BS0822 ACCOUNTING FOR ELECTRICAL ENGINEERING & ISE

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1 BS0822 ACCOUNTING FOR ELECTRICAL ENGINEERING & ISE COURSE TUTOR Name: Room: Libon Fung Imperial College Business School libon.fung@imperial.ac.uk COURSE OUTLINE Aims The course aims to contribute to the development of the participants managerial potential by explaining the techniques of financial and management accounting and examining their relevance to the broader issues of management evaluation and decision-making in the generic manufacturing and service sectors. To this end the course is: - Relevant to your career goals - Integrated with the Programme s pathways - Instrumental to the Programme s culminations Hence, the course is articulated in: - Reading accounting information - Producing accounting information Knowledge Objectives During the course, participants should develop the ability to: - distinguish between the different users of accounting data and their informational requirements, including information about Corporate Social Responsibility and Governance, and Business Sustainability - recognise and apply different accounting conventions, formats and practices - identify the uses and shortcomings of published financial accounts and command a basic knowledge of the underlying accounting information system - evaluate the costing principles underlying the classification and processing of cost accounting data - distinguish between the informational requirements of short-run and long-run financial decision techniques, and appreciate the contribution of management accounting data to the satisfaction of these requirements - specify the organisational context of management accounting, and evaluate strengths and limitations of management accounting data in improving organisational effectiveness. Skill Objectives Participants should develop the ability to: - read and make sense of companies annual reports and other published corporate material - evaluate the financial situation, performance and potential of an organisation using ratio and strategic analyses and interpretation of the annual report and other published corporate material, referring also to the company s impact on its environment - evaluate the impact of using different accounting policies (e.g. in depreciation, impairment and stock valuation) upon performance measurement - design budget processes and produce simple projected cash budgets - address essential issues regarding manufacturing and service firms performance

2 - devise and apply appropriate techniques to the solution of simple short and long-run financial decision problems by selecting and utilising relevant information Learning Objectives Upon completion of the course, participants will have developed: - critical skills in relation to the use of information for the purpose of organisational performance evaluation - the ability to participate in managerial decision processes where accounting based information may be an important input - the ability to use accounting tools useful for constructively: take part to the business decisions (as in the Business Simulation Exercise), participate to the production of a business plan (as in the Business Plan Competition) and work on a consulting project (as in the Consulting Project Course) - comprehend the Finance course in the MSc Management Structure The course consists of - four blocks, each structured in areas: o pre-lecture study (students own time) o two or three two-hour-lectures o post-lecture activities (students own time) Teaching Methods All students must have completed the Accounting Primer course before starting. Thereafter, the course is based upon pre-lecture study, lectures, support classes, course notes, group studying and further reading. Participants will be encouraged to use computers in practising their acquired skills and to work in groups. Formal assessment Coursework: Group Report (30%) Examination: Two hour unseen examination (70%). The questions will test both computational and analytical understanding of the course material. OVERVIEW AND LECTURE SCHEDULE Lectures Block 1: Financial accounting (3 lectures) Lecture 1 chapters 1, 4 and 5 Lecture 2 chapters 2 and 3 Lecture 3 chapter 6 Block 2: Interpretation of the accounts (3 lectures) Lecture 4 chapter 7 (profitability, efficiency, liquidity and financial gearing) Lecture 5 chapter 7 (investment ratios, overtrading, trend and predictions) chapter 11 (only Non-financial measures of performance and measuring shareholder value) Lecture 6 analysing real life corporation s performance Block 3: Management accounting (2 lectures) Lecture 7 chapters 8, 9 and 10 Lecture 8 chapter 11

3 Block 4: Budgeting and controlling (2 lectures) Lecture 9 chapter 12 Lecture 10 chapter 13 (Chapter references are made to: McLaney and Atrill, 2010, Accounting. An introduction, Prentice Hall.)

