ACCA - P5 Study text - Emile Woolf INT - 2010
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Syllabus and study guide
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c) Discuss the concept of business integration and the linkage between
people, operations, strategy and technology.
d) Assess the influence of Business Process Reengineering on systems
development and improvements in organisational performance.
e) Discuss and evaluate the application of activity-based management.
f) Identify and discuss the required changes in management accounting
systems as a consequence of empowering staff to manage sectors of a
business.
4. Effect of Information Technology (IT) on modern management
accounting
a) Assess the changing accounting needs of modern service orientated
businesses compared with the needs of traditional manufacturing
industry.
b) Discuss how modern IT systems provide the opportunity for instant
access to management accounting data throughout the organisation and
their potential impact on business performance.
c) Discuss how modern IT systems facilitate the remote input of
management accounting data in an acceptable format by non-finance
specialists.
d) Explain how modern information systems provide instant access to
previously unavailable data that can be used for benchmarking and
control purposes and help improve business performance.
e) Assess the need for businesses to continually refine and develop their
management accounting and information systems if they are to maintain
or improve their performance in an increasingly competitive and global
market.
B ECONOMIC, FISCAL AND ENVIRONMENTAL FACTORS
1. Impact of world economic and market trends
a) Assess the impact and influence of external environmental factors on an
organisation and its strategy.
b) Evaluate pricing and other business strategies in order to maintain or
improve competitive position and performance.
2. Impact of national fiscal and monetary policy on performance
a) Discuss the need to consider the environment in which an organisation
is operating when assessing its performance, including:
i) Political climate
ii) Market conditions
iii) Funding
b) Assess the impact of governmental regulation on performance
measurement techniques used and the performance levels achieved (for
example, in the case of utility services and former state monopolies).
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3. Other environmental and ethical issues
a) Discuss the ways in which stakeholder groups operate and how they
effect an organisation and its strategy formulation and implementation.
b) Discuss the ethical issues that may impact on strategy formulation and
business performance.
c) Discuss the ways in which stakeholder groups may influence business
performance.
C PERFORMANCE MEASUREMENT SYSTEMS AND DESIGN
1. Management accounting and information systems
a) Identify the accounting information requirements for strategic planning,
management control and operational control and decision-making.
b) Discuss, with reference to management accounting, ways in which the
information requirements of a management structure are affected by the
features of the structure.
c) Evaluate the objectives of management accounting and management
accounting information.
d) Discuss the integration of management accounting information within
an overall information system.
e) Define and discuss the merits of, and potential problems with, open and
closed systems.
f) Highlight the ways in which contingent (internal and external) factors
influence management accounting and its design and use.
g) Advise how anticipated human behaviour will influence the design of a
management accounting system.
h) Discuss the impact of responsibility accounting on information
requirements.
9
2. Internal sources of management information
a) Identify and discuss the principal internal sources of management
accounting information.
b) Demonstrate how these principal internal sources of management
information might be used for control purposes.
c) Identify and discuss the direct data capture and process costs of
internally generated management accounting information.
d) Identify and discuss the indirect costs of producing internally generated
information.
e) Discuss those factors that need to be considered when determining the
capacity and development potential of a system.
3. External sources of management information
a) Identify and discuss common external sources of information.
b) Identify and discuss the costs associated with external sources.
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c) Discuss the limitations of using externally generated information.
d) Identify and discuss the categories of external information that are likely
to be a useful addition to an organisation’s management accounting
system.
e) Demonstrate how the information might be used in planning and
controlling activities e.g. benchmarking against similar activities.
4. Recording and processing methods
a) Demonstrate how the type of business entity will influence the
recording and processing methods.
b) Discuss how IT developments e.g. spreadsheets, accountancy software
packages and electronic mail may influence recording and processing
systems.
c) Discuss the difficulties associated with recording and processing data of
a qualitative nature.
5. Management reports
a) Discuss the principal controls required in generating and distributing
internal information.
b) Discuss the procedures that may be necessary to ensure security of
highly confidential information that is not for external consumption.
D STRATEGIC PERFORMANCE MEASUREMENT
1. Performance hierarchy
a) Discuss the purpose, structure and content of a mission statement and
their potential impact on business performance.
b) Discuss the ways in which high level corporate objectives are developed.
c) Identify strategic objectives and discuss how they may be incorporated
into the business plan.
d) Discuss how strategic objectives are cascaded down the organisation via
the formulation of subsidiary performance objectives
e) Discuss social and ethical obligations that should be considered in the
pursuit of corporate performance objectives.
f) Explain the performance ‘planning gap’ and evaluate alternative
strategies to fill that gap. [3]
g) Identify and discuss the characteristics of operational performance.
h) Discuss the relative significance of planning as against controlling
activities at different levels in the performance hierarchy.
