STRATEGIC MANAGEMENT

ACCOUNTING 2019
CPA PROGRAM SUBJECT OUTLINE – THIRD EDITION

Strategic management accounting is a key component of the overall skills base of today’s professional accountant.

This subject examines the management accountant’s role in dynamic organisations operating in the global
business environment. In this role, the professional accountant engages with the organisation’s management team
and contributes to strategy development and implementation, with the aim of creating customer and shareholder
value and a strong competitive position for the organisation. The subject highlights the management accounting
tools and techniques of value chain analysis and project management that have become increasingly important in
contemporary operating environments.

The subject includes discussions on the professional accountant’s responsibilities and judgment as introduced in
Ethics and Governance. Also discussed are investment evaluation and strategic business analysis in the context
of assessing and responding to risk, as covered in the Financial Risk Management and Advanced Audit and
Assurance subjects. Candidates are introduced to strategic management concepts that are expanded on in Global
Strategy and Leadership.

Exam structure
The Strategic Management Accounting exam is comprised of a combination of multiple-choice and extended
response questions.

General objectives
On completion of this subject, you should be able to:
• apply the strategic management process and organisational and industry value analysis to understand value
drivers, cost drivers and the reconfiguring of value chains
• explain the role of the management accountant as a trusted adviser and a business partner in supporting
strategy development and the day-to-day operations of an organization
• understand stakeholders’ various decision-making needs and provide adaptive information solutions
• design an effective budgeting system that incorporates uncertainty to assist in strategy implementation
• discuss the role of project selection, planning, monitoring and completion in strategy implementation
• explain the role of performance measurement and control systems in value creation, strategy implementation
and monitoring performance to improve strategies
• apply strategic management accounting tools and techniques to improve the contribution and sustainability of
value-creating activities.
Subject content
The ‘weighting’ column in the following table provides an indication of the emphasis placed on each module in the
exam, while the ‘proportion of study time’ column is a guide for you to allocate your study time for each module.

Module Recommended proportion Weighting

of study time (%) (%)

1. Introduction to strategic management accounting 10 10

2. Information for decision making 14 15

3. Planning, budgeting and forecasting 20 22

4. Project management 13 13

5. Performance management 21 23

6. Tools for creating and managing value 17 17

Case study 5 0

The subject is divided into six modules. A brief outline of each module is provided below.

Module 1: Introduction to strategic management accounting

Contemporary organisations face significant internal and external challenges that must be addressed in order to
operate and function effectively. It is essential for them to create value for multiple stakeholders, including
customers, employees, management, regulators and their shareholders or owners. This must be achieved in a
global environment that is continuously changing and becoming more competitive. This subject focuses on the role
strategic management accounting plays in creating, managing and protecting value.
For the purposes of this subject, strategic management accounting is defined as follows:
Creating sustainable value by:
• supporting the formation, selection, implementation and evaluation of organisational strategy
• synthesising information that captures financial and non-financial perspectives for both the internal
and external environments, to enable effective resource allocation.
Strategic management accounting requires that management accountants embrace new skills that extend beyond
their traditional practices. They must collaborate with general management (operational departments), corporate
strategists (senior management team) and product development, in creating, managing and protecting value.
Fostering organisational capabilities leads to value creation.
Value creation is essential in contemporary organisations. One way of thinking about commercial organisations,
government bodies and not-for-profit entities is as ‘linked chains’ of resources and activities. These chains
produce products and services of value to consumers and end users. The essential requirements for successful
performance are:
• to generate products and services with value that consumers are willing to pay for
• to constantly develop and improve the resources, activities and processes used to generate that value
(Anderson and Narus 1998)

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This module first considers management accounting and its role in supporting management. It then describes the
key changes that have led to the development of strategic management accounting. The module also identifies the
challenges that management accountants face and describes the skills required to perform their role, at present
and in the future. The ability to support managers at a strategic level has become critically important for
organisational survival, and management accountants must broaden their role from traditional scorekeeping tasks
to business advisory positions. Advances in technology and information systems now help with capturing and
processing the routine events within an organisation. This allows management accountants to spend more time
understanding the organisation’s external environment and work on non-routine, complex decisions. This module
concludes with an examination of the various analytical techniques available to management accountants that will
assist them to support management in their decisions about strategic direction.