4 LECTURE OUTLINES Block 1 Financial Accounting (3 lectures) This block aims at introducing the main topics of the course and the main financial documents that you should be able to interpret, on completion of the course. The accounting rules and regulations addressed during this block will serve as guidance for you to understand the meaning of the contents of companies annual reports and other corporate documents. With a wide managerial perspective, this course aims at enabling you to interpret, evaluate and comment upon, companies documents. In other terms you will be able to create your own opinion about companies performances, financial situation and perspectives based on documents that firms accounting departments have prepared. Furthermore, this block aims at analysing the main characteristics of financial statements and in particular how they affect the information about the financial situation (Balance Sheet) and performance of a company (Income Statement and Cash Flow Statement). During this block you will learn what the main items of the Balance Sheet mean, how their values were obtained and what they represent. For what concerns the Income Statement, references are made to various forms of profit and how they originated (segmental analysis). The Cash Flow Statement is read in terms of the three main managerial activities to which it refers: operating, investing and financing. What you learn this block will be necessary for the application of more sophisticated techniques of analysis and interpretation, which will be addressed later on in the course. By the end of this block, you should be able: 1. Discuss the different aims of: (i) producing accounting information, (ii) using accounting information 2. Evaluate the different informational value of accounting for different stakeholders of a business entity according to their aims 3. Discuss the main characteristics and principles of accounting information and its regulatory frameworks and how they affect the corporate annual reports 4. Build an informed opinion about how the accounting discipline has evolved and what its future directions could be (including the debate on principle and rule based accounting) 5. Find in corporate annual reports information, to address questions on financial situation and performance of a reporting entity 6. Explain the role of executive and non-executive directors in relation to the aims of an entity, its limited liability, Corporate Governance and Corporate Social Responsibility and the information they provide to the other stakeholders. 7. Explain the meaning of changes in value of major items present in the Balance Sheet (including references to the current debate on fair value based accounting and its implications). 8. Discuss the difference between the book value and market value of a company. 9. Compare the typology of items and the structure of main Balance Sheets and Income Statement of companies operating in different sectors. 10. Explain what firm s events and information are relevant and therefore are likely to have influenced the preparation of the Balance Sheet, Income and Cash Flow Statements. Chapters 1, 2, 3, 4, 5 and 6 of McLaney and Atrill, 2010.

5 Block 2 Interpretation of the accounts (3 lectures) This block aims at analysing the information about companies performance, both in financial and non-financial terms. The topics of this block will also enable you to use financial ratios for the analysis of the performance and situation of a company. Ratios are a powerful tool to obtain insights in companies accounts. However, in order to exploit their full potential their users must both have a strong knowledge of the meaning of the accounts and apply their own creativity and evaluation skills. This is because the analysis of each company should unravel as the results emerge and are evaluated. One aspect that is particularly highlighted in this block is that ratios must be used to depict the company as a whole, i.e. each ratio its own cannot give much valuable information but, in combination with others, it may contribute to reveal interesting inner aspects of the company. For what concerns non-financial performance, internal and external effects of the company s actions will be considered, in the context of its Corporate Social Responsibility and contribution to a sustainable economy. Also Corporate Governance will be addressed with its effects on the performance and situation of a company in the medium and long term. Finally, you will practise commenting on the chairman s statement and directors report, enhancing your ability and confidence when comparing your opinion about a company with those of the company s managers. The Balanced Score Card and EVA approaches will be used. By the end of this block, you should be able to: 1. Select, combine and use ratios to form and support your personal judgement about a company s liquidity, profitability, solidity, market valuation and perspectives. 2. Explain the limitations of your analysis and in general of any ratio analysis. 3. Identify and interpret the narrative in the annual report that refers to financial and non-financial performance, including the influence of the company on its internal and external environment, its ethical implications and evaluate the Corporate Governance choices of a business. 4. Propose balanced Score card and EVA approaches to performance evaluation 5. Critically evaluate others opinions about the company s performance and situation, in particular those of the chairman and directors. Chapter 7 and 11 (only Non-financial measures of performance and measuring shareholder value) of McLaney and Atrill, 2010 Block 3 Management Accounting (2 lectures) This block aims at addressing management accounting, its purposes and its main concepts and techniques. In particular the techniques will be: cost analysis, cost volume profit analysis, full costing, Activity Based Costing and target costing. These techniques support short and medium term managerial decisions for production planning both in the manufacturing and service industries. You should not be misled by the names of these techniques, to think that our focus is solely on costs. In fact, cost analysis is instrumental at supporting managers in their attempts to maximise profits, as you will see when applying the above mentioned techniques to solve marginal costing problems and when we will mention yield management and balance scorecard approaches to performance management and evaluation. By the end of this block, you should be able to: 1. Analyse the cost structure of a business and derive implications in terms of the effects of managerial decisions on volume and capacity. 2. Effectively utilise cost analysis for supporting strategic decisions.

