Financial and Managerial Accounting Systems Order Instructions: Please see

the paper below that the following questions need to be answered from.

Presenters Posting:

Planning, Control, and Accounting Systems: The Role of Global Manager
The purpose of this seminar paper is to present an analysis and synthesis of prior research on the principles of transaction cost economics (TCE) and principal-agent as relating to the managerial functions in a multinational setting. The ultimate responsibility of a global manager is to maximize shareholders’ value through effective business and cost solution strategy (Thomas & Peterson, 2015). A thorough analysis of the transaction and economic activities of the business and managers’ role helps to deepen the understanding of value creation and market efficiency (Demski, 2008). The information discussed in the subsequent text includes the introduction of the TCE and agency theory, implications for the managerial functions – planning, controlling, and accounting systems in the context of cross-border business operations and global marketplace.
The TCE and Agency Theory
Ronald Coase coined the TCE principle from his classic work, The Nature of the Firm (Andreea-Oana, 2009). In that, Coase argued the importance of the firm in the relationship to its activities and transactions as the means to optimal costs solution and efficiency (Marinescu, 2012). The TCE concept is derived from the economic system, productions, and exchange of goods and services and its related transaction costs (Andreea-Oana, 2009). The principle of TCE involves full recognition and understanding of underlying transaction costs and cost drivers to the production of goods and services of a business (Rindfleisch et al., 2010). TCE is relevant to almost every aspect of the organizational function and activities including cultural factors of a global marketplace – from global pricing to product differentiation and adaptation strategy. In an age of fierce competition and globalization (Jensen, 1993) it is vital for enterprises to manage costs and operations through an effective module of cost identification and quantification to enhance its market efficiency and competitive advantage (Marinescu, 2012).
Some major constructs of TCE theory include bounded rationality and opportunism that center on the limited cognitive and self-yield interest of the parties to contract respectively (Andreea-Oana, 2009). The bounded rationality principle recognizes that because of the limited capacity of the parties to the contract it will be difficult to identify, predict, and maximize every aspect of the organization and its associated transactions; and thus, inefficiencies are inevitable of the business processes (Verbeke & Kano, 2012). Hence, globalization does not guarantee market efficiency (Jensen, 1993).
The opportunistic aspect of the TCE concept emphasis on the self-seeking interest of managers at the expense of owners (Cronqvist & Fahlenbrach, 2013). This relationship leads to the agency conflict where the agents try to put their personal interest before the principal in the context of business transactions. The agency theory (AT) proposes the relationship between principals (owners) and agents (managers); managers discharge their relational responsibilities to serve best the interest of owners at a price (Neto, Barroso, & Rezende, 2012). Incentive contracts help guide managers’ performance and behavior towards desirable outcomes and to enhance the global organizational culture of productivity.
Theories Implications and Managerial Functions
The principle of TCE and agency theory have had a broader application and scholarship in the areas of social science research including business, economics, marketing and so on (Williamson & Ghani, 2012; Neto, et al., 2012). Scholars have applied the TCE and agency constructs to the contemporary business world to help influence the efficiency of global economic activities and cross-border cultural dimensions of businesses. (Rindfleisch et al., 2010; Thomas & Peterson, 2015). TCE and agency theory informs and influences the managerial systems – planning, controlling, and managerial accounting, in the sprite of cross-border effects of a multinational enterprise.
The Planning System
