Introduction
Accounting information is important to both external and internal users. Management uses the information for decision making. With appropriate information, companies make decisions which increase company’s competitiveness.
Management accountants are responsible of advising an organization’s top management and policy makers on matters regarding finances to ensure there are effectiveness, efficiency and optimal use of resources. Airline industry, in the United States of America and the world is general, is highly competitive. There is an increased innovation of services and equipment. Customer needs have also changed.
Emirates Airline company (mostly referred just as Emirates) is an international company which require decisions responsive to airline market today (Horngren, Srikant & George, 2006). This paper looks into how management accounting can supply information for decision making. It will not get into deep analysis of the accounts but will touch on the important areas that management accountants have assisted the company.
History of Emirate limited
Emirate is the national carrier of Dubai, United States Emirates. It is rapidly diversifying to other countries and has over 100 destinations in over 60 countries. It is a sub-subsidiary of Dubai Investment Company, through The Emirates Group. Its head quarters are in Dubai.
The company was incorporated in the year 1985 as an international flight company and made its first flight from Dubai-Karachi on 25 October 1985. The company picked quite rapidly and in 1987, it had managed to secure eleven destinations.
According to the company’s financial statement 2010, the company had a total of 36,652 employees distributed in different countries. The accounts also reported that in the year 2009/ 2010, the load cargo increased by 12.2% to 1,580,000. Emirates face high competition from Virgin Atlantic, Qatar airways and Ethiopian Airways.
In pricing its products, the company has three classes of passengers; business class, execute class and economy class. Economy class is the cheapest and execute class most expensive. The pricing depend on the services offered in a certain class and the level of comfort.
Policies are made after consultation with major parties likely to be affected by a certain policy. Parties consulted range from employees to competitor. Current top policy makers are, Maurice Flanagan (Executive Vice-Chairman), Tim Clark as the company’s President. The chief executive officer is Ahmed bin Saeed Al Maktoum (Emirates Airlines Company Corporate Website, 2010).
Emirates Management accounting
Financial and monetary resources are limited. They require to be managed properly. It’s the mandate of management accountants to assists in managing such resources. Financial management is the major task of management accountants. They are mandated with the task of ensuring that financial decisions are made efficiently and timely for the benefit of the company.
Financial management has two aspects; managing working capital and long-term financial decisions management. When a company’s working capital is well managed, it’s able to fulfill its short term financial obligations when they fall due. Long-term financial management is important to give a company a clear future goals attainment strategies and pathways.
There is always a number of ventures that a business can make; however there is the best alternative, it is the management accountant which should advise on such issues.
For example, management accountants should advise whether the company should invest in government bonds and bills which are certain and risk free but with low rate of return or invest in volatile shares which have a likelihood of offering high returns in the future but are highly risky. The decision of how to distribute the available fund can only be made more efficiently by the assistance of management accountant (Sullivan & Sheffrin, 2003).
Information contained in financial information is a summary of operations that have taking place in an organization. They cover a certain period of time. The main aim of a business is to make profits. Whether the company has a profit or a loss is shown by financial accounts.
If the company is making a loss, it’s an alarm call to the management. Emirates, makes its end year accounts on 31st March. When the accounts are made they are discussed internally as well released to the public for their use by external users like shareholders.
There are number of investments that the Emirates Airline Company is embarking on. They can be divided into human development (service investments) and infrastructure investments. Before a certain decision is made, management accountants must be involved. They are supposed to give information about the viability of a certain investment. When they are doing so they consider the returns likely to be received from an investment.
When emirates want to make a merger or an acquisition, management accountant are involved in collecting of data and analyzing the prevailing condition to ensure that they make mergers with companies which will assist it attain its goals and objectives. When making airline mergers, the department looks into the countries that the other company can fly to.
A merger should not be made to companies which fly the same route with Emirates. This information are fetched and provided by the management accountants. Acquisition is a tricky engagement; a company should calculate well. This is in determining the cost of acquisition to ensure that the company does not buy a company more expensive than it is actually worth.
In modern businesses, there is an increase in social corporate accounting. This is where businesses are made accountable of their activities. What to invest in and how much to invest is a decision that management accountant of Emirate assists the company in. The department is responsible of going out, interacting with the people and recognizing need in the society that the company can assist (Dury, 2006).
