Management Information MA1

Management InformationMA1 Ibrahim Hameem (CIMA exam complete, ACCA professional level student, Diploma in Economics (distinction) , Third year undergraduate reading for BSc. Mathematics and Economics (university of London)

ACCA – Management Information The organisation, and the main functions of an office as a centre for information and administration. • A social arrangement which pursues collective goals, which controls its own performance and which has a boundary separating it from its environment.

ACCA – Management Information The organisation, and the main functions of an office as a centre for information and administration. • Organisations can include businesses such as companies and partnerships, clubs, charities, government departments, hospitals and schools.! ! Most organisations have some sort of internal structure.

ACCA - Management Information The organisation, and the main functions of an office as a centre for information and administration. • For example, a manufacturing business will have a factory where goods are made, a warehouse where they are stored and offices where information is stored and administration carried out. Each of these can then often be subdivided. For example, a factory might be subdivided into component production, assembly and finishing departments.

ACCA - Management Information • An office typically has departments for the following: • Finance and accounting • Purchasing goods and materials • Sales and marketing • Wages and salaries • Information technology • Human resources management These departments allow administration tasks to be carried out (such as ensuring orders are placed for materials, that customers are billed for their purchases and that employees are paid their wages and salaries).

ACCA - Management Information Functional and divisional organizations

ACCA - Management Information Question 01 • Which type of organizational structure suits an internationally growing business? • It’s generally a functional structure

ACCA - Management Information Functional organizations • It is normal for organisations to develop and document a set of policies, procedures and best practice. These perform the following important functions: • Guidance for employees e.g. on holiday entitlements • Training and instruction e.g. on how to request replacement of a piece of equipment

ACCA - Management Information Functional organizations • Uniformity of approach e.g. that all employees are subject to the same discipline • Meeting legal requirements e.g. health and safety rules • Maintenance of operating standards e.g. on how to follow up customer complaints • Maintenance of efficiency e.g. how to process an application • Maintenance of security e.g. how to use computer passwords and back-up procedures

ACCA - Management Information The main types of transactions undertaken by a business and the key personnel involved in initiating, processing and completing transactions. • Purchase of raw materials: This will usually be initiated by someone in the warehouse or factory who can see that more materials will soon be needed. Often this person raises a purchase requisition which goes the buyers’ department. Buyers will then order from the most suitable supplier. Goods will be received in the warehouse and these must be checked back to the order to ensure that the correct goods are being received. Invoices from suppliers will be received and processed by the accounting department.

ACCA - Management Information Question 02 • Who generally has the authority to raise a purchase order? • The purchasing manager

ACCA - Management Information The main types of transactions undertaken by a business and the key personnel involved in initiating, processing and completing transactions. Sales In a retail organisation sales will be initiated by customers either in a shop or through the internet. Payment will usually take place immediately. In businesses selling to other businesses, the sales representatives (sales men and sales women) will be responsible for encouraging customers to place orders. Once received, orders should result in goods being dispatched from the warehouse and invoices being created and sent to the customers by the accounting department. The accounting department will also record what each customer owes. Once payment is made, this will be recorded by the accounting department. If payment seems slow then the credit control department might contact the customer in the hope of speeding up payment.

ACCA - Management Information Paying employees large organisations will have a wages and salaries department which is responsible for calculating amounts owing, and dealing with employees who leave and with new joiners. The amounts to be paid will usually be passed to the accounting department which will look after the cash transfers to employees.

ACCA - Management Information • Paying other expenses: often, these will be recurring items such as rent, electricity, telephone and insurance. Sometimes they will be once-off like paying for an advertisement in a newspaper or for the repair of a piece of equipment. The invoices will be processed by the accounting department who will make sure that the expenses look reasonable compared to previous amounts or who will ensure that the services have been properly ordered and received

ACCA - Management Information • Purchase of non-current assets: • The purchase of these assets will often begin with an employee raising a purchase requisition, for example for a new printer, which is then authorized by a manager or by the company accountant. When the invoice is received, someone needs to ensure that the asset has been received and that it is working properly.

ACCA - Management Information Question 03 • What is a non-current asset? • An asset which would bring economic benefits to an organization for more than one financial period

ACCA - Management Information The need for effective control over transactions • In large organisations, which typically can have thousands of transactions, it is very easy for • errors to be made • unauthorized transactions to take place • fraud to be carried out Good control of all transactions is therefore necessary. ‘Internal control’ is the name given to the system used to control transactions. All transactions should be: • authorized • completely recorded • accurately recorded .

ACCA - Management Information • An important part of internal control is known as the segregation of duties. This means that transactions are broken down into different stages with a different person being responsible for each stage. So in a purchase transaction, one person should order the goods, another receive and check them, and a third person should pay for them. Because several people are involved in the transaction it will be more difficult for unauthorized transactions to slip through; also each person, to some extent, checks up on what the previous one has done. For a fraudulent transaction to be processed would probably require collusion (co-operation) between all the parties, and this can be dangerous for the fraudster to organize. Other types of controls include: signatures to authorize amounts, control totals to ensure all transactions have been processed and the use of sequential documents to check if any go astray

ACCA - Management Information Question 01 • Is Bank reconciliation statement a form of internal control? • Yes

ACCA - Management Information SPAMSOAP • S- Segregation • P- Physical controls • A- Authorization • M-Management controls • S- Supervision • O –Organizational controls • A- Arithmetic accuracy • P –Personal controls

ACCA - Management Information Question 02 • Who has the responsibility of designing internal controls? • The board of directors

ACCA - Management Information Features of good management information • Accurate • Complete • Cost beneficial • User friendly • Relevant • Authoritative • Timely • Easy to use

ACCA - Management Information Sources of information

ACCA - Management Information Alternative categorization of information • Quantitative and qualitative • Financial and non financial • Historical and future estimates • Routine/ ad hoc information • Numerical/graphical information

ACCA - Management Information Exercise • Fill in the table with an example

ACCA - Management Information Question 03 • Is management accounting externally focused? • No. it is internally focused. It focusses on creating value within a company.

Management Information MA1