Dr Henry Eyring, OLD 3.10 and Dr Kenneth Lee (FInancial Accounting component), OLD 3,29 

This course is compulsory on the MSc in Management (1 Year Programme). This course is not available as an outside option.

This course covers introductions to both financial accounting and management accounting. The first part of this course provides students with an introduction to financial accounting, and highlights aspects of financial reporting that are important to users of financial information. It covers the preparation of key financial statements and the frameworks of accounting regulation. The second part to the course provides students with an introduction to management information and cost management, managerial decision making and performance measurement.

Specifically, then, the first half of AC493 is focused on financial accounting, which aims to familiarise students with the principles and some of the techniques of financial accounting and financial reporting as well as some aspects of current regulatory debates on the subject. After the first half of the course, students should be able to:

• Distinguish between cash accounting and accrual accounting, and explain traditional accounting concepts and conventions.

• Draw up simple balance sheets, and income statements as well as to develop an understanding of cash flow statements and group accounts, and understand how they are affected by different accounting treatments.

• Use these financial statements to perform financial analysis.

• Discuss the issue of “creative accounting”, asset valuation and other contemporary issues in accounting.

• Discuss market influences of accounting information and theories of accounting choice.

The second half of AC493 focuses on management accounting, which is a key function in organisations that involves developing and using financial and non-financial information to support decision making, not only in a technical sense, but bearing in mind that the way in which management accounting systems are designed and implemented often determines whether employees will be motivated to act in ways that are congruent with the objectives of the organisation. The discipline of management accounting is often partitioned into (1) cost and management accounting systems and (2) management control systems, and both components are covered in the second part of the course.

While financial accounting (covered in the first part of the course) requires that product cost information be accumulated in particular ways for external reporting, the focus in the second half of the course is on cost and other accounting and non-accounting information systems that aid managerial decision making. This includes the study of management accounting systems in widespread use today as well as an analysis of the problems associated with these systems in today’s business environment (such as their tendency to provide distorted product cost information), as well as approaches to mitigate these problems (e.g., activity-based costing; use of non-financial information). Through the second half of the course, students should be able to:

1. Analyse key concepts which form the discipline of management accounting:

- Product costing and pricing;

- Activity based costing/management (ABC/ABM);

- Profitability and variance analysis;

- Performance measurement and evaluation;

- ROI, EVA, and other performance metrics.

2. Possess the skills necessary to use management accounting information to make business decisions.

3. Illustrate how management accounting information can be used to formulate and implement strategy in a variety of organisational settings.

4. Understand how the design and use of management accounting systems affect human behaviour in organisations.

33 hours of lectures in the LT.

This course consists of 11 principal weeks with topics delivered in sessions of 1½ hours twice a week. Each session is conducted in groups of about 65 students. Most sessions make use of class exercises, case study analyses and real-world applications to bring the materials to life and to apply conceptual knowledge to problems faced in practice. The case study analyses and discussions permit the exploration of accounting issues in broader management perspectives (e.g., large and small firms, manufacturing and service firms, multinational firms, startups). The case method of instruction, however, requires good advance preparation by students, and every student should be ready to contribute to the case discussion when called upon. Students should expect to be ‘cold called’ and not count on being able to hide behind classmates who volunteer to participate.

Students are expected to be prepared for the cases and/or other tasks for each session as indicated on the syllabus. Two of these will be collected and graded as shown below under Assessment.

Reference Textbook:

Lee, K. and Taylor, D. 2018, Financial Statement Analysis under IFRS (FE Publishing, 6th Edition)

Bhimani, A., C.T. Horngren, S.M. Datar, and M.V. Rajan. 2015. Management and Cost Accounting (Pearson, 6th edition).

Supplementary Textbook Resources:

Weetman, P. 2010. Financial Accounting: An Introduction (Financial Times/Prentice Hall, 5th edition).

Bhimani, A. 2013. Strategic Finance (Strategy Press).

Merchant, K.A., and W.A. Van der Stede. 2017. Management Control Systems: Performance Measurement, Evaluation, and Incentives (Financial Times/Prentice Hall, 4th edition).

Readings in course pack:

Campbell, D., S.M. Datar, S.L. Kulp, and V.G. Narayanan. 2015. Testing Strategy with Multiple Performance Measures: Evidence from a Balanced Scorecard at Store24. Journal of Management Accounting Research 27(2): 39-65.

Caplan, D. 2003. John Adams, Thomas Jefferson, and the Barbary Pirates: An Illustration of Relevant Costs for Decision Making. Issues in Accounting Education, 18(3): 265-274.

Caplan, D., N. Melumad and A. Ziv. 2005. Activity-Based Costing and Cost Interdependencies among Products. Issues in Accounting Education, 20(1): 51-62.

Chow, C.W., Y. Hwang, and D.F. Togo. 1995. ACE Company: A case for incorporating competitive considerations into the teaching of capital budgeting. Issues in Accounting Education 10(2): 389-401.

DeFreitas, D.G., J.W. Gillett, R.L. Fink, and W. Cox. 2013. Getting Lean and Mean at Caterpillar with ABM. Strategic Finance 94(7): 24-33.

Ittner, C.D., and D.F. Larcker. 2003. Coming Up Short on Nonfinancial Performance Measurement, Harvard Business Review, November, 88-95.

Kaplan, R.S., and D.P. Norton. 2005. The Balanced Scorecard: Measures that Drive Performance, Harvard Business Review, July-Aug., 172-180.

Sangster, A. 2016. The Genesis of Double Entry Bookkeeping. The Accounting Review 91(1): 299-316.

Exam (80%, duration: 2 hours) in the summer exam period.
Coursework (10%) in the LT Week 4.
Coursework (10%) in the LT Week 8.