Different techniques in management accounting
Budgeting
Emirate management accountants are used in budgeting. Budgeting is making future financial decisions/plans; it uses past and current data of a business. It is a financial management tool that is crucial to ensure that the policy of going on concept in a business is adhered to. It lays a framework that a company can work with in the future. Emirates management accountants analyzes past performance, present performance and predict the future operations. This assists the company to predict the future needs and make a budget.
Internal control
Internal controls are check and balances in an organization aimed at maintaining integrity in the company’s process. It ensures that funds are not misappropriated and are managed for the good of the organization. This ensures that a company has better fund management. Management accountants are responsible of maintaining good working internal controls. Internal controls also assists external auditor in compiling their report.
Working capital control
Credit is almost inevitable in a company; there are debtors and creditors which the management must monitor and ensure they are operating well. In case of creditors, the company management accountant has the mandate of ensuring that creditors are paid according to the credit agreement. They should be paid in good time to create good relations with suppliers. With good relations, the company supply chain management is facilitated.
In the case of debtors, the duration that they should keep the companies money should be stipulated by management accountants. Debtors are current assets which the business need to manage. Well managed debtor management system assists a company gets funds it requires for short term obligations.
There are different sources of capital in an organization. They are generally divided into borrowed capital and owner’s capital. The choice of the financing method to adopt should be made with the assistance of management accountants. In Emirate, management accountants have the mandate of analyzing the available options of financing which include issuance of more share capital, taking a bank loan or selling some of its properties.
Key management Accounting techniques recommended for Emirates
Other than maintaining a robust management accounting system, the company should not ignore the need for knowledge management and business information tools as an addition of existing management accounting tools. When this information is made available in the company, it will assist in making better and timely decisions. The quality and timeliness of a decision determines the competitive of a company.
For example, there has been a move to low cost planes alongside the use of Jumbo planes. When the company maintains a pool of information on the market trends, it will be able to make decisions that are timely regarding what point they should engage in low cost planes and which routes should they use Jumbo planes.
When a company maintains a rich knowledge and nurtures its intellectual assets, it gets a chance to orient and train new staffs more effectively. For example, engineers maintained in the firm can use their pool of knowledge to show new employees on mechanical issues they can expect from a certain plane and how to handle it. Another example is in service delivery. Experienced hostesses are able to handle hostile passengers more effectively and thus the general service of the company increases (Weetman, 2010).
Justification
Knowledge management and business intelligent strategies are new management methods which can offer supporting information to management accountants for better decisions. They will assist Emirates in overall improvement of its financial structure.
Strength and weaknesses of the analysis
The analysis was based on end year financial statements and notes to account. They are a summary of processes in Emirate Airline Company and thus when considered a total analysis of the company’s performance is undertaken. The weakness with this approach is that management accounting covers more than just the end year financial statements. For a deeper analysis, the research would have required the following;
- A framework of internal processes
- Working capital management structure
- Daily, weekly and monthly sales values
- The rate of management accountants staffs turn over
- Qualifications of management accountants.
- Branch accounts and
- Long-term liabilities agreements
With the above a better analysis would have been made (Anthony, Hawkins & Merchant, 1999)
Conclusion
Management accounting offers crucial information for decision making. In Emirate, one of the world’s largest airline companies, management accountants are involved in almost all financial decisions to ensure that the company is effectively managed. The success of the company can be attributed to their team of management accountants. They however need to adopt knowledge and business intelligence tools in their accounting system.
Reference list
Anthony, R., Hawkins, D. & Merchant, K. 1999 Accounting: text and cases. 10 the ed. Boston. McGraw Hill.
Dury C. 2006. Management Accounting for business. London. Thomson Learning
Emirates Airlines Company Corporate Website. 2010.
Horngren, T., Srikant M., and George F.2006. Cost accounting: A managerial emphasis. Boston, MA. Pearson Prentice Hall.
Sullivan, A. and Sheffrin, S. 2003. Economics: Principles in action. Upper Saddle River, New Jersey/ Pearson Prentice Hall. pp. 502. ISBN 0-13-063085-3
Weetman, P. 2010. Financial and Management Accounting. New York. Wiley. ISBN13: 9780273718413