INTRODUCTION

Management Accounting aims at supplying relevant quantitative information to accounting managers inside the firm to formulate best decision. The complexity of management accounting changes with the nature and incorporation of the firm, still the basic role remains the same. The approach of this report is from the viewpoint of an accounting consultant to a firm, in this case, Glaxo Smith Kline. This report briefs about the information needs of Glaxo Smith Kline, and management accounting practice, then it tries to provide some best practiced guidelines to the firm. Finally the report will provide some self assessments regarding its area and limitations.

1 Company Background:

Glaxo Smith Kline (GSK) is the fourth largest British company in the pharmaceutical industry around the world. It is a science based worldwide healthcare firm that focuses on R&D of innovative medical products along 3 major areas- Healthcare, Vaccines, and Pharmaceuticals.

Glaxo Smith Kline has a diversified range of products in the major disease sections like- cancer, asthma, immunization, infection, diabetes, mental disorder, bowel syndromes etc. it also differentiated itself in healthcare section that develops nutritional and oral-healthcare products such as, drinks, and OTC medicines like Sensodyne, Horlicks, and Boost.

According to 2009 prescription, measured by sales revenues of drugs, the main competitors of GSK are namely Novartis, Pfizer, and Sanofi. All of them are proprietary drug producers and Pfizer holds the leading position in the industry.

The mission of Glaxo Smith Kline is to ensure human performance, healthier life, and longevity of life. To increase the financial performance GSK focuses on three basic strategic points aiming at growth, risk reduction and improvement of long term business performance. The three major strategic points are- diversified business growth, product based value creation, and simplicity of operation.

There are huge information needs for the management to improve performance of this MNC. Management accounting is a major tool to identify and focus on the business and managerial performances. Along with that, prevalence of an organization-wide culture that values operational responsibilities and value creation to better match the needs and expectation of the society.

2 Review of Management Accounting:

The prevailing insights of managerial accounting researches suggest that management accounting has an important role in the manufacturing companies to improve their managerial performances. Management accounting process includes collection of information and reports them to different units of the

organization. Then analyzes and observes or monitors the budget and provides suggestions for decision making regarding financing and distribution. Thus, the firm needs to coordinate all relative business units and departments in order to conduct overall analysis of its capital and available funds.

The UK firms use a combination of ‘traditional’ and ‘emerging’ techniques in their reporting systems based on their various economical and financial needs. Among these diversities in the practices in manufacturing firms, these cover a range of managerial or management accounting techniques that include, contribution margin, profit, budgets, variances, and forecasts.

The study suggests that there is a strong correlation between the management accounting tools and business performance. Recent emerging techniques further suggest there is a need for changes and further research to get the best practices in the managerial arena.

Management Accounting Defined

The Management Accounting is the process of spotting and tracking the internal costs of a business that helps the organization make decisions regarding its production, processes, operation, and investments. The management needs the tools of management accounting to measure and evaluate their budget efficiency, operational costs, and fund allocation in investment, productions, and sales. The firm without any provision for proper allocation and fund management run a huge risk of default. So, it is a very critical tool for the long term benefit of the firm.

Need for Management Accounting: Usefulness

For a manufacturing company like GSK; there is a huge need for costing their products, budgeting their funds and make further investing decisions. This accounting technique’s main objective is to budget. The budgets are guide to all expenditures. In this, they fix expenditures on every process as production costs and provide funds for further investment. Therefore, this approach needs to review and coordinate data from every business units to make a proper prediction or forecast future expenses.

Management accounting’s main role is budgeting. For a small company budgets are guide to all expenditures. Small businessmen decide a budget every year to fix their expenses on each process that is operation and production cost and then further investment. Thus here a management accountant has to review historical data to prepare an accurate prediction of a year’s future expenses. Budget ensures coordination between the entrepreneur and his employees in implementing all the plans for the year ahead.

Time is very important for making all plans for a company’s management. A management accountant’s functions are time bound since he or she has to make predictions, budgets and report within a stipulated period so that they can be implemented at the time of need. A timely forecasting is needed with taking

consideration of market uncertainties. The budget need to be according to the available working capital and exposure to market risks thus a certain amount of accuracy is very necessary. Before reporting the owners, a management accountant has to ensure accuracy of all information gathered to help in correct decision making.

Recommedations:

Recommendation 1: that, if contribution presentations areadopted internally, these should be designed systematicallyand the presentation of both absorption cost and marginalcost profits should be considered.This need not involve anexcessively onerous calculation.Manufacturing companies usually employ standard costingsystems. However, they tend to be selective in their use ofvariance analysis and especially reticent in their use ofoverhead variances. Analysis of fixed overhead variances wasvery limited.These practices may reflect the widespreadcriticism that the (mis)use of variance analysis has received,especially in JIT and TQM environments.Recommendation 2: that the value and, possibly unfortunate,consequences, of variances be carefully assessed before theyare used.Recommendation 3: in view of the limited use of overheadvariances the syllabus weighting of this topic be reviewed byprofessional accounting bodies.

4 Self Assessment: The strengths and weaknesses of the analysis

Like any other study this analysis is also a subject to the limitations. After analysis of the report, it can be said and observed that this report may lack professional expertise and technical components to counsel the Glaxo Smith Kline (GSK) managerial accountants. But it shows several major finding in their management practices and industry that can be helpful for them. The areas of capabilities and limitations are given-

Capabilities

Provides with practical approaches of management accountingThe industry practice of manufacturing and pharmaceuticals are shownThe best practices are provided in the recommendation sectionHelp identify the factors affecting the GSK business performanceTo gain overall theoretical knowledge of the performance indicatorStrong references reviewed

Limitations

Lack of professional expertiseOnly a qualitative or inductive reasoning approachNo rigorous statistical research has been done in finding the correlations and regressionDiverse nature of MNC accounting practicesLack of information and dataThe report serves a specific topic and purpose

As mentioned earlier this report is only a inductive or theoretical approach to serve a particular purpose that may not match the accounting needs of the GSK stakeholders. However, this will provide them a clear picture about the managerial practice and best approaches.

CONCLUSION

There is a huge diversity in the management accounting practices in the manufacturing industries in the UK. There are differences in the budget, costing, financing, allocation, and investment practices. As a manufacturing firm Glaxo Smith Kline is inclined more to absorption costing as it is prevent in the industry.

Several studies reveal GSK often follow long-term academic policies to construct its reporting of internal profit & loss along contribution lines. . Yet they need to decide whether to capitalize their R&D expenses for greater profitability. GSK uses a combination of traditional and innovative or emerging accounting policy in different countries. This is even committed to modify its management technique to meet its long-term vision along with short-tem performance. However, the variances in the managerial accounting practices further studies and analyses are very much suggested.