As scholars agreed, planning is a basic role of a manager (Brickley, Smith, Zimmerman, & Willett, 2014). Planning entails detail analysis of various strategic business choices and to select the best-fit strategy to operationalize it towards the organizational goal (Ciuhureanu, 2012). Therefore, through planning, a global manager find means to maximize cost efficiency through active participation and engagements of local partners in helping to understand the needs of the market to facilitate planning and designing of business strategy (Thomas & Peterson, 2015). Global managers should be alert and seek better means to save transaction costs on business operations including seeking low-cost contracts and negotiations so to maximize shareholders value and the profit goal of the firm (Brickley, et al., 2014).
Planning also involves cost rationalization of different ideas and strategies; however, whatever the final strategic planning idea is it must be efficient cost driver to ensure sustainable business model and profitability (Williamson & Ghani, 2012). Hence, TCE influences planning activities to ensure manager’s overall strategic plans are cost effective to support core competencies to drive the firm’s mission forward (Williamson & Ghani, 2012). Planning provides an opportunity to review different units and corporate mission to ensure alignment of mission and interests (Ito & Souissi, 2012). This helps to mitigate agency conflicts and waste, reduces duplication of efforts, and improves the economics of scale at the units and corporate level. In a global firm, planning helps to address cross-cultural differences of the individual units via identification and communication strategies (Thomas & Peterson, 2015). Planning set the stage for the global manager to analysis and think through the various forms of differences among the organization (Thomas & Peterson, 2015). Through planning, a global manager may identify the unique business strategy for each specific country and its business operations. For example, businesses are taxed differently from country to country and thus “one-size-fits-all” business strategy might not be appropriate or profitable business strategy (Chapman, Ji, & Li, 2011).
The Controlling Systems
Controlling is another critical functional responsibility of a global manager (Brickley et al., 2014). The control function involves a critical analysis of where an organization is and where they want to be in the context of managers’ decision-making; hence, it is the desire of a global manager to simplify the complex decision process of a multinational enterprise (Thomas & Peterson, 2015). However, that is not always the case; global managers should seek ways to control the complex systems of a global firm and to also help correct and direct actions and behaviors of its people to the desired targeted goals (Chapman, Ji, & Li, 2011). Through the TCE principle, global managers could identify and quantify each enterprise activities and functions (transaction costs) to the last dollar (Marinescu, 2012). The principle of TCE helps to set measurable goals and limits to guide and control the behaviors regarding cost efficiency to achieve the overall goal of profit maximization. Administrative controls (i.e., internal rules, local policies, and regulations) on costing and pricing could be an incentive to motivate or drive employee behavior towards efficiency and lower costly contracts at different organizational locations (Thomas & Peterson, 2015; Williamson & Ghani, 2012).
Planning and cost controlling are some of the practical challenges facing global managers today; in light of globalization and competition, businesses should establish an effective controlling cost to remain competitive (Badem, Ergin, & Drury, 2013). Strategic accounting control systems facilitate product costing and variance analysis to ensure proper cost allocation, pricing, and tighter cost evaluation to maximize shareholders value (Juras, 2014). However, developing and implementing effective management control systems rest on strategic management goals and how those goals are communicated and executed (Brickley et al., 2014). Strategic goals – financial, controlling, and planning are usually communicated and executed within an organization three primary ways; the top-down, middle-up-top-down, and bottom-up approach (Ito & Souissi, 2012). Each approach has potential to create synergy and maximizes the success of a multinational firm and its stakeholder’s value through their unique strengthen and opportunities (Ito & Souissi, 2012).