10
2. Scope of strategic performance measures in private sector
a) Demonstrate why the primary objective of financial performance should
be primarily concerned with the benefits to shareholders.
b) Justify the crucial objectives of survival and business growth.
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c) Discuss the appropriateness of, and apply different measures of
performance, including:
i) Return on Capital Employed (ROCE)
ii) Return on Investment (ROI)
iii) Earnings Per Share (EPS)
iv) Earning Before Interest, Tax and Depreciation Adjustment
(EBITDA)
v) Residual Income (RI)
vi) Net Present value (NPV)
vii) Internal Rate of Return (IRR)
d) Discuss why indicators of liquidity and gearing need to considered in
conjunction with profitability.
e) Compare and contrast short and long run financial performance and the
resulting management issues.
f) Explore the traditional relationship between profits and share value
with the long term profit expectations of the stock market and recent
financial performance of new technology/communications companies.
3. Strategic performance issues in complex business structures
a) Evaluate the use and the application of strategic models in planning and
assessing the business performance of an entity, such as Ansoff, Boston
Consulting Group and Porter.
b) Discuss the problems encountered in planning, controlling and
measuring performance levels, e.g. productivity, profitability, quality
and service levels, in complex business structures.
4. Divisional performance and transfer pricing issues
a) Describe, compute and evaluate performance measures relevant in a
divisionalised organisation structure including ROI, RI and Economic
value added (EVA).
b) Discuss the need for separate measures in respect of managerial and
divisional performance.
[2]
c) Discuss the circumstances in which a transfer pricing policy may be
needed and discuss the necessary criteria for its design.
d) Demonstrate and evaluate the use of alternative bases for transfer
pricing.
e) Explain and demonstrate issues that require consideration when setting
transfer prices in multinational companies.
5. Scope of strategic performance measures in not-for-profit organisations
a) Highlight and discuss the potential for diversity in objectives depending
on organisation type.
b) Discuss the need to achieve objectives with limited funds that may not
be controllable.
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c) Identify and discuss ways in which performance may be judged in not-
for profit organisations.
d) Discuss the difficulties in measuring outputs when performance is not
judged in terms of money or an easily quantifiable objective.
e) Discuss how the combination of politics and the desire to measure
public sector performance may result in undesirable service outcomes.
f) Assess ‘value for money’ service provision as a measure of performance
in not-for-profit organisations and the public sector.
6. Behavioural aspects of performance measurement
a) Discuss the relationship between performance measurement systems
and behaviour and how the latter can influence performance.
b) Discuss the accountability issues that might arise from performance
measurement systems.
c) Evaluate the ways in which performance measurement systems may
send the ‘wrong signals’ and result in undesirable business
consequences.
d) Assess the potential beneficial and adverse consequences of linking reward
schemes to performance measurement.
e) Demonstrate how management style needs to be considered when
designing an effective performance measurement system.
E PERFORMANCE EVALUATION AND CORPORATE FAILURE
1. Alternative views of performance measurement
a) Evaluate the ‘balanced scorecard’ approach as a way in which to
improve the range and linkage between performance measures.
b) Evaluate the ‘performance pyramid’ as a way in which to link strategy,
operations and performance.
c) Evaluate the work of Fitzgerald and Moon that considers performance
measurement in business services using building blocks for dimensions,
standards and rewards.
2. Non-financial performance indicators
a) Discuss the interaction of non-financial performance indicators with
financial performance indicators.
b) Discuss the implications of the growing emphasis on non-financial
performance indicators.
c) Discuss the significance of non-financial performance indicators in
relation to employees.
d) Identify and discuss the significance of non-financial performance
indicators in relation to product/service quality e.g. customer
satisfaction reports, repeat business ratings, customer loyalty, access and
availability.
e) Discuss the difficulties in interpreting data on qualitative issues.
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f) Discuss the significance of brand awareness and company profile and
their potential impact on business performance.
3. Predicting and preventing corporate failure
a) Assess the potential likelihood of corporate failure, utilising quantitative
and qualitative performance measures.
b) Assess and critique quantitative and qualitative corporate failure
prediction models.
c) Identify and discuss performance improvement strategies that may be
adopted in order to prevent corporate failure.
F. CURRENT DEVELOPMENTS AND EMERGING ISSUES IN
PERFORMANCE MANAGEMENT
1. Current developments in management accounting techniques
a) Discuss the ways through which management accounting practitioners
are made aware of new techniques and how they evaluate them.
b) Assess the changing role of the management accountant in today’s
business environment as outlined by Burns and Scapens.
c) Discuss and evaluate the application of Japanese business practices and
management accounting techniques, including Kaizen costing, Target
costing, Just-in-time, and Total Quality Management.
d) Discuss and evaluate environmental management accounting.
