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CIMA Management level Control and performance management of responsibility centres

CIMA Management level Control and performance management of responsibility centres

CIMA Management level Control and performance management of responsibility centres: Responsibility accounting is like a tool of a good control system, this system is suitable to measure the performance of divisions of organization called responsibility center. This method is concerned with the large organizations, because it is not suitable for small sized organizations. Responsibility accounting is the only control technique that measures the performance of different divisions of an organization.

CIMA Management level Control and performance management of responsibility centres:  Pre-requisites for Responsibility Accounting:

  • Responsibility acounting is suitable for organization with divisionalised structure. Because when organizations are divided into different divisions then it becomes necessary to create different responsibility centers to fix accountability.
  • For the smooth working of responsibility centers it is imperative to decide goals and targets of each division or responsibility centers. It helps in avoiding misunderstandings and make employees accountable and responsible.
  • Responsibility of each responsible center should be assigned to one manager who should be held responsible for the performance of responsible centers.
  • Goals of responsibility centers should be feasible and attainable. Goals should be based on previous achievements and based on data. Vague goals affect the performance of employees and responsible centers that will be ultimately reflected in the performance of organizational objectives.
  • For the performance measurement of responsibility centers budgets and standards should be set. Standards help in analyzing the performance of responsibility centers.

CIMA Management level Control and performance management of responsibility centres: Objectives of Responsibility Accounting:

  • Motivates managers of responsibility center to achieve the objective of each division so the objectives of organization as a whole can be achieved.
  • To determine and evaluate the performance of each division and to ascertain whether objectives of each division is not achieved.

CIMA Management level Control and performance management of responsibility centres: Responsibility Center:

Responsibility center can be described as a division or sub unit of an organization under the control of a manager responsible for the performance of that center. Responsibility centre are basically identifiable segments within the company. Each responsibility center is assigned to a particular manager who will be accountable for the performance of that particular center.

“Responsibility accounting is a system of Management Accounting under which accountability is established according to the responsibility delegated to various levels of management and management information and reporting system instituted to give adequate feedback in terms of the delegated responsibility. Under this system division of units of an organization under specified authority in a person are developed as a responsibility centre and evaluated individually for their performance.”- BY CIMA

“Responsibility accounting is a system of accounting in which costs and revenues are accumulated and reported to managers on the basis of the manager’s control over these costs and revenues. The managerial accounting system that ties budgeting and performance reporting to a decentralized organization is called responsibility accounting.” BY Schaltake and Jonson

The responsibility centers can be broadly classified as i) Cost Centers, ii) Revenue Centers, iii) Profit Centers and iv) Investment centers.

An organization normally creates four responsibility centers as mentioned above. Reason for this creation is principle behind responsibility accounting. Responsibility accounting is basically to control cost or revenue or both. The difference between revenue and cost is profit, at the same time organization also makes investment to process inputs. Organization is required to earn a reasonable amount of return on investment to run organization. So, it becomes essential for an organization to create four responsibility centers namely cost centers, revenue centers, profit centers and investment centers.

CIMA Management level Control and performance management of responsibility centres

Details on CIMA Operational level Marketing: The Chartered Institute of Management Accountants (CIMA) is a UK based professional body offering training and qualification in management accountancy and related subjects. It is focused on accountants working in industry, and provides ongoing support and training for members.

CIMA is one of the professional associations for accountants in the UK and Ireland. Its particular emphasis is on developing the management accounting profession. CIMA is the largest management accounting body in the world with more than 227,000 members and students in 179 countries. CIMA is also a member of the International Federation of Accountants.

CIMA operates a standard scheme of qualifying examinations for prospective members. It promotes local education, training and management development operations, and new techniques through its research foundation and the dissemination of management accounting practices through publications and other media related activities. CIMA has been active in recent educational and vocational initiatives in former Eastern bloc countries. It publishes a monthly journal, supplied free to members and registered students, called ‘Financial Management’.

CIMA is recognised as a professional accounting body for various statutory purposes by UK and various overseas governments. The institute regulates the activities of its members by a code of practice, a discipline committee and (a recent innovation) a continuing education scheme. Its governing body is its council, comprising members elected from regional branches. Each of the branches has a committee and is responsible for much of the ‘grass roots’ activity. Activity such as qualification development is undertaken from the London head office.

The CIMA Global Business Challenge, an annual international business and strategic management competition for undergraduates around the world, is designed to bring out the best in the young business leaders of tomorrow.

In July 2009, CIMA added an online community – CIMAsphere – to its website. The community consisted of a range of blogs, discussion boards, groups, community answers, expert Q&A sessions and some social networking features for members, students and the general public. This has since been shut down. Members are instead encouraged to join the CIMA LinkedIn group, and students are directed to CIMAconnect, an online study support portal.

In 2011, CIMA entered into a joint venture with the American Institute of Certified Public Accountants (AICPA) to launch a global management accounting designation called the Chartered Global Management Accountant (CGMA).In the Americas outside the U.S., non-U.S. CPAs can obtain the new designation as an AICPA International Associate, after a rigorous assessment process. In the rest of the world, new designation holders are able to become members of CIMA after the same assessment process.

CIMA is proactive to tie up with American CPA because of the current convergence trend between US-GAAP and IFRS, reinforced following the merger of the iconic New York Stock Exchange with Germany’s Deutsche Boerse AG. “It remains to be seen whether companies listed in a combined exchange would be required to report under IFRS, US GAAP or both, but as the US appears to be moving towards IFRS adoption it is more likely the international standards would be the accounting rules of choice”.

CIMA Management level Control and performance management of responsibility centres: Recommended read

CIMA Management level Control and performance management of responsibility centres

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