Module 1: Introduction to Strategic Management Accounting (10%)
This module has provided an introduction to strategic management accounting and the role of the management accountant.
Part A: Value (what they receive in return) (p.26)
Part A defined strategic management accounting and examined the contemporary environment and its impact on organisations
and on management accounting. This part of the module also introduced the concept of value.
Roles of mgt accounting
Role of management accountants: (i) create, (ii) manage and (iii) protect value -> need to be sustainable
A board range of stakeholders Contribution Value received
Shareholders Capital Dividends
Employees Labour Wages
Customers Revenue Products
Suppliers Components Payments
Value Creation
❖ Past: based on economies of scale and mass production
❖ Now: in contemporary organisations is based on creativity and innovation, innovation ways mngt take advantge of new
materials, technologies and processes
<Definition of strategic mgt accounting>
❖ Creating sustainable value by: (i) supporting the formation, selection, implementation and evaluation of organizational
strategy; and
❖ (ii) Providing information that captures financial & non-financial perspectives for both internal & external environments to
enable effective resource allocation.
Value → anything that is good for the business or organisation A key requirement is to produce this
output at a cost that is lower than the price
✓ Primary task for an organization -> create an output that has customer value
the customer is willing to pay, which leads
✓ Shareholder wealth is a by-product of generating value in other areas to profitability and creates shareholder
✓ Shareholder value: generate wealth for the owners value.
Corporate social responsibility (CSR)
CSR reporting has increased to help people understand the sustainable value or effect of an organisation’s activities from a social and
environmental perspective.
Accounting Information: SMA / FR?
External Reporting = Financial Reporting => historical
Internal Reporting = Strategic Management Accounting =>
future oriented & timely
, ➢ FR and auditing: have a regulatory compliance focus to inform and protect external stakeholders
➢ SMA: 1) aim at improving organizational outcomes
2) provide forward-looking information to assist management in decision-making
3) evaluates external information—for example, trends in costs, prices, market share, competitors, suppliers and
technologies—and their impacts on resources.
4) uses a wide range of tools and techniques that support each stage
5) Unlike typical cost or/and management accounting, which focuses on internal accounting information
Part B The strategic management process (p.30)
Part B described the strategic management process and the role of strategic management accounting in supporting managers. The
strategic management process is taken as a continuous process that evaluates the business and the environment within which the
organisation operates, evaluates/re-evaluates its competitors and defines its objectives and strategy.
• defining the organisation’s strategy assist managers in
• defining the process by which managers make a choice of a set of strategies for the organisation value creation
Step 1: Strategic analysis - scanning both internal and external organisational environment
Step 2: Strategy planning and choice - developing specific strategies, actions and measures
Step 3: Strategy implementation - crafting an effective organisational structure, organisational processes and culture.
Step 4: Strategy evaluation - measuring performance, providing feedback and undertaking continuous review for improvement.
➢ Relationship between senior strategic managers and operational managers:
o Like a pyramid
o Senior management team is at the top - focuses on strategic tasks
o Operational managers is underneath - focus on the medium- to short-term tasks of running an organisation.
Broad differences between strategic and operational management (p.32)
(Example 1.1 highlights how strategic management accounting information can support operational management) p.33
Operational support techniques
• cost classifications
• CVP analysis
• product costing
• marginal costing
• working capital management
,3E’S
Part C: The role of management accountants in strategic management (p.38)
Part C detailed the role of management accountants in the strategic management process. Management accountants are seen as
information providers for the business process, organisational planning and control, resource management and utilisation, and
creation of value through effective use of financial and non-financial resources. As a trusted business partner, new challenges facing
management accountants mean they must constantly advance their knowledge in diverse areas and improve their soft skills to
effectively communicate with the internal and external stakeholders.
✓ Seen as information providers for business processes, organisational planning and control, resource management and
utilisation, and creation of value through effective use of financial and non-financial resources.
✓ focus on helping managers solve problems and improve their competitive position
✓ Techniques: target costing, life cycle costing, competitor cost analysis, activity-based costing and management, and strategic
performance measurement systems (Langfield- Smith 2008).
Role of management accountants
Traditional management accounting Strategic management accounting
Also known as: Enterprise Resources Planning (ERP software: (Langfield-Smith 2008) SMA include target costing, life cycle
SAP, JD Edwards/Oracle & Dynamics) costing, competitor cost analysis, activity based costing and mgt,
=> provide useful information to support manager and strategic performance measurement sys.