Contents:
Part A: Value
• Shareholder value
• Customer Value
• Stakeholder value
• Which viewpoint should be taken when determining ‘value’?

Part B: The strategic management process

Part C: The role of management accountants in strategic management

• The role of management accountant

Part D: The key challenges facing management accountants

• Challenges
• Causes of change in the business environment

Part E: Analytical techniques available to management accountants

• Value analysis
• Strengths, weaknesses, opportunities and threats
• Internal analysis
• External analysis
• Porter’s five forces model

Module 2: Information for decision making

This module looks at the information that management accountants work with and provide to satisfy a wide variety
of stakeholders including investors, financiers, the organisation’s managers and other interested parties who need
to make judgments and decisions. There are many methods, techniques and tools that a management accountant
can use to satisfy the information needs of stakeholders. The aim of this module is to provide an understanding of
alternative approaches that are available so that the management accountant can apply the most appropriate
method, technique or tool in any particular situation.

At the outset there are a few terms that need to be clarified. The module uses the expression ‘information’ as an
umbrella term—it can mean data, which are numbers, words or symbols, or it can mean coherent sets of numbers
and commentary in combination.

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The terms ‘data’, ‘information’ and ‘knowledge’ are often confused. Hislop (2005) makes a useful distinction. He
defines data as raw numbers, images, words or sounds derived from observation or measurement. Information is
data arranged in a meaningful pattern and where some intellectual input has been added. Knowledge emerges
from the application, analysis and productive use of data and/or information with a further layer of intellectual
analysis whereby it is structured and linked with existing systems of beliefs and bodies of knowledge. Knowledge
provides beliefs about causality and the basis for meaningful action and thought (Hislop 2005, pp. 15–16)
Knowledge may be explicit or tacit. You should be aware if you read academic literature on knowledge
management that these competing definitions exist. Furthermore, they are sometimes not defined, and sometimes
they are used interchangeably, but not always correctly. The American Institute of Certified Public Accountants
(AICPA) and the Chartered Institute of Management Accountants (CIMA) produced the Global Management
Accounting Principles. The principles are based on the premise that management accounting is at the heart of
quality decision making, because it brings to the fore the most relevant information and analysis to generate and
preserve value. There are four Global Management Accounting Principles:
1. Communication provides insight that is influential.
2. Information is relevant.
3. Impact on value is analysed.
4. Stewardship builds trust (AICPA and CIMA 2014, p. 3).

In its broadest sense, management accounting encompasses both financial and non-financial information that
comes from sources that may begin with but move far beyond the financial accounting system. The information
produced by management accountants is far more granular than that contained in financial statements. The
management accountant, in assembling various sources of information, must be careful to faithfully represent that
information to management. This involves recognising and reconciling sources of information that may be
inconsistent or ambiguous.
The final introductory point about this module is that it shows many of the reasons why the management
accountant has to work closely with the financial accountant. The current reporting obligations for a listed entity
mean that internal events which may affect market price or company valuation require timely market disclosure.
The management accountant is likely to possess or generate some of this information. Understanding who the
external stakeholders are can help to understand how the stakeholders are affected by the entity. Of course,
financial accounting systems are a critical source for the management accountant’s work, even though they are
supplemented by other sources — for example, non-financial performance measures and operational information
sourced from enterprise resource planning (ERP) systems.
The management accountant may have multiple internal stakeholders who rely on the information they provide.
This may be to use financial accounting reports to help non-financial managers interpret monthly budget versus
actual variance reports. However, where these internal stakeholders are making future-oriented decisions, the
management accountant will need to provide additional information to support capital expenditure proposals,
process improvements, cost savings, etc.
Management accountants use financial accounting information but because it is historical information it may be
less relevant to internal stakeholders, particularly management, who need not only more granular data, but data
that is more current, or even prospective. For example, in making decisions about future pricing, purchasing new
equipment, introducing new products, etc., the management accountant will need to provide current or future
estimates of costs rather than historic costs. The management accountant will also use various tools and
techniques to assist in forecasting future revenues and cash flows, using data that is not contained in the financial
accounting system.
This module is concerned with information, management accounting and the systems that unite them. The
management accountant prepares information for different stakeholders, both internal and external to the
organisation. This is explored in Part A, which suggests that stakeholders have different information needs —
management accountants should not attempt to treat all stakeholders as the same.

