ACCA
Paper P5
Advanced performance
management (APM)
Essential text
British library cataloguinginpublication data
A catalogue record for this book is available from the British Library.
Published by:
Kaplan Publishing UK
Unit 2 The Business Centre
Molly Millars Lane
Wokingham
Berkshire
RG41 2QZ
ISBN 978 1 84710 552 3
© Kaplan Financial Limited, 2008
Printed and bound in Great Britain.
Acknowledgements
We are grateful to the Association of Chartered Certified Accountants and the Chartered Institute of
Management Accountants for permission to reproduce past examination questions. The answers
have been prepared by Kaplan Publishing.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or
otherwise, without the prior written permission of Kaplan Publishing.
ii
KAPLAN PUBLISHING
Contents
Page
Chapter 1
Introduction to strategic management accounting
Chapter 2
Approaches to budgets
Chapter 3
Changes in business structure and management 77
accounting
Chapter 4
The impact of information technology
101
Chapter 5
Environmental influences
117
Chapter 6
Performance measurement systems and design 153
Chapter 7
Financial performance measures in the private
sector
183
Chapter 8
Divisional performance appraisal and transfer
pricing
207
Chapter 9
Performance management in notforprofit
organisations
251
Chapter 10
Nonfinancial performance indicators
277
Chapter 11
Current developments in performance
management
315
Chapter 12
Questions & Answers
361
KAPLAN PUBLISHING
1
45
iii
iv
KAPLAN PUBLISHING
chapter
Intro
Paper Introduction
v
How to Use the Materials
These Kaplan Publishing learning materials have been
carefully designed to make your learning experience as easy
as possible and to give you the best chances of success in
your examinations.
The product range contains a number of features to help you
in the study process. They include:
(1) Detailed study guide and syllabus objectives
(2) Description of the examination
(3) Study skills and revision guidance
(4) Complete text or essential text
(5) Question practice
The sections on the study guide, the syllabus
objectives, the examination and study skills should all
be read before you commence your studies. They are
designed to familiarise you with the nature and content
of the examination and give you tips on how to best to
approach your learning.
The complete text or essential text comprises the main
learning materials and gives guidance as to the importance
of topics and where other related resources can be found.
Each chapter includes:
vi
•
The learning objectives contained in each chapter,
which have been carefully mapped to the examining
body's own syllabus learning objectives or outcomes.
You should use these to check you have a clear
understanding of all the topics on which you might be
assessed in the examination.
•
The chapter diagram provides a visual reference for
the content in the chapter, giving an overview of the
topics and how they link together.
KAPLAN PUBLISHING
•
The content for each topic area commences with a
brief explanation or definition to put the topic into context
before covering the topic in detail. You should follow
your studying of the content with a review of the
illustration/s. These are worked examples which will help
you to understand better how to apply the content for the
topic.
•
Test your understanding sections provide an
opportunity to assess your understanding of the key
topics by applying what you have learned to short
questions. Answers can be found at the back of each
chapter.
•
Summary diagrams complete each chapter to show
the important links between topics and the overall
content of the paper. These diagrams should be used to
check that you have covered and understood the core
topics before moving on.
•
Question practice is provided at the back of each text.
Icon Explanations
Definition Key definitions that you will need to learn from
the core content.
Key Point Identifies topics that are key to success and are
often examined.
Expandable Text Expandable text provides you with
additional information about a topic area and may help you
gain a better understanding of the core content. Essential
text users can access this additional content online (read it
where you need further guidance or skip over when you are
happy with the topic)
Illustration Worked examples help you understand the
core content better.
Test Your Understanding Exercises for you to complete
to ensure that you have understood the topics just learned.
Tricky topic When reviewing these areas care should be
taken and all illustrations and test your understanding
exercises should be completed to ensure that the topic is
understood.
KAPLAN PUBLISHING
vii
For more details about the syllabus and the format of your
exam please see your Complete Text or go online.
Online subscribers
The Syllabus
Paper background
Objectives of the syllabus
Core areas of the syllabus
Syllabus objectives and chapter references
The examination
Examination format
Paperbased
examination tips
Study skills and revision guidance
Preparing to study
Effective studying
Further reading
You can find further reading and technical articles under the
student section of ACCA's website.