=> broadens the role to focus on value creation for all significant
stakeholders
(i) Job costing and process costing (i) Product costing and activity based costing
(ii) Budgets (ii) life cycle analysis (incl. social & environmental costs & benefits)
(iii) Variance analysis (iii) value chain analysis (cost driver analysis -> benchmarking of
operational processes and various forms of budget variance analysis
for managing and controlling the implementation process)
(iv) Financial data (iv) Financial, operational and qualitative data
(v) Competitor cost structure analysis (incl. customer cost,
profitability analysis, external benchmarking etc)
(vi) Industry and broader economy analysis
IFAC (2011): Four qualities of mgt accountants (p.41)
1. Creators of value – developing the plans and strategies that set the direction of the org
2. Enablers of value – by supporting mgt decision-making and implementation
3. Preservers of value – protecting value through effective risk management, controls and compliance
4. Reporters of value – clear and detailed reporting
Professional skills to be achieved by professional accountants (p.41)
• intellectual skills
• interpersonal and communication skills
• personal skills
• organisational skills (IAESB 2017)
Part D: The key challenges facing management accountants (p.43)
Part D explained key challenges faced by management accountants. The focus was on three questions: how these challenges affect
them, what the consequences are, and what skills are needed by management accountants to deal with such challenges.
➢ Using technology effectively while guiding others to effectively use management accounting systems (MASs)
o keeping information secure and maintaining customer privacy
o Maintaining records and audit trails for data verification in a computerised environment
o allowed the automation of traditional number-crunching activities
, ➢ Managing resources
o Mastering areas such as cash flow management and SCM
o Using forecasting and scheduling tools, achieving reductions in inventory levels and maintaining effective links
with suppliers are necessary
o more difficult to deal with organisational knowledge, customer and employee loyalty, and brand management
than to focus on traditional cash flow and inventory issues
➢ Promoting innovation
o Drives competitiveness by creating efficiencies and new and better products.
o Successful innovation requires a clear understanding of customers → Customer Value (lower prices for
customers/ a better customer experience)
Causes of change in business environment
(1) Global Economy (p.47)
(i) Economic turmoil → potential bank defaults and collapses combined with fear and panic, sending share markets
tumbling.
(ii) Structural change
a. average growth rates
b. government philosophy on spending
c. government, company and individual debt levels
d. consumer spending habits
e. new regulations
The Basel Accords
An attempt by central bankers to address these problems. The Basel Accords aim to create a robust and stable international
banking system to minimise banking problems and to avoid an international collapse of the financial system
➢ Basel III Accord (p.49)
o enable the banking sector to absorb shocks
o improving risk management and transparency
o It’s a banking regulations, forms part of banking reforms in response to the FS that Basel II contributed
towards
o Impact on Business:
▪ a reduction in credit availability, especially for higher-risk activities, such as trade credit
financing.
▪ Excessive credit growth is tempered, and borrowing costs are slightly higher.
▪ lead to (slightly) slower growth and (slightly) lower profits in the short term
This module has provided an introduction to strategic management accounting and the role of the management accountant.
Part A: Value (what they receive in return) (p.26)
Part A defined strategic management accounting and examined the contemporary environment and its impact on organisations
and on management accounting. This part of the module also introduced the concept of value.
Roles of mgt accounting
Role of management accountants: (i) create, (ii) manage and (iii) protect value -> need to be sustainable
A board range of stakeholders Contribution Value received
Shareholders Capital Dividends
Employees Labour Wages
Customers Revenue Products
Suppliers Components Payments
Value Creation
❖ Past: based on economies of scale and mass production
❖ Now: in contemporary organisations is based on creativity and innovation, innovation ways mngt take advantge of new
materials, technologies and processes
<Definition of strategic mgt accounting>
❖ Creating sustainable value by: (i) supporting the formation, selection, implementation and evaluation of organizational
strategy; and
❖ (ii) Providing information that captures financial & non-financial perspectives for both internal & external environments to
enable effective resource allocation.
Value → anything that is good for the business or organisation A key requirement is to produce this
output at a cost that is lower than the price
✓ Primary task for an organization -> create an output that has customer value
the customer is willing to pay, which leads
✓ Shareholder wealth is a by-product of generating value in other areas to profitability and creates shareholder
✓ Shareholder value: generate wealth for the owners value.
Corporate social responsibility (CSR)
CSR reporting has increased to help people understand the sustainable value or effect of an organisation’s activities from a social and
environmental perspective.
Accounting Information: SMA / FR?
External Reporting = Financial Reporting => historical
Internal Reporting = Strategic Management Accounting =>
future oriented & timely
, ➢ FR and auditing: have a regulatory compliance focus to inform and protect external stakeholders
➢ SMA: 1) aim at improving organizational outcomes
2) provide forward-looking information to assist management in decision-making
3) evaluates external information—for example, trends in costs, prices, market share, competitors, suppliers and
technologies—and their impacts on resources.
4) uses a wide range of tools and techniques that support each stage
5) Unlike typical cost or/and management accounting, which focuses on internal accounting information
Part B The strategic management process (p.30)
Part B described the strategic management process and the role of strategic management accounting in supporting managers. The
strategic management process is taken as a continuous process that evaluates the business and the environment within which the
organisation operates, evaluates/re-evaluates its competitors and defines its objectives and strategy.