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The idea of dimensions of information is introduced in Part B. The management accountant works with a large
volume of information, from various sources and of varying quality. The stakeholders who need information to
make judgments and decisions can include investors, financiers, the organisation’s managers and other interested
parties. This means that the management accountant must be mindful that this information needs to be assessed
and differentiated in terms of its validity and reliability to ensure that the information provided is fit for the
stakeholders’ purposes (the characteristics of validity and reliability are defined in Module 5).
An important point about this module is that information provided to stakeholders by management accountants can
also be used to build trust and confidence in their analyses and advice. Part C considers the strategic influencing
of stakeholders. It is important to appreciate that providing reliable, timely and useful information can be used to
build relationships with managers, and the management accountant can become a ‘trusted adviser’. Trust is
required when making an assessment of an information system and this is particularly the case when identifying
its shortcomings.
Part D consolidates concepts from the previous parts of this module and considers situations where the
management accountant has found deficiencies in an information system. These deficiencies can arise from
limitations of the information system itself, using inappropriate information to make decisions, or a lack of suitable
information.
The management accountant needs to carefully consider the approach to be taken (and the tools and techniques
to be used) to provide information that best meets the needs of the stakeholder for whom the information is
provided. This involves:
1. Judgment — the management accountant needs to consider the time and resources that are available in
terms of the scope and depth of the analysis. Any limitations of the management accountant’s analysis
need to be made clear when the information is provided.
2. Analysis and interpretation — the management accountant needs to decide what tools and techniques to
apply, which will depend on the circumstances. Any limitations of specific tools and techniques need to be
made clear with the interpretation that the management accountant provides.
3. Flexibility and a focus on risk — the management accountant needs to be flexible in searching out sources
of information that are useful, but especially where information is externally sourced; where there are
ambiguities between the information generated from different sources, the user must be aware of the risks
of relying on any source of data that cannot be verified or triangulated.

Contents:
Part A: Types of information needed for stakeholder decision-making
• The information needs of stakeholders
• Stakeholder management
Part B: Information, information systems and their effect on organisational decision-making and
performance
• Impact of information systems on strategy formulation
• Different types of information systems
• Sourcing, aggregating and integrating information
• Characteristics and limitations of different kinds of information
• Characteristics of information
• Effects and challenges of new information systems and platforms
Part C: The role of management accountants in influencing stakeholder decision-making
• Balancing stakeholder requirements and information delivery
• Differing levels of information in the organisation
• Importance of linking information to strategy
• Roles of the management accountant

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Part D: Upgrading or replacing information systems
• Stimulus for a new or updated system
• Making a preliminary assessment
• Pitfalls in evaluating major information needs
• Analysing new and existing information systems
• Evaluating a suggested information solution

