Traditional Role of a Management Accountant- Case Study

Question: Describe the traditional role of a management accountant. Answer: A.) Bean counter is a term used in the literature to describe the traditional role of a management accountant.(Feeney Pierce, 2007) It was used to characterise the role of a management accountant as one which focuses on two areas: firstly supporting the decision making of the top management and secondly control of costs and monitoring of financial activities. However, the role of a management accountant has evolved to great lengths and the fact that they have to be involved in the day to day operations of a company has become a necessity. A management accountant might not necessarily provide technical help to a plant manager but there are certain areas such as inventory management, costing and sustainability initiatives where a management accountant does come into the picture. A management accountant is best placed to act as an interface between the management and the stake holders to provide necessary communications regarding the sustainability initiatives undertaken by the company .(Collins, et al., 2012) B.) If there is a net cash outflow towards investing activities it means that the cash could have been used for a variety of purposes such as buying of plant, property and equipment or investment in an associate or a subsidiary company. If following are the cases Wayne should not be dismayed by this since these are activities in order to boost the revenues or to increase the profits. However, outflow in investing activities could also lead from loss in an investment made and if that is the reason then it is reason enough for Wayne to be dismayed and would need investigation on his part as to whether to continue or to discontinue with the investment. C.) Yes as an accounting student the advice to the doctor would be that he can complain to the company about the annual report and the financial statements being too lengthy and difficult to understand. As an investor the doctor is among the most important stake holder user group who are the users of the financial statements. It is imperative that the company does not provide too much immaterial information in their financial statements. There is no clear guidelines in accounting standards worldwide as to what falls under material matter on financial statements but a general consensus is that any information which would influence the user of the financial statements is to be considered as material.(Brennan Gray, 2006) The International Standards Accounting Board(ISAB) also lays down that too much information on the financial statements distorts the useful information.(Ernst and Young, 2009) When the companies provide too much information in financial reports they run the risk of inf ormation overload wherein useful information will tend to get distorted affecting the decision making as well.(Alayemi, et al., 2015) From the above mentioned discussion it is clear than as an investor the doctor has every reason to be felt dismayed by the reporting style of the company and has valid grounds to get his claims addressed by the management. Yes, Luigi and Gina Cicello would need the services of an accountant. If they are exploring the option of leasing premises for opening their outlet they would need to decide whether they want to go for an operating lease or a financial lease. Both the leases come with their own merits and demerits and based on their requirements an accountant can best guide them as to which lease option would be the best fit for their requirement. An accountant would also help them determine how much rate of interest they should pay on the lease. Apart from that Luigi and Gina Cicello would need to decide whether they want to use the option of debt to start their business. An accountant can help them prepare their projected cash flows and profitability and help them decide whether they would be able to service the debt and if the debt option gives them the leverage of reducing their WACC (Weighted Average Cost of Capital). For the following ratio questions, simple rule has been observed. If the denominator increases, ratio will go down. If numerator goes up, ratio will increase and if none of the items change or change in the same manner ratio will remain un affected. The transaction will bring down the profit margin as profit margin given by profit/sales. Profit remains same whereas sales increase. The earnings per share shall remain unchanged. The dividend is a part of the earnings per share. Dividend pay-out will increase. Dividend pay-out is the ratio of earnings paid to shareholders as dividend. Dividend yield shall remain unchanged. Tax liability is a provision which would have already been accounted for in the current or non-liability section of the balance sheet. Quick ratio shall decrease. As the inventories will increase and trade payables will increase quick assets wont increase but current liabilities will increase. Quick ratio is given by Current Assets less inventories divided by current liabilities. Current ratio shall remain unchanged if inventory is sold at cost. Since current ratio given by current assets to current liabilities. Sale of inventory for cash will mean current assets remain unchanged since both cash and inventory are part of current assets. Writing off a bad debt against allowance for doubtful debt wont affect the current ratio as allowance for a doubtful debt would be a non-current liability item on the balance sheet. Collection of an accounts receivable will increase the accounts receivable turnover. Accounts receivable given by Net credit sales/Accounts receivables. Collection of an account decreases the denominator, hence ratio increases. Selling inventory on credit will increase the inventory turnover. Since Inventory turnover is given by Cost of goods sold/Average Inventory. Now cost of goods sold increases and hence the ratio increases. 10.) Issuing additional shares for cash will decrease the debt ratio. As it will lead to more equity in the capital structure, consequently the debt ratio will come down. References Alayemi, S. A., Adeoye, E. T. Oyeleye, O. A., 2015. Materiality concept and accounting information. Sky Journal of Business Administration and Management, 3(4), pp. 20-24. Brennan, N. Gray, S., 2006. The impact of materiality : accountings best kept secret. Asian Academy of Management Journal of Accounting and Financw, pp. 1-31. Collins, E., Lawrence, S., Roper, J. Haar, J., 2012. Sustainability and the role of the Management Accountants. Research Executive Summary Series, 7(14). Ernst and Young, 2009. Improving disclosure effectiveness, s.l.: Ernst and Young. Feeney, O. Pierce, B., 2007. Todays management accountant honest bean counter and savvy business advisor?. Accountancy Ireland, pp. 16-21.