• defining the organisation’s strategy assist managers in
• defining the process by which managers make a choice of a set of strategies for the organisation value creation
Step 1: Strategic analysis - scanning both internal and external organisational environment
Step 2: Strategy planning and choice - developing specific strategies, actions and measures
Step 3: Strategy implementation - crafting an effective organisational structure, organisational processes and culture.
Step 4: Strategy evaluation - measuring performance, providing feedback and undertaking continuous review for improvement.
➢ Relationship between senior strategic managers and operational managers:
o Like a pyramid
o Senior management team is at the top - focuses on strategic tasks
o Operational managers is underneath - focus on the medium- to short-term tasks of running an organisation.
Broad differences between strategic and operational management (p.32)
(Example 1.1 highlights how strategic management accounting information can support operational management) p.33
Operational support techniques
• cost classifications
• CVP analysis
• product costing
• marginal costing
• working capital management
,3E’S
Part C: The role of management accountants in strategic management (p.38)
Part C detailed the role of management accountants in the strategic management process. Management accountants are seen as
information providers for the business process, organisational planning and control, resource management and utilisation, and
creation of value through effective use of financial and non-financial resources. As a trusted business partner, new challenges facing
management accountants mean they must constantly advance their knowledge in diverse areas and improve their soft skills to
effectively communicate with the internal and external stakeholders.
✓ Seen as information providers for business processes, organisational planning and control, resource management and
utilisation, and creation of value through effective use of financial and non-financial resources.
✓ focus on helping managers solve problems and improve their competitive position
✓ Techniques: target costing, life cycle costing, competitor cost analysis, activity-based costing and management, and strategic
performance measurement systems (Langfield- Smith 2008).
Role of management accountants
Traditional management accounting Strategic management accounting
Also known as: Enterprise Resources Planning (ERP software: (Langfield-Smith 2008) SMA include target costing, life cycle
SAP, JD Edwards/Oracle & Dynamics) costing, competitor cost analysis, activity based costing and mgt,
=> provide useful information to support manager and strategic performance measurement sys.
=> broadens the role to focus on value creation for all significant
stakeholders
(i) Job costing and process costing (i) Product costing and activity based costing
(ii) Budgets (ii) life cycle analysis (incl. social & environmental costs & benefits)
(iii) Variance analysis (iii) value chain analysis (cost driver analysis -> benchmarking of
operational processes and various forms of budget variance analysis
for managing and controlling the implementation process)
(iv) Financial data (iv) Financial, operational and qualitative data
(v) Competitor cost structure analysis (incl. customer cost,
profitability analysis, external benchmarking etc)
(vi) Industry and broader economy analysis
IFAC (2011): Four qualities of mgt accountants (p.41)
1. Creators of value – developing the plans and strategies that set the direction of the org
2. Enablers of value – by supporting mgt decision-making and implementation
3. Preservers of value – protecting value through effective risk management, controls and compliance
4. Reporters of value – clear and detailed reporting
Professional skills to be achieved by professional accountants (p.41)
• intellectual skills
• interpersonal and communication skills
• personal skills
• organisational skills (IAESB 2017)
Part D: The key challenges facing management accountants (p.43)
Part D explained key challenges faced by management accountants. The focus was on three questions: how these challenges affect
them, what the consequences are, and what skills are needed by management accountants to deal with such challenges.
➢ Using technology effectively while guiding others to effectively use management accounting systems (MASs)
o keeping information secure and maintaining customer privacy
o Maintaining records and audit trails for data verification in a computerised environment
o allowed the automation of traditional number-crunching activities
, ➢ Managing resources
o Mastering areas such as cash flow management and SCM
o Using forecasting and scheduling tools, achieving reductions in inventory levels and maintaining effective links
with suppliers are necessary
o more difficult to deal with organisational knowledge, customer and employee loyalty, and brand management
than to focus on traditional cash flow and inventory issues
➢ Promoting innovation
o Drives competitiveness by creating efficiencies and new and better products.
o Successful innovation requires a clear understanding of customers → Customer Value (lower prices for
customers/ a better customer experience)
Causes of change in business environment
(1) Global Economy (p.47)
(i) Economic turmoil → potential bank defaults and collapses combined with fear and panic, sending share markets
tumbling.
(ii) Structural change
a. average growth rates
b. government philosophy on spending
c. government, company and individual debt levels
d. consumer spending habits
e. new regulations
The Basel Accords
An attempt by central bankers to address these problems. The Basel Accords aim to create a robust and stable international
banking system to minimise banking problems and to avoid an international collapse of the financial system
➢ Basel III Accord (p.49)
o enable the banking sector to absorb shocks
o improving risk management and transparency
o It’s a banking regulations, forms part of banking reforms in response to the FS that Basel II contributed
towards
o Impact on Business:
▪ a reduction in credit availability, especially for higher-risk activities, such as trade credit
financing.
▪ Excessive credit growth is tempered, and borrowing costs are slightly higher.
▪ lead to (slightly) slower growth and (slightly) lower profits in the short term
