Financial Control Contemporary Management Accounting Issues Accounting 586 Chapter 11
Focus of the Theme and this Chapter • Theme 2 examines budgeting & control • The last chapter examined budgeting for planning and coordination • Now we turn to the organizational structures and methods providing financial control • Tend to focus of the financial aspects of control
Importance of Financial Control • The class of variables which organizations typically exert most influence over are costs • Tendency to focus on the financial aspects of control • However, using the BSC the concept of control can be expanded to the other 3 levels • Financial control facilitates strategy implementation by
Environment of Financial Control • Financial control uses financial information and measures to assess organizational and management performance • Traditionally financial control was based solely on financial measures (discussed in Theme 1)
The Balanced Scorecard and Financial Control • This approach adds to traditional financial control (what to do for financial success) the perspectives of • Internally – Decision making • Externally – Organizational performance
The Balanced Scorecard and Financial Control • The process perspective provides • The learning & growth perspective – How or why employees are
Basics of Financial Control • Financial control in an organization & its units have both internal and external aspects • Internal: decision making • External: overall firm performance regarding • Control structures (Authority & responsibility) – Examples: Light and Power company, Auditing a class – Centralized • Sr. Managers have the authority and responsibility • Lower level management: Tasks are defined in detail for employees • Issue becomes some difficulty in or with growth and diversity of products and services – Decentralized • Financial control and organizational structure are related
Decentralization • Decision-making authority is delegated to frontline managers – Better knowledge – Better to adapt • Shifts evaluation from tasks to results • Also provides career paths or training • Historic perspective on decentralization – Organizational structures in U.S. evolved to in early 1900s – As organizations grew the product lines of the services become more diversified
Advantages of Delegated Decisions • Advantages from decisions by decentralized rather than centralized managers
Decentralization • Why financial control is needed with decentralization • Results are measured in financial terms • Degrees to decentralization
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