Module 3: Planning, budgeting and forecasting

The business environment is constantly changing, resulting in many challenges. One such challenge is how an
organisation can sustain itself in an uncertain future. The governing board of organisations typically considers the
organisation’s sustainability in their strategic plan and managers implement the strategic plan through operational
plans. Budgets form a part of the operational plan.
Budgets are an accounting tool that helps managers plan to meet the organisation’s goals. During this planning,
they anticipate and consider the challenges posed by an uncertain future and predict the possible effects of these
challenges and uncertainties on their organisation’s limited resources. This culminates in setting targets that make
best use of the organisation’s limited resources and that would achieve the organisation’s goals. Once targets are
set in the budgets, they are used to gauge the performance of the organisation and the managers.
This module focuses on budgeting as a planning and control mechanism. The role of budgets and their
relationship to the organisation’s strategy is discussed. The module also describes the various components of
budgets and demonstrates how financial forecasts addressing uncertainties are developed.
Variance analyses are then considered as a means to monitor and evaluate the organisation’s and managers’
performance compared with targets set in the budgets.
The module then discusses the human behavioural issues that typically result when using budgets as a control
mechanism. Finally, the module concludes with a discussion of proposed alternative approaches to alleviate the
limitations of traditional annual budgets.

Contents:
Part A: Introduction to plans, budgets and forecasts
• Relationship between budgets and strategic planning
• Roles of operational plans, budgets and forecasts
• Purposes of a budget
• Relationship with responsibility accounting
• Planning and control
Part B: Developing master budgets
• Impact of external and internal factors on budgets
• Preparing operational budgets in manufacturing organisations
• Preparing budgets in non-manufacturing organisations
• Preparing financial budgets
• Preparing budgets for various departments
• Preparing flexible budgets
Part C: Variance analyses and control
• Static versus flexible budgets
• Profit- and revenue-related variances
• Direct material analysis
Direct labour analysis

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 • Variable manufacturing overhead analysis
• Fixed manufacturing overhead analysis
Part D: Behavioural aspects of budgets
• Participative budgeting
• Setting realistic and achievable targets
• Monetary and non-monetary incentive schemes
Part E: Alternative approaches to budgeting
• Shortcomings of traditional budgets
• Incremental budgeting
• Zero-based budgeting
• Activity-based budgeting
• Beyond Budgeting: Managing without budgets

Module 4: Project management

The organisations we work in have many projects. It is easy to see projects in a company whose operations focus
on delivering projects, such as the Lend Lease construction company building the new Western Sydney Stadium
(Lend Lease 2018), or a software development company such as Microsoft, which develops and delivers new
software for your computer. Projects may be focused on improving a current product, such as Toyota upgrading
the new Corolla, or a new edition of a mobile phone, such as the latest Apple iPhone. Projects may also be
oriented towards the development of a new product line, such as the Apple Watch. Projects can also focus on
improving core processes in an organisation (e.g. process mapping and improvement) or be oriented towards
support activities (e.g. IT upgrade of enterprise resource planning software), or decision support software.
These examples show that projects are strategically important to organisations. For example, the development of
the Apple Watch was central to the company’s strategy to gain competitive advantage in the marketplace by
enhancing iPhone use through wearable technologies. To achieve these objectives, project management must be
aligned with an organisation’s strategic planning.
Projects are very important and management accountants are likely to be constantly involved in them in the
workplace. Projects are also challenging. Typically, each project has a different customer and location, a smaller
or larger scope, and so on. These characteristics highlight one of the inherent features of any project—it involves
doing something that has not been done before; it is unique. Even when a project has similarities with other
projects, each project still has its own unique characteristics.
Organisations today operate in an international and fast-paced business environment, which brings constant
change. This presents many challenges, but there are also significant rewards for successful project management.
Due to the uncertain nature of projects, a combination of technical tools, coordination and individual judgment is
required to make them successful. This module considers these issues from a practical viewpoint.
Part A of this module considers the definition of project management, including the stages of a project and
organisational structures for projects. Part B discusses the roles within project management teams. Part C
explores the role of the management accountant in project selection and the range of analytical techniques that
are used in this task. Part D examines planning tools that are central to the successful implementation of a project.
Part E considers the management accountant’s role in project implementation, risk management and control.
Finally, in Part F, the post-completion and review processes are addressed.