The Managerial Accounting Systems

Managerial accounting systems provide an excellent strategic tool for analyzing and measuring strategies (Demski, 2008). Managerial accounting techniques such as cost volume profit, activity-based-costing, balanced scorecard, and others help facilitate most of the managerial decisions through data quantification and evaluation of the dollar costs and implications (Brickley et al., 2014; Demski, 2008). The accounting systems provide objective measurement platform for both domestic and international performance and their underlying direct and indirect transaction costs associated with those activities and its overall impact on the bottom line (Demski, 2008). The data quantification and objectivity from managerial accounting system (MAS) support the TCE and principal-agent of pursuing cost efficient model within the global economic business systems (Cronqvist & Fahlenbrach, 2013; Marinescu, 2012).
In creating global organizational value, accountability and quality judgment are paramount (Libby, Salterio, & Webb, 2004). Accounting information tool (e.g., BSC) present managers financial and nonfinancial data to objective evaluate performance and to establish control measures to trigger strategic decisions (Libby et al., 2004). Although BSC is an effective performance control measurement tool, it is reasonable to suggest that personal bias and data quality are some of the limitations to BSC and other management control systems (Libby et al., 2004). According to Libby et al. (2004) managers’ effort to explain and justify decision-making reduces bias and increase data quality and confidence to ensure greater accountability and strong control practices. By requiring global managers to substantiate their decisions through quality data matrix, it can create effective control mechanism to curtail risky ventures and at the same time advancing strategies that align with stakeholder’s interest to mitigate principal-agent conflicts (Cronqvist & Fahlenbrach, 2013; Libby et al., 2004).
Another managerial accounting system for value creation and cost control, particularly in a global manufacturing firm is standard costing (Badem et al., 2013). The standard costing technique provides relevant product cost information irrespective of business location (i.e., labor, direct material, overhead, etc.) to determine effective product pricing with emphasize on true cost and margin (Marie & Rao, 2010). Standard costing aim to measure performance and control cost to ensure effective product pricing and competitiveness (Badem et al., 2013). Managerial accounting techniques including budget, standard costing, BSC, etc. present managers relevant and reliable information to aid their decision-making on planning, cost controlling and evaluating performance (Badem et al., 2013; Juras, 2014; Ito &Souissi, 2012).

Financial and Managerial Accounting Systems Conclusion

The managerial accounting couples with economic theories (TCE and principal-agent) systems presents an arsenal of costs analysis techniques to promote business efficiency module in a context of global firm and optimal cost solution strategy. In practice, accounting information provides a global manager a decision platform to negotiate and renegotiate market exchange and contracts to influence productivity performance at different cross-border cultures (Jensen, 1993; Thomas & Peterson, 2015). For example, if the accounting data reveal higher transactional costs on a business unit, management may either negotiate to pass on the increase to consumers through price hike especially in a low competition market or renegotiate labor or raw material costs contracts. Either way, global management should find a way to resolve such costly contracts. By minimizing the economic costs impact internally or externally via contract negotiations that will influence the behavior of employees or customers depending on management decision to costs (Jensen, 1993). Finding the perfect balance to control costs so as to influence performance behavior towards desirable direction is always struggle for global managers. There must be different analysis and scenarios on costs and its effects outputs and cross-border challenges. Managers can rely on accounting data to forecast product costs and prices and to and predict future returns (Demeski, 2008). However, the key to success for a global manager in the global marketplace is the continuous desire to learn and adapt to its cross-cultural dimensions of decision-making, strategic planning, and controlling (Thomas & Peterson, 2015).