viii
KAPLAN PUBLISHING
chapter
1
Introduction to strategic
management accounting
Chapter learning objectives
Upon completion of this chapter you will be able to:
•
explain the role, for organisations in general, of strategic
management accounting in strategic planning and control
•
describe the role of corporate planning in:
– clarifying corporate objectives
–
making strategic decisions
–
checking progress towards the objectives
•
describe, for organisations in general, the purpose, content,
structure and potential problems of a mission statement
•
describe the ways in which high level corporate objectives are
developed for organisations in general
•
identify, for a given scenario or in general, strategic objectives
and describe how they may be incorporated into the business
plan and cascaded down the organisation
•
compare planning and control at the strategic and operational
levels within a business entity
•
explain how organisational survival in the longterm necessitates
consideration of life cycle issues
•
explain the main aspects of strategic management accounting in
the context of multinational companies
•
explain, for organisations in general, the scope for potential
conflict between strategic business plans and shortterm
localised decisions
•
explain, in general and for a given scenario, how SWOT analysis
may assist in the performance management process
1
Introduction to strategic management accounting
•
describe, in outline, the benefits and difficulties of benchmarking
performance with best practice organisations
•
evaluate how risk and uncertainty play an especially important
role in longterm strategic planning and decision making that rely
upon forecasts of exogenous variables
•
assess the impact government policy can have on an
organisation in general and its strategy formulation and
implementation.
2
KAPLAN PUBLISHING
chapter 1
1 The role of strategic management accounting
The strategic planning process was examined in detail in the P3 paper. In
P5 the focus is more on the performance management aspects of strategic
planning and the role of strategic management accounting.
Strategic analysis, choice and implementation
Johnson and Scholes’ 3stage model of strategic planning is a useful
framework for seeing the ‘bigger picture’ of performance management and
strategic management accounting issues.
Within this, the role of critical success factors (CSFs) is central to
performance management:
KAPLAN PUBLISHING
3
Introduction to strategic management accounting
Defining strategic management accounting
Historically the role of the management accountant was often limited to the
implementation stage summarised above with a focus on operational
budgeting, target setting and control. In many respects this is the emphasis
of the F5 paper.
The term ‘strategic management accounting’ has come into common use
more recently. It refers to the full range of management accounting practices
used to provide a guide to the strategic direction of an organisation.
4
•
Strategic management accounting gives a financial dimension to
strategic management and control, providing information on the
financial aspects of strategic plans and planning financial aspects of
their implementation.
•
It supports managers throughout the organisation in the task of
managing the organisation in the interests of all its stakeholders.
•
Strategic management accounting places an emphasis on using
information from a wide variety of internal and external sources in order
to evaluate performance, appraise proposed projects and make
decisions.
•
It focuses on the external environment, such as suppliers, customers,
competitors and the economy in general as much as on the
organisation itself.
KAPLAN PUBLISHING
chapter 1
•
Strategic management accounting monitors performance in line with
the organisation’s strategic objectives in both financial and non
financial terms.
Note that many of the tools and techniques studied in F5 (and some in F9)
are still examinable in P5, including the following:
•
•
•
•
costing methods, e.g. target costing, life cycle costing
•
•
•
budgeting, e.g. flexed budgets
limiting factor analysis
relevant costing
risk techniques, e.g. expected values, minimax regret, maximin,
maximax
forecasting techniquese, e.g. hilow, time series, learning curves
standard costing.
Illustration 1 – Defining strategic management accounting
Job descriptions
Aspects of strategic management accounting are being incorporated in
many management accounting roles. For example, job descriptions for
management accountants often include strategic activities such as:
•
•
•
•
•
providing information for strategic decisions
formulating business strategies
providing advice on how to improve business performance
providing analysis of competitor performance
liaising with functional managers to support the business planning
process.
Test your understanding 1
A company selling wooden garden furniture in northern Europe is facing
a number of problems:
•
•
demand is seasonal
it is sometimes difficult to forecast demand as it varies with the
weather – more is sold in hot summers than when it is cooler or
wetter
KAPLAN PUBLISHING
5
Introduction to strategic management accounting
•
the market is becoming more fashionconscious with shorter
product life cycles
•
there is a growth in the use of nontraditional materials such as
plastics.
As a result the company finds itself with high inventory levels of some
items of furniture which are not selling, and is unable to meet demand for
others. A decision is needed on the future strategic direction and
possible options which have been identified are to:
•
use largely temporary staff to manufacture products on a seasonal
basis in response to fluctuations in demand – however it has been
identified that this could result in quality problems
•
automate production to enable seasonal production with minimum
labourrelated problems
•
concentrate on producing premium products which are smaller
volume but highpriced and less dependent on fashion.
How could strategic management accounting help with the
decision making?
The role of corporate planning
The term ‘corporate planning’ refers to the formal process which facilitates
the strategic planning framework described above.
Illustration 2 – The role of corporate planning
The description of the role of a corporate planning department of a
hospital might read:
The corporate planning department supports senior management in
making decisions to ensure corporate objectives are met. Its main roles
are:
•
to manage the business planning process through which the
objectives of individual clinical departments and support services
are agreed
•
•
to compile and publish the annual plan for the hospital
•
•
to monitor performance compared with other similar organisations
to monitor performance against the targets set in the business
planning process
to undertake specific strategic projects.
