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Accounting for Managers: Interpreting accounting information for decision-making
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This book was motivated by the author’s experience in teaching accounting at
postgraduate level (MBA and MSc) at Aston Business School and in-house training
provided for non-financial managers in many organizations to introduce them to
the use of financial tools and techniques.
My own education as an accountant was aimed at achieving professional recognition
and emphasized an uncritical acceptance of the tools and techniques that
I was taught. It was only after moving from financial to a general management
position in industry that I began to see the limitations and questionable assumptions
that underlay these tools and techniques. When I returned to study later in
my career, I was exposed for the first time to alternative paradigms from which to
view accounting. This book is therefore as much a result of my practical experience
as a producer and user of accounting information as it is a result of my teaching
and training experience.
As accounting increasingly becomes decentred from the accounting department
in organizations, line managers in all functional areas of business are expected
to be able to prepare budgets, develop business cases for capital investment,
and exercise cost control to ensure that profit targets are achieved. Managers are
also expected to be able to analyse and interpret accounting information so that
marketing, operations and human resource decisions are made in the light of an
understanding of the financial implications of those decisions.
I was disappointed by the books available to support teaching and training
because most books on accounting have a similar format that is accounting-centric:
chapters typically cover accounting techniques rather than the types of decisions
made by non-financial managers. The emphasis in those books, many of which
are designed for people whose career aspirations are to become accountants, is on
doing accounting rather than using accounting. This book has been written for the
vast majority of postgraduate students and practising managers who do not want
to become professional accountants. The book therefore has a practitioner-manager
orientation.
The title of the book, Accounting for Managers: Interpreting Financial Information
for Decision-Making, emphasizes the focus on accounting to meet the needs of
xiv ACCOUNTING FOR MANAGERS
managers. The material contained in the book stresses the interpretation (rather
than the construction) of accounting information as well as a critical (rather
than unthinking) acceptance of the underlying assumptions behind accounting.
It is suitable for postgraduate and undergraduate students who are undertaking
courses in accounting that do not lead to professional accreditation, and to
practising non-financial managers who need a better understanding of the role of
accounting in their organizations.
There is a focus in most accounting books on manufacturing organizations,
perhaps because many of those books have been issued as revised editions
for many years and have not adequately reflected the changing nature of the
economies in the developed world. The growth of service businesses and the
knowledge economy is not sufficiently explored in most accounting texts. This
book uses examples, case studies and questions that are more equally balanced
between the needs of organizations in manufacturing, retail and services.
In most accounting books there is also insufficient attention to theory, particularly
for postgraduate students who should have a wider theoretical underpinning of
accounting as it is used in organizations. Theory should encourage the reader to
enquire more deeply into the alternative theoretical positions underlying accounting
as well as its social and behavioural consequences, both within their own
organizations and in the wider society. This book therefore introduces the reader
to some of the journal literature that is either fundamental to the role of accounting
or is ‘path breaking’. The book is not intended to be deeply theoretical, but rather
provides, through the ample references in each chapter, an accessible route for
those who want to reach into the wider literature.
Accounting books are often inaccessible to those from non-English-speaking
backgrounds, because of the complexity of the language used. Many of the
examples and questions in typical accounting books rely on a strong knowledge
of the nuances of the English language to interpret what the question is asking,
before students can make any attempt to answer them. This book adopts a more
plain English style that addresses the needs of European and Asian students.
Finally, the examples in most accounting books focus on the calculations that
accountants perform to construct accounting reports, rather than on the interpretive
needs of managers who use those reports. While some calculation questions
are needed to ensure that readers understand how information is produced,
the emphasis for the non-financial manager should be on critical understanding
and questioning of the accounting numbers and of the underlying assumptions
behind those numbers, and on the need to supplement accounting reports with
non-financial performance measures and broader perspectives than satisfying
shareholder wealth alone.
Outline of the book
The book is arranged in four parts. The first part describes the context and role
of accounting in business. Some theoretical frameworks are provided. It is hoped
that this will provide a foundation for readers’ understanding that accounting
PREFACE xv
is more than a technical subject but is grounded in competing theories. These
theories are themselves rooted in historical, political, economic and social causes.
The theoretical framework should help to make the subject more meaningful to
students and practitioners alike. Although the reader is encouraged to read Part I,
the arrangement of the book is such that the reader can commence in Part II, where
the analysis and interpretation of accounting begin.
For example, those readers with a good business understanding may omit
Chapters 1 and 2. Those who understand the basics of accounting can omit
Chapter 3. These first three chapters are provided for those students who are
coming to a business studies course for the first time, although even the experienced
reader will find some value in them. Readers may not want to read the theoretical
Chapters 4 and 5 until they are further into Part II; however, the theory in each of
the chapters in Part II will be more understandable after reading Chapters 4 and
5. Those readers who have undertaken a course in financial accounting may have
already covered much of the material in Chapters 6 and 7. Again, this book is
intended to be a complete coverage of the subject for students and readers with no
prior experience of accounting and Chapters 6 and 7 provide an important basis
for understanding management accounting.
The second part of the book shows the reader how accounting information is
used in decision-making, planning and control. In this second part the accounting
tools and techniques are explained, illustrated by straightforward examples. Case
studies, drawn mainly from real business examples, help draw out the concepts.
Theory is integrated with the tools and techniques and the use of quotations from
original sources should encourage the reader to access the academic accounting
literature. A critical approach to the assumptions underlying financial information
is presented, building on the theoretical framework provided in Chapters 4 and 5.
The third part provides a wealth of supporting material. Chapter 16 suggests
an approach to research in accounting.
Chapter 17 introduces four readings from the accounting literature. These cover
the spectrum of the literature and support the most important concepts in the
book. They present four different yet complementary perspectives on accounting
in organizations. Each reading has several questions that the reader should think
about and try to answer in order to help understand the concepts.
The third part ends with an extensive glossary of accounting terms. The use
of bold in the text highlights that the meaning of the term is outlined in the
glossary.
The fourth part of the book contains an appendix of questions and case
studies to enable readers to test their understanding of the concepts described in
the book.
The questions in Appendix 1 cover each chapter and rely on knowledge gained
from reading that and preceding chapters. Consequently, there is a greater level
of detail involved in questions about the later chapters. Attempting these questions
will help the reader to understand how accountants produce information
needed by non-accounting managers. An understanding of accounting tools and
techniques is important in using the results of these tools and techniques for
decision-making. Appendix 2 contains answers for all the questions.
xvi ACCOUNTING FOR MANAGERS
The case studies in Appendix 3 help in developing the ability to interpret
and analyse financial information produced by an accountant for use by nonaccounting
managers in decision-making. Each is identified with the chapters that
will aid understanding, interpretation and critical analysis of the case. Appendix 4
contains a suggested answer for each case, although the nature of such cases is
that there is rarely a single correct answer, as different approaches to the problem
can highlight different aspects of the case and a range of possible solutions.
Paul M. Collier - Personal Name
ISBN 0-470-84502-3
NONE
Accounting
English
John Wiley & Sons Ltd,
2003
England
1-496
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