Financial and Managerial Accounting Systems References

Andreea-Oana, I. (2009). A new approach in economics: Transaction costs theory. Annals of the University of Oradea, Economic Science Series, 18, 370-375. Retrieved from http://steconomice.uoradea.ro/anale/en/
Badem, A. C., Ergin, E., & Drury, C. (2013). Is standard costing still used? Evidence from Turkish automotive industry. International Business Research, 6(7), 79–90. doi:10.5539/ibr.v6n7p79
Brickley, J. A., Smith, C. W., Zimmerman, J. L., & Willett, J (2014). Designing organizations to create value: From strategy to structure. (Custom Edition) New York, NY: McGraw-Hill
Brickley, J. A., Smith, C. W., Zimmerman, J. L., & Willett, J (2014). Designing organizations to create value: From strategy to structure. (Custom Edition) New York, NY: McGraw-Hill
Chapman, J. C., Ji, L., & Li, L. (2011). Mergers and acquisitions in China. Part two: Anatomy of a deal in the middle kingdom. Corporate Finance Review, 16(3), 12–20. Retrieved from http://ria.thomson.com
Cronqvist, H., & Fahlenbrach, R. (2013). CEO contract design: How do strong principals do it? Journal of Financial Economics, 108, 659–674. doi:10.1016/j.jfineco.2013.01.013
Demski, J. (2008). Managerial uses of accounting information. (2nd ed.).New York, NY: Springer Science+Business Media.
Ito, K., & Souissi, M. (2012). Managerial accounting as a tool for corporate strategy: Synergy creation and anergy inhibition. Journal of International Business Research, 11(1), 63-72. Retrieved from http://www.globethics.net
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48, 831–880. doi:10.1111/j.1540-6261.1993.tb04022.x
Juras, A. (2014). Strategic management accounting – What is the current state of the concept? Economy Transdisciplinarity Cognition, 17(2), 76-83. Retrieved from www.ugb.ro/etc
Libby, T., Salterio, S. E., & Webb, A. (2004). The balanced scorecard: The effects of assurance and process accountability on the managerial judgment. Accounting Review, 79, 1075–1094. doi:10.2139/ssrn.317486
Marinescu, C. (2012). Transaction costs and institutions’ efficiency: A critical approach. American Journal of Economics & Sociology, 71, 254-276. doi:10.1111/j.1536-7150.2012.00829.x
Neto, S. B., Barroso, M. F. G., & Rezende, A. J. (2012). Co-operative governance and management control systems: An agency costs theoretical approach. Brazilian Business Review, 9, 68-87. Retrieved from www.bbronline.com.br
Rindfleisch, A., Antia, K., Bercovitz, J., Brown, J., Cannon, J., Carson, S., & … Wathne, K. (2010). Transaction costs, opportunism, and governance: Contextual considerations and future research opportunities. Marketing Letters, 21, 211-222. doi:10.1007/s11002-010-9104-3
Thomas, D. C., & Peterson, M. F. (2015). Cross-cultural management: Essential Concepts. (3rd ed.). Thousand Oaks, CA: Sage.
Verbeke, A., & Kano, L. (2012). The transaction cost economics (TCE) theory of trading favors. Asia Pacific Journal of Management, 30, 409–431. doi:10.1007/s10490-012-9324-6
Williamson, O., & Ghani, T. (2012). Transaction cost economics and its uses in marketing. Journal of the Academy of Marketing Science, 40(1), 74-85. doi:10.1007/s11747-011-0268-z

Assignment requirement:
By Day 5 of Week 3, respond with your own thoughts to at least one Presenter’s posting(please see above) in an edited three-paragraph, formal academic peer review. At a minimum, be sure to include the following elements:
•Assess the conceptualization, analysis, and synthesis of key research concepts presented.
•Evaluate the extent to which the Presenter has addressed the elements from the Learning Objectives from this two-week pair.
•Does the presentation provide a cohesive summary of the assigned concepts with an effective evaluation of their implications for international managerial accounting?
•Did the Presenter provide a meaningful academic argument or interpretation that demonstrated fluency with the material?
•Incorporate relevant scholarly resources in your posting.

!!!!! Please complete an assignment based on the presenter posting above in an edited three paragraph, formal academic peer review.

Financial and Managerial Accounting Systems Sample Answer

Comment

The seminar presentation paper contained vital information that are critical drivers for the global marketplace. The conceptualization of the key points has been successful, and the presentation of these points has been done with much efficiency. The key ideas including planning, control, and systems of accounting have been much signified to be primary drivers of the global economy or the marketplace (Choi & Meek, 2011). The managerial aspect has incorporated these basic factors of the global business world. The critical management practices hence have been shown to include control and planning practices that involve the significant data acquired from the accounting systems that are so crucial to the operations of global corporations.

The aspects talked about in the seminar presentation paper have mostly touched on international managerial accounting. Essentially, it has become like a prerequisite for the global manager to be in contact with the accounting data. The significance of this interaction brings about the understanding of the global business environment (Kaplan & Atkinson, 2015). As such, the paper has shown that it is most vital for a manager, in essence, a global manager is content with an understanding of the global business environment. This fact has helped a lot of multinational business to get more returns on the products and operational basis.