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Contents:
Part A: Project management defined
• What is a project?
• What is project management?
• The project management process
• Organisational structures for projects
Part B: Roles in project management
• Project sponsor
• Project manager
• The project teams
• International project teams
• Virtual project teams
Part C: The management accountant’s role in project selection
• Developing a business case for projects
• Strategic fit
• Stakeholder identification and assessment
• Risk assessment
• Financial analysis—single project
• Financial analysis—multiple projects
Part D: The management accountant’s role in project planning
• Project scheduling
• Project budgeting
• Supplier contracts
Part E: The management accountant’s role in project implementation and control
• Monitoring progress
• Monitoring costs
• Monitoring specification and quality
• Measuring performance
• The importance of probity in projects
• Risk management
• Stakeholder management
Part F: The management accountant’s role in project completion and review
• The completion decision
• Checklist
• Specification satisfaction consensus
• Strategic fit assessment
• Stakeholder satisfaction assessment
• Financial closure
• Resource dispersion
• Final report
• Knowledge management

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Module 5: Performance Management
The Strategic Management Accounting subject emphasises the role of the professional accountant in engaging
with the organisation’s senior management team to contribute to strategy development and implementation. The
aim is to create value and a strong competitive position for the organisation. This subject focuses on developing,
implementing and monitoring strategies in order to enhance value for the organisation. Such a focus would not be
possible without understanding the key role that performance management plays in strategy and value creation.
The need for sound design and an understanding of the use and implications of strategic performance
management and control systems is gaining increasing importance in all organisations. This module sets the
context for performance management and control, including the:
• characteristics of effective performance measures and control systems
• use of performance measures application of performance management to motivate and reward.
Module 5 is concerned with how performance management helps to achieve goals and objectives through setting
targets and measuring performance against those targets through control and feedback systems.
Module 5 builds on Module 1 and emphasises the role of the management accountant in supporting the
management team in their strategic role. In particular, this module looks at performance management in the
context of value creation and the sustainability of performance over time, as well as sustainability in the sense of
corporate social responsibility (CSR).
This module also builds on Module 1 by discussing the role of the management accountant in generating and
interpreting information about value chain performance. The focus of Module 2 on information is also relevant as it
is the basis of performance management. Similarly, Module 3 looks at variance analysis as one way in which
performance can be managed through comparisons between actual and expected performance.
The links between strategy, management control systems and performance management, and the limitations of
some traditional accounting-based controls, are considered. The various models of performance management,
emphasising the balanced scorecard and the strategy mapping process, as well as cascading performance
measures and the important role of information systems in performance management, will be highlighted.

Contents:
Part A: The role of performance management
• The multiple roles of performance management
Part B: Strategy, management control and performance management
• Models of performance management
Part C: Determining performance measures and setting performance targets
• Performance management for performance improvement

Module 6: Tools for creating and managing value

This module draws together the material in Modules 1, 2 and 5 by examining specific ways that management
accountants are able to contribute to the enhancement of an organisation’s value chain. Managers must be able to
identify, evaluate and implement strategies that, while leading to improvements in business performance, also
address important social and environmental issues such as human rights and the effect of climate change.
Management accountants play a pivotal role in developing systems that provide information that business
managers must access and use to carry out these tasks. This module illustrates how strategic management
accounting techniques assist with the growth of business value.

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The module contains an extended Case study that shows how specific strategic management accounting concepts
and tools can be used to manage development of a new product and to grow organisational value. It covers the
following strategic management accounting concepts and tools:
• activity-based costing (ABC)
• life cycle, target and kaizen costing
• activity-based management (ABM)
• business process management (BPM)
• continuous improvement (CI)
• value chain analysis
• supply chain management
• total quality management (TQM)
• downsizing, outsourcing and offshoring
• customer profitability analysis.
The module also identifies performance measures for assessing the effect of these concepts and tools on an
organisation’s value chain.

Contents:
Part A: The value chain

Part B: Strategic product costing

• Introduction
• Activity-based costing
• Time-driven activity-based costing

Part C: Strategic revenue management

• Major influences on pricing decisions
• Pricing strategies

Part D: Strategic cost management

Part E: Strategic profit management — upstream activities

• Supplier management

Part F: Strategic profit management — downstream activities

• Customer profitability analysis

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