Management Control System Assignment: Topic: Analysis And Reporting, Variance Reporting

MANAGEMENT CONTROL SYSTEM ASSIGNMENT TOPIC: ANALYSIS AND REPORTING, VARIANCE REPORTING

Submitted By, KEERTHANA DINESH 4TH SEMESTER MBA CUARMGT013 DCMS

INTRODUCTION Management control is a must in any organization that practices decentralization. A MCS is a set of interrelated communication structures that facilitates the processing of information for the purpose of assisting managers in coordinating the parts and attaining the purpose of an organization on a continuous basis. A MCS is a logical integration of techniques, to gather and use information to make planning and control decisions, to motivate employee behaviour, and to evaluate performance. The main aim of any control process is to identify the variation between the actual performance and the standard fixed. In case any deviation is identified between the actual and the standard then it calls for analysis of such variation in order to find the cause for such variation and to suggest some measures for remedial action. Hence variance analysis is a process of analysing variance by fragmenting the total variance in to smaller identity so that the responsibility for such variance can be pin pointed easily. Management accounting is a branch of accounting that focuses on the revenues and expenses of a business, as well as asset usage. Someone engaged in management accounting notes unusual spikes and declines in revenues and expenses, and reports these variances to management. To analyse the information is the main purpose of the management accounting. It develops several ways to correct them and to determine the problematic areas. To increase the company's profit, they are using the company's information to develop ways. All the plans and the information are stating as a report format by the management accountant of the organization. These reports suggest that the information that they have stated in this report this can be used as recommendations for the solution of problems.

ANALYSIS AND REPORTING Analysis It is the process of breaking a complex topic or substance into smaller parts in order to gain a better understanding of it. Accounting analysis, also referred as financial analysis or financial statement analysis, can be explained as an assessment of the stability, viability, and profitability of a business, sub-business, or project. A financial analysis is carried out by professionals who prepare reports through the use of info obtained from financial statements and other reports. Besides, one key area of financial analysis is the extrapolation of company’s past performance into an estimate of its future performance. Objectives of accounting analysis 

Solvency Accounting analysis is helpful in assessing the ability of a company to repay its obligations to creditors and similar third parties in the long run.

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Profitability Accounting analysis facilitates the ability of a company to earn income in addition to sustaining short term as well as long term growth. A company’s profitability level is based on the income statement, which provides reports on the company’s operation results.

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Liquidity Accounting analysis aims at assessing a company’s ability to maintain positive cash flow in addition to satisfying immediate debts.

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Stability Accounting analysis aims at assessing the company’s ability of sustaining itself in the long run, without the existence of significant losses in the business conduct.

Reporting It may refer to any activity that leads to reports. A report is a document containing information organized in a narrative, graphic, or tabular form, prepared on ad hoc, periodic, recurring, regular, or as required basis. Reports may refer to specific periods, events, occurrences, or subjects, and may be communicated or presented in oral or written form. Accounting reports are compilations of financial information that are derived from the accounting records of a business. Financial reporting refers to standard practices to give stakeholders an accurate depiction of a company’s finances, including their revenues, expenses, profits, capital, and cash flow, as formal records that provide in-depth insights into financial information. These can be brief, custom-made reports that are intended for specific purposes, such as a detailed analysis of sales by region, or the profitability of a specific product line. More commonly, accounting reports are considered to be equivalent to the financial statements. These statements include the following reports: 

Income statement States the revenues earned during a period, less expenses, to arrive at a profit or loss. This is the most commonly used accounting report, since it is used to judge the performance of a business.

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Balance sheet Shows the ending asset, liability, and equity balances as of the balance sheet date. It is used to judge the liquidity and financial reserves of a business.

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Statement of cash flows Shows the sources and uses of cash related to operations, financing, and investments. Can be the most accurate source of information regarding the cash-generating ability of an entity.

A number of disclosures may accompany the financial statements, in the form of footnotes. This is more likely to be the case when the financial statements have been audited.

VARIANCE REPORTING The main aim of any control process is to identify the variation between the actual performance and the standard fixed. In case any deviation is identified between the actual and the standard then it calls for analysis of such variation in order to find the cause for such variation and to suggest some measures for remedial action. Hence variance analysis is a process of analysing variance by fragmenting the total variance in to smaller identity so that the responsibility for such variance can be pin pointed easily. If the actual is less than the expected then the variance is said to be Favourable and if the actual is more than the expected, then it is called as unfavourable variance. For example if the actual cost exceeds the standard, then it is unfavourable variance, and vice versa. A variance can be either Price variance or volume variance. Different management personnel are entrusted with the responsibility of carrying out variance analysis. During the course of analysis if any individual is identified as responsible for such variance, then it is called Controllable Variance. But in some cases the variation might have occurred due to factors beyond the control of an individual, and then it is called as uncontrollable variance. In order to minimize the occurrence of variance the management must be cautious in the following aspects: 1. Fix a reliable Standard. 2. Provide for incidental expenses. 3. Consider change in the Market situation. 4. Provide allowances for possible loss of material, machine hour, labour hour etc. 5. Consider changes in Managerial policies. To be successful in carrying out variance analysis, the management must carry out promptly and quickly the corrective actions. For this the management must be given a report of analysis, giving causes for such variation in particular along with the comments on overall performance in general.

Performance reports may be prepared that examine the difference between budgeted and actual figures for:        

Production in terms of cost, quantity, and quality Sales Profit Return on investment Turnover of assets Income per sales dollar Market share Growth rate

Variance reports raise questions rather than answering them. For example, is sales volume down because of deficiencies in sales effort or the manufacturer's inability to produce? Variance analysis reports may be expressed not only in dollars, but also in percentages, ratios, graphs, and narrative. Performance reports are designed to motivate nonfinancial managers and employees to change their activities and plans when variances exist. They should be terse and concentrate on potential difficulties and opportunities. A section for comments should be provided so that explanations may be given for variances.

CONCLUSION A MCS is a logical integration of techniques, to gather and use information to make planning and control decisions, to motivate employee behaviour, and to evaluate performance. Analysing is to analyse the information is the main purpose of the management accounting. It develops several ways to correct them and to determine the problematic areas. To increase the company's profit, they are using the company's information to develop ways. All the plans and the information are stating as a report format by the management accountant of the organization. These reports suggest that the information that they have stated in this report this can be used as recommendations for the solution of problems. A financial analysis is carried out by professionals who prepare reports through the use of info obtained from financial statements and other reports. Besides, one key area of financial analysis is the extrapolation of company’s past performance into an estimate of its future performance.

REFERENCES

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Epstein, Marc J and John Y Lee, Advances In Management Accounting (Emerald, 2013) Soin, Kim and Paul Collier, 'Risk And Risk Management In Management Accounting And Control' (2013) 24 Management Accounting Research Tom Groot and Frank H Selto, Advanced Management Accounting (Pearson, 2013). https://www.oreilly.com/library/view/budgeting-basicsand/9780470389683/9780470389683_variance_analysis_reports.html http://www.businessdictionary.com/definition/report.html https://www.datapine.com/blog/financial-reporting-and-analysis/ https://www.cleverism.com/management-control-system-guide/