The Precise driver of the global marketplace has been well defined in the text. The concepts mentioned in the paper have been quite well conveyed. The efficiency of the document in the issue it addresses cannot be doubted. The writer has provided much evidence and support to the fundamental ideas and concepts that support the paper beyond doubt.  The text also touches strongly on global management practices with managerial accounting as a critical factor for global business growth. Essentially, a manager ought to be familiar with cross-cultural environments to conquer the international and otherwise global business world (Choi & Meek, 2011).

Financial and Managerial Accounting Systems References

Choi, F. D., & Meek, G. K. (2011). International accounting. Pearson Higher Ed.

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. John Wiley & Sons.

Accounting on Proposal of a New Incentive System Order Instructions: This case has been selected to give you experience in using cost accounting as the basis of a compensation system.

You will have to evaluate an existing system, a proposed system, and comment on the strengths and weakness of each. Using this information, you will be required to propose what you think is the best system for Industrial Electronics.

•Make sure you support your opinion by a specific example
•Use the numbers in the case to support all of your claims.

Accounting on Proposal of a New Incentive System Sample Answer

The case begins with a description an incentive system that is ineffective. Hence, a newly proposed incentive system that is quite different was used to replace the old and ineffective system, but still not without problems.

QUESTION 1

The initial thing needed to be calculated is the percentage of salary awarded in terms of bonus for the five respective division of the company in order to find the economic profit objective. The formula for calculating this is:

The 12% used in the calculation is taken as the assumed rate of Industrial Electronics’ weighted average cost of capital. The results for these calculations are shown in table 1 below alongside the assets and profit differences between the actual results and the budgeted amount.

Table 1

This was then followed by the calculation of Actual Economic Profit using a similar formula as shown for the economic profit object with exception of the obvious difference where actual numbers are used rather than the budgeted numbers. This means the difference is obtained from actual numbers as well as the economic profit objective. The bonus is then calculated using this difference. Therefore, since for every $100,000 of economic profit achieved that is above economic profit objective, an additional of 5% salary is given to the division; the equation for these calculations are carried out using this formula:

Where x stands for hundred thousands of dollars in terms of profits that a division gets above the economic profit objective, and the results for these calculations are shown in Table 2 below. However, Division B bonus percentage was dropped to 150% from the obtained 230% because that was the maximum increase which could be given. The average bonus for the five divisions is 73%.

Table 2

QUESTION 2

This question requires an evaluation of the current (old) incentive or bonus system which provided bonuses to managers on basis of s share of the overall profits of the company after taxes that exceeds 12% of the net worth indicated in the books. However, this bonus system has its advantages (pros) and disadvantages (cons) as discussed below:

Advantages (pros) of the current system

1. The system is wealth sharing, for example, when the company is doing well, the success is shared among all managers, and vice versa. This means that when the company is able to offer larger payouts attributed to higher profits margins it will do so.
2. Teamwork is encouraged in this system since everyone is awarded a bonus on an equal measure of the company’s performance meaning everyone will strive for improved performance (Otley, 2004).
3. The performance targets are usually timeless and fixed meaning that no politics involved in negotiating during the performance targets setting process.
4. The system is straightforward and easy to understand.

Disadvantages (cons) of the current system    

1. It is not possible to largely control corporate performance with exception for the top level managers meaning bonus awards for division managers are affected very little even when their performance is poor or outstanding.
2. There is no reflection of the timeless goal of 12 per cent on the changes in the situation or the economic situation.
3. Profit after taxes on which the bonuses are based on does not reflect value creation well.
4. In this system the use of assets financed by debt, there is no charge imposed meaning that the debt and the asset net to zero on the worth recorded on the books.
5. The bonus cutoffs, both at the top (150%) and bottom (12%) are potentially bad because; (a) in the current situation of below minimum corporate performance some dissenting voices have been raised by some managers who performed well meaning this can demotivate them, and (b) there is no link between individual performance and bonuses awarded, especially at the middle and bottom level (Otley, 2004).