2. Current issues and trends in performance management
a) Evaluate and apply the value-based management approaches to
performance management.
b) Discuss and apply other recently developed performance measurement
frameworks; e.g. Six Sigma; the Performance Prism.
c) Discuss contemporary issues in performance management.
d) Discuss how changing organisation’s structure, culture and strategy will
influence the adoption of new performance measurement methods and
techniques.
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Paper P5
Advanced performance management
t
DCF tables
Present value table
Present value of 1 i.e.
n
)r1(
−
+
where r = discount rate, n = number of periods until
payment
Periods Discount rate (r)
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1
2
3
4
5
0.990
0.980
0.971
0.961
0.951
0.980
0.961
0.942
0.924
0.906
0.971
0.943
0.915
0.888
0.863
0.962
0.925
0.889
0.855
0.822
0.952
0.907
0.864
0.823
0.784
0.943
0.890
0.840
0.792
0.747
0.935
0.873
0.816
0.763
0.713
0.926
0.857
0.794
0.735
0.681
0.917
0.842
0.772
0.708
0.650
0.909
0.826
0.751
0.683
0.621
1
2
3
4
5
6
7
8
9
10
0.942
0.933
0.923
0.914
0.905
0.888
0.871
0.853
0.837
0.820
0.837
0.813
0.789
0.766
0.744
0.790
0.760
0.731
0.703
0.676
0.746
0.711
0.677
0.645
0.614
0.705
0.665
0.627
0.592
0.558
0.666
0.623
0.582
0.544
0.508
0.630
0.583
0.540
0.500
0.463
0.596
0.547
0.502
0.460
0.422
0.564
0.513
0.467
0.424
0.386
6
7
8
9
10
11
12
13
14
15
0.896
0.887
0.879
0.870
0.861
0.804
0.788
0.773
0.758
0.743
0.722
0.701
0.681
0.661
0.642
0.650
0.625
0.601
0.577
0.555
0.585
0.557
0.530
0.505
0.481
0.527
0.497
0.469
0.442
0.417
0.475
0.444
0.415
0.388
0.362
0.429
0.397
0.368
0.340
0.315
0.388
0.356
0.326
0.299
0.275
0.350
0.319
0.290
0.263
0.239
11
12
13
14
15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1
2
3
4
5
0.901
0.812
0.731
0.659
0.593
0.893
0.797
0.712
0.636
0.567
0.885
0.783
0.693
0.613
0.543
0.877
0.769
0.675
0.592
0.519
0.870
0.756
0.658
0.572
0.497
0.862
0.743
0.641
0.552
0.476
0.855
0.731
0.624
0.534
0.456
0.847
0.718
0.609
0.516
0.437
0.840
0.706
0.593
0.499
0.419
0.833
0.694
0.579
0.482
0.402
1
2
3
4
5
6
7
8
9
10
0.535
0.482
0.434
0.391
0.352
0.507
0.452
0.404
0.361
0.322
0.480
0.425
0.376
0.333
0.295
0.456
0.400
0.351
0.308
0.270
0.432
0.376
0.327
0.284
0.247
0.410
0.354
0.305
0.263
0.227
0.390
0.333
0.285
0.243
0.208
0.370
0.314
0.266
0.225
0.191
0.352
0.296
0.249
0.209
0.176
0.335
0.279
0.233
0.194
0.162
6
7
8
9
10
11
12
13
14
15
0.317
0.286
0.258
0.232
0.209
0.287
0.257
0.229
0.205
0.183
0.261
0.231
0.204
0.181
0.160
0.237
0.208
0.182
0.160
0.140
0.215
0.187
0.163
0.141
0.123
0.195
0.168
0.145
0.125
0.108
0.178
0.152
0.130
0.111
0.095
0.162
0.137
0.116
0.099
0.084
0.148
0.124
0.104
0.088
0.074
0.135
0.112
0.093
0.078
0.065
11
12
13
14
15
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Annuity table
Present value of an annuity of 1 i.e.
