision The extent to which (the expected value) of
the PM is influenced by factors outside of
the control of the manager
Verifiability The extent to which it is ex ante clear how
the PM is calculated
Congruence The extent to which PM reflects
contributions to overall firm value
Delegation Delegation occurs when someone with
authority confers upon another person the
power to do a particular task. Delegation is
usually a one-way street - superiors
delegate authority to subordinates.
