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Accounting Information Systems
Accounting Information Systems
Accounting Information Systems
ACCA PAPER F5- FOCUS NOTES The design of an AIS, therefore, depends on: the market the product or service the management style the information requirements of management the state of technology and systems the state of management theory and management accounting theory.
Contingency theory asks which contingency factors are important such as changes to the environment, the organisation structure or decision making style. If the environment is dynamic, for example, this will increase the degree of uncertainty which will increase the need for a management accounting system to be able to respond. This could be through the use of quantitative techniques to evaluate uncertainty or through the application of new management accounting techniques such as target costing. If the organisation becomes more decentralised with semiautonomous divisions, this may require the management accounting system to derive an appropriate transfer pricing policy as an aid to performance evaluation and goal congruent decision making.
Control systems
More often than not, control action is reactive rather than proactive. Proactive control action (feed forward control) requires the manager to anticipate that the process is out of control. Reactive control action (feedback control) refers to action taken after the actual results are known.
ACCA PAPER F5- FOCUS NOTES If we assume that management wish to reduce the adverse variation then they must use negative feedback control, which may involve, for example, reducing costs.
Feedforward control
It is useful to distinguish between an ex-ante standard and an ex-post standard. A standard set at the start of a period is an ex-ante standard. A standard changed or revised in the light of additional information at the end of a period is an ex-post standard. Period 1 Start Ex-ante standard $50 per unit $50 Actual cost per unit $55 ___ Compare $5 === (adverse) Period 2 End/Start . . . . . .
If, on investigation of the variance, it was found that the standard needed to be changed because of real world economic conditions during Period 1 (for example a world shortage of material) then the $5 adverse variance (as information) is not relevant for control purposes.
Chapter 1 Accounting Information Systems If a more realistic standard is $60 per unit then the management accountant should use this ex-post standard to establish more useful information. Period 1 Start Ex-ante standard $50 Period 2 End/Start . . . . . . Revise Ex-post standard $60 Actual Compare $55 ___ $5 === favourable
Management can now investigate the cause of this $5 favourable variance. This information is more relevant for control purposes. Feedforward control involves the prediction of outputs which are expected from the system at some future point in time. If the prediction differs from what is desired, actions are taken to minimise these expected differences. Management would therefore feedforward the ex-post standard from Period 1 to become the ex-ante standard for Period 2.