(
)
r
r11
n−
+−
where r = discount rate, n = number
of periods
Periods Discount rate (r)
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1
2
3
4
5
0.990
1.970
2.941
3.902
4.853
0.980
1.942
2.884
3.808
4.713
0.971
1.913
20829
3.717
4.580
0.962
1.886
2.775
3.630
4.452
0.952
1.859
2.723
3.546
4.329
0.943
1.833
2.673
3.465
4.212
0.935
1.808
2.624
3.387
4.100
0.926
1.783
2.577
3.312
3.993
0.917
1.759
2.531
3.240
3.890
0.909
1.736
2.487
3.170
3.791
1
2
3
4
5
6
7
8
9
10
5.795
6.728
7.652
8.566
9.471
5.601
6.472
7.325
8.162
8.983
5.417
6.230
7.020
7.786
8.530
5.242
6.002
6.733
7.435
8.111
5.076
5.786
6.463
7.108
7.722
4.917
5.582
6.210
6.802
7.360
4.767
5.389
5.971
6.515
7.024
4.623
5.206
5.747
6.247
6.710
4.486
5.033
5.535
5.995
6.418
4.355
4.868
5.335
5.759
6.145
6
7
8
9
10
11
12
13
14
15
10.37
11.26
12.13
13.00
13.87
9.787
10.58
11.35
12.11
12.85
9.253
9.954
10.63
11.30
11.94
8.760
9.385
9.986
10.56
11.12
8.306
8.863
9.394
9.899
10.38
7.887
8.384
8.853
9.295
9.712
7.499
7.943
8.358
8.745
9.108
7.139
7.536
7.904
8.244
8.559
6.805
7.161
7.487
7.786
8.061
6.495
6.814
7.103
7.367
7.606
11
12
13
14
15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1
2
3
4
5
0.901
1.713
2.444
3.102
3.696
0.893
1.690
2.402
3.037
3.605
0.885
1.668
2.361
2.974
3.517
0.877
1.647
2.322
2.914
3.433
0.870
1.626
2.283
2.855
3.352
0.862
1.605
2.246
2.798
3.274
0.855
1.585
2.210
2.743
3.199
0.847
1.566
2.174
2.690
3.127
0.840
1.547
2.140
2.639
3.058
0.833
1.528
2.106
2.589
2.991
1
2
3
4
5
6
7
8
9
10
4.231
4.712
5.146
5.537
5.889
4.111
4.564
4.968
5.328
5.650
3.998
4.423
4.799
5.132
5.426
3.889
4.288
4.639
4.946
5.216
3.784
4.160
4.487
4.772
5.019
3.685
4.039
4.344
4.607
4.833
3.589
3.922
4.207
4.451
4.659
3.498
3.812
4.078
4.303
4.494
3.410
3.706
3.954
4.163
4.339
3.326
3.605
3.837
4.031
4.192
6
7
8
9
10
11
12
13
14
15
6.207
6.492
6.750
6.982
7.191
5.938
6.194
6.424
6.628
6.811
5.687
5.918
6.122
6.302
6.462
5.453
5.660
5.842
6.002
6.142
5.234
5.421
5.583
5.724
5.847
5.029
5.197
5.342
5.468
5.575
4.836
4.988
5.118
5.229
5.324
4.656
4.793
4.910
5.008
5.092
4.486
4.611
4.715
4.802
4.876
4.327
4.439
4.533
4.611
4.675
11
12
13
14
15
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Paper P5
Advanced performance management
CHAPTER
1
Revision: ABC and
other accounting methods
Contents
1 Revision of selected management accounting
topics
2 Activity based costing (ABC)
3 Throughput accounting
4 Backflush accounting
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Revision of selected management accounting topics
Management accounting techniques and the P5 examination
Revision topics
1 Revision of selected management accounting topics
1.1 Management accounting techniques and the P5 examination
The syllabus for Advanced Performance Management is concerned with the
strategic role of management accounting systems in providing management with
information for planning and controlling the performance of an entity.
It covers the strategic relevance of management accounting at a ‘high’ level of
management and also performance measurement systems at an operational level.
In your examination, you may be required to comment on the relevance of some
management accounting techniques, and the value of the information they provide
in particular circumstances. For a variety of reasons, some ‘traditional’ management
accounting techniques, such as absorption costing, budgeting and standard costing
have all been criticised. These techniques may not be appropriate methods of
providing information to management in a business environment where conditions
are continually changing.
In your examination, you might also be asked to apply some management
accounting techniques that are useful, or that might be useful in particular
circumstances.
You should be familiar with these techniques from your previous studies. However,
it is important that you should understand these techniques and why they are used.
You should also be able to use the techniques and apply them, because they might
be included in an examination question.
1.2 Revision topics
Some important techniques will be described later in this text. However, you should
already be familiar with the following accounting methods and techniques:
Activity based costing (ABC)
Throughput accounting
Backflush accounting
Relevant costs for decision-making
Capital investment appraisal techniques, in particular the NPV method of DCF
analysis
The analysis of risk and uncertainty.
These methods and techniques are described in this chapter and the chapters that
follow.