6
KAPLAN PUBLISHING
chapter 1
Clarifying corporate objectives
The strategic analysis stage will generate a range of objectives, typically
relating to:
•
•
•
•
•
•
•
•
maximisation of shareholder wealth (usually via maximising profit)
maximisation of sales (whilst earning an acceptable level of profit)
growth (in sales, asset value, number of employees etc.)
survival
research and development leadership
quality of service
contented workforce
respect for the environment.
These need to be clarified in two respects:
•
•
conflicts need to be resolved, e.g. profit versus environmental concerns
to facilitate implementation and control, objectives need to be
translated into SMART (specific, measurable, achievable, relevant and
time bound) targets.
Illustration 3 – Clarifying corporate objectives
Shareholder wealth
Resolving conflict is often portrayed as a simple prioritisation –
shareholder wealth creation should be the main objective. However, in
practice, firms often view other objectives (e.g. employee welfare) as
constraints within which the firm tries to generate shareholder value.
Illustration 4 – Clarifying corporate objectives
A statement such as ‘maximise profits’ would be of little use in corporate
planning terms. The following would be far more helpful:
•
•
•
achieve a growth in EPS of 5% pa over the coming tenyear period
obtain a turnover of $10 million within six years
launch at least two new products per year.
KAPLAN PUBLISHING
7
Introduction to strategic management accounting
Gap analysis
Gap analysis is useful for showing how (whether) strategies will enable the
firm to meet targets for key objectives (or at least those that can be easily
quantified).
For example, closing a profit gap:
In the diagram showing the gap:
T = target
F0 = initial forecast
F1 = forecast adjusted for improvements in internal efficiency
F2 = forecast adjusted for productmarket expansion.
Analysis of the gap reveals that in this instance the objectives cannot be
achieved beyond Year 4 without diversification. This gap is significant if the
lead time for diversifying exceeds 4 years.
The existence of the gap may or may not lead to the revision of objectives.
(There are after all two ways of closing a gap – revising objectives or taking
action to improve performance expectations.)
Expandable text
8
KAPLAN PUBLISHING
chapter 1
Making strategic decisions
Strategic options can be evaluated using the suitability, feasibility,
acceptability framework.
•
Suitability – whether the options are adequate responses to the firm's
assessment of its strategic position.
•
Acceptability – considers whether the options meet and are consistent
with the firm's objectives and are acceptable to the stakeholders.
•
Feasibility – assesses whether the organisation has the resources it
needs to carry out the strategy.
The strategic management accountant will contribute to the acceptability
and feasibility aspects in particular:
Aspect
Key concerns
Acceptability Returns to
stakeholders
Feasibility
KAPLAN PUBLISHING
Risk
Resources
Typical financial analysis
•
Cash flow forecasts to ensure dividend
growth requirements can be met
•
•
•
•
•
•
•
NPV analysis
•
•
•
Sensitivity
•
Expected values
•
Cash flow forecast to identify funding
needs
•
•
•
•
Budgeting resource requirements
ROCE
Valuation of real options
Shareholder value analysis
Economic value added
Costbenefit analysis
Ratio analysis (e.g. dividend yield,
growth)
Breakeven
Ratio analysis (e.g. gearing, dividend
cover)
Ability to raise finance needed
Working capital implications
Foreign exchange implications
9
Introduction to strategic management accounting
Checking progress towards objectives
It is not enough merely to make plans and implement them.
•
The results of the plans have to be compared against stated objectives
to assess the firm’s performance.
•
•
Action can then be taken to remedy any shortfalls in performance.
•
Corporate planning is not a onceineverytenyears activity, but an on
going process which must react quickly to the changing circumstances
of the firm.
This is an essential activity as it highlights any weakness in the firm’s
corporate plan or its execution. Plans must be continually reviewed
because as the environment changes so plans and objectives will need
revision.
Illustration 5 – The role of corporate planning
Diagram of planning activities
10
KAPLAN PUBLISHING
chapter 1
Test your understanding 2
Why do you think managers need to understand corporate
planning?
2 The performance hierarchy
Mission
The mission statement is a statement in writing that describes the basic
purpose of an organisation, that is, what it is trying to accomplish.
There are a number of fundamental questions that an organisation will need
to address in its search for purpose (Drucker). These are:
KAPLAN PUBLISHING
11
Introduction to strategic management accounting
Mission statements will have some or all of the following characteristics:
•
•
•
•
•
•
•
•
Usually a brief statement of no more than a page in length.
•
•
Used to formulate goal statements, objectives and shortterm targets.
Very general statement of entity culture.
States the aims (or purposes) of the organisation.
States the business areas in which the organisation intends to operate.
Openended (not stated in quantifiable terms).
Does not include commercial terms, such as profit.
Not timeassigned.
Forms a basis of communication to the people inside the organisation
and to people outside the organisation.
Guides the direction of the entity’s strategy and as such is part of
management information.
Potential Problems
Mission statements may:
•
•
•
12
Not represent the actual values of the organisation
Be vague
be ignored
KAPLAN PUBLISHING
- Xem thêm -