6 3. Explain and use Activity Based Costing techniques for managerial analysis and decision making. 4. Devise the most appropriate costing approach and technique to calculate the cost attached to a product according to different informational needs. 5. Provide the financial grounds for specific outsourcing decisions. 6. Provide the financial grounds for short term production planning decisions. Chapters 8, 9, 10 and 11 (excluding Balanced Score card) of McLaney and Atrill, 2010 Block 4 Budgeting and financial management (2 lectures) This block aims at enabling you to support decision making with a broader strategic perspective, i.e. you will be provided with essential tools for supporting strategic managerial decisions with the aim to enhance the firm s value. Different techniques and approaches to budgeting are addressed and their respective merits and pitfalls are discussed. In particular, you will learn what is expected from a budget and how to carry out the analysis of the variances between budgeted targets and actual results. This analysis is the basis for any investigation of causes and reasons for the firm to divert from its plans. Further, more comprehensive techniques of performance evaluation are explored. In particular multiindicator approaches such as balanced scorecard will be addressed again on the grounds that the business strategy is at the core of planning and controlling, i.e. whether you are preparing the budget or you are evaluating the variances of the actual results from the budget; or again whether you are conceiving indicators and targets for a firm specific approach to performance evaluation or evaluating the firm s results against those targets, your reference point will be the firm s strategy. This knowledge should enable you to take part to (or indeed design and lead) budgeting processes in an effective way. This block s topics will close the loop opened with questions posed during the course: e.g. who needs accounting? and what is a business s most appropriate financial structure? and will constitute an introduction to the Finance course. By the end of this block, you should be able to (and will at some point be tested on your ability to): 1. Discern among different budgeting approaches evaluating their merits and pitfalls. 2. Devise general lines of budgeting processes and perform variance analysis starting from budget and actual accounts. 3. Take part in the debate on the ability of balanced approaches to performance measurement, and be able to encompass various aspects of business strategy, including viability, sustainability and ethics. 4. Evaluate financial investments using widely used appraisal techniques. Chapters 12 and 13 of McLaney and Atrill, 2010

7 MAIN RECOMMENDED TEXTS Essential texts McLaney E. and Atrill P., Accounting. An introduction, Prentice Hall, 2010 Mongiello M., International Financial Reporting, Ventus, 2009 available on line URL: Suggested background reading Atrill P. and E. McLaney, Management accounting for decision makers, Financial Times Prentice Hall, 5 th ed Bhimani A., Contemporary Issues in Management Accounting, Oxford University Press, 2006 Drury C., Management Accounting for Business, Thomson, 3 rd ed., 2005 Elliott B. and J. Elliott, Financial accounting and reporting, Financial Times Prentice Hall, 11 th ed Horngren C.T., S.M. Datar and G. Foster, Cost accounting a managerial emphasis, Financial Times Prentice Hall, 10 th ed., 2000 and 12 th ed., 2006 Mongiello M., (editor), RSM Reporting, Quarterly Newsletter, available on line URL: Solomon, J. Corporate Governance and Accountability, Wiley, 2 nd ed., 2007 de Waal A., Strategic performance management a managerial and behavioural approach, Palgrave McMillan, 1 st ed. 2007

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