QUESTION 3

This question requires an evaluation of the newly proposed incentive or bonus system. The proposed bonus or incentive system seems to be likely better compared to the currently existing one in overall. However, its evaluation would help to given us insights of how actual it is through the results of its evaluation.

Advantages or benefits of the proposed new system

1. There is more control of performance measures whereby managers of divisions will be responsible for the results obtained by their divisions; group managers for the group results; and corporate managers for the results obtained by the corporation as a whole.
2. The awarding of bonuses is done on basis of a residual income, or an economic profit as a performance measure meaning there will be a charge for managers who tie up company assets in their business.
3. The form of financing used in the acquisition of the assets would not be influential to the performance measure.
4. There would be tailor-made performance targets in order to suit each business unit meaning that they would be more equitable and encourage greater commitment from all the managers (Maciariello & Kirby, 1994).

Disadvantages of the proposed new system

1. The accounting-based performance measures are short-term oriented and can significantly cost high technology businesses where research and development, as well as innovation, are critical success factors (Otley, 2004).
2. The performance measures are uniform, just providing summary results indicators and have no link to the company’s strategy and do not give an operating guideline for the managers on how the results will be accomplished.
3. The assigning of cash is arbitrarily done to the operating units.
4. Fixed assets charge leads to increasing returns with time making managers to be unwilling to replace more depreciated and worn out or older assets subsequently affecting operational efficiency (Chenhall, 2003).
5. The costs of capital do not differ across operating units or change over time in accordance with changes in interest rates.
6. It is difficult to set budget targets equitably in uncertain business conditions such as IE operates in.
7. The system has a loophole in which it can allow gamesmanship (e.g., creation of budget slack, window dressing).

QUESTION 4

This question requires a recommendation for a better system to award bonuses. This needs to address the new system’s weaknesses while retaining the advantages by evaluating the costs as well as the benefits of the suggestions. This is attributed to the fact that there is perfect solution here but a suggestion with better benefits or stronger support may be more appropriate.  Considering that IE operates in uncertain business environments and it is a high technology business, the proposed accounting-based bonus system is not appropriate because it is short-term oriented since it will discourage innovation, research and development which can not be accounted in the system’s performance measures (Vera & Kuntz, 2014). Moreover, the charge on fixed asset will also have the same effect because it may take long to develop a single new product. Thus, an appropriate bonus system show not put a lot of emphasis on financial measures but also should put considerable emphasis on essential non-financial measures such as product quality, customer satisfaction, which are the best predictors of long-term performance (Anthony & Govindarajan, 2007). As a result, an effective bonus system would be the one which strikes a balance between financial measures and non-financial metrics in order to ensure that it is an all-round system which appreciates positive contributions by everyone without necessarily focusing all emphasis on financial metrics (Horngren, Sundem & Stratton, 2005).

Accounting on Proposal of a New Incentive System References

Anthony, R. & Govindarajan, V. (2007). Management Control Systems. Boston, MA: McGraw-Hill.

Anthony, R. & Young, D. (1999). Management control in nonprofit organizations. Boston, MA: McGraw-Hill.

Chenhall, R. (2003). Management control system design within its organizational context: Findings from contingency-based research and directions for the future. Accounting, Organizations and Society, 28(2-3), 127-168.

Horngren, C., Sundem, G., & Stratton, W. (2005). Introduction to Management Accounting. Hoboken, NJ: Pearson.

Maciariello, J. & Kirby, C. (1994). Management Control Systems – Using Adaptive Systems to Attain Control. Hoboken, NJ: Prentice Hall.

Otley, D. (2004). Management control in contemporary organizations: towards a wider framework. Management Accounting Research, 5(2), 289-299.

Vera, A. & Kuntz, L. (2014). Finance-oriented vs. operations-oriented management control in public hospitals. Journal of Hospital Administration, 3(6), 190-204.