Management Accounting Issues Of Samsung: Recent Articles Analysis Essay.

Discussion

Describe about the Management Accounting for Samsung Company Founded.

Management accounting is procedure that identifies, determines and analyzes the financial and business information in pursuance with the objectives of the organization. It is the process that is interpreted and communicated between the executives of the companies for the purpose of business decisions for expansion and better performance. Management accounting is generally practiced in three business areas known as performance management, strategic management and risk management. Over the years, management accounting has been critical element in the business entities and has seen many changes both within the existing industry as well as outside the established domains (Quattrone 2016).

The following assignment highlights the current issues of management accounting of Samsung Company founded on 1^st March 1938 by Lee Byung- chul in South Korea. Currently the company’s revenue is US$ 305 billion while the net income is US$22.1 billion and the number of employees is around 489,000. The company deals in apparel products, electronic products, telecommunication products and similar other products along with the services in advertising, finance, medical and healthcare (samsunglife.com 2016).   

Management accounting is one of the critical measures of the business information as it helps in taking decisions and requires to use appropriate techniques and procedures. Over the past years, management accounting process is experiencing many changes that certain organizations are not able to implement accurately (Lay 2016). Samsung is one of the largest companies in recent times and one of the fastest growing organizations in the sale of electronic gadgets but the company is facing several management accounting issues. It is the first company from Korea that listed in Dow Jones with the three significant benchmark values i.e. strategy of green management, efficient and effective communication and competitiveness. However, in recent years the company faced issues on strategic management as well as performance management due to which the share price of the company dropped at a high percentage (Verbeeten and Speklé 2015). The group has researched, surveyed and selected the articles that identify the management accounting issues of Samsung based on the recent articles dated after 1 December 2015. The group has researched many articles of newspapers, magazine and other sources including the library database from MyAthens. The assignment has been presented on the selected articles based on the issues of company’s strategic, performance and risk management as well as issues on compliances with management accounting principles and regulations.    

Strategic and performance management

According to the recent article, it has been noted that the company had stopped the sales of one of its electronic communication product in Australia because of the issues in production technique. It had been observed that the product had chances of catching fire due to fault in the battery of the product. Management of the company is responsible for such fault as it occurred in the production procedure of the products. Hence, one of the management accounting issue faced by Samsung was performance management (afr.com 2016). Further, the company also faced loss of revenue amounted to US$700 million in the span of two years from the mining production and services. The company faced this issue due to a contractor who delayed the project due to its insolvency. It can be said that the company experienced such loss due to lack of performance and strategic management (Theaustralian.com.au 2016).

In order to maximize the business profitability and maintain the sustainability, it is important to strengthen the risk management that eventually protects the values of clients and organizations. The management of the company undertook the measures to manage the potential risks that may hamper the business values, standards and thereby its performance. It classified the probable risk into insurance, rate of interest for investment, rate of return for investors, liquidity and other elements of business (samsunglife.com 2016). However, it was noted that the company would incur loss because of the issues in management accounting resulting from managing the expected risk and actual risk that had occurred to the organization. The issues also revolved with respect to the amount of obligations actually paid by the company and expected to be paid. Samsung had to face the risk on interest rate due to the differences and inappropriate valuation of assets and liabilities. Other issues that Samsung faced due to lack of proper management of business risk was market risk, credit risk as well as liquidity risk (Arnaboldi, Lapsley and Steccolini 2015). Due to unfortunate fluctuations in the exchange rates, interest rates the management failed to estimate the accurate value of liabilities and debts and other financial components. As a result, the company had incurred huge losses, fall in the market price of securities and consumers loyalty.

Management accounting derives the expected or budgeted cost of production other than the functions of managing business. In order to take business decisions regarding investment, business expansion or product diversification it is important to analyze the cost and return from the potential business. To determine and evaluate the outcome of potential business plans several methods and applications of cost and income undertaken by the management. However, the significant issues in managing these accounts are compliance of “Generally Accepted Accounting Principles (GAAP)”. It has been noted that Samsung failed to comply the requirements of GAAP in preparation and presentation of several management accounting for measuring the net present value of the proposed investment in a sector of electronic and communicating appliances (Bromiley et al. 2015).

Risk management

Another issue that Samsung Ltd experienced in the management accounting maintenance is the cost structure. Preparation of management accounting requires executives with specialized skill and knowledge along with the high cost of preparing, analyzing and designing the technical aspects of business (Eshwaish, Hussein and Abdullah 2016). For instance, if Samsung opts to present its cost accounting services based on the “activity- based costing system” the company would be able to analyze the expenses that may not be required by the company.

Strength: Samsung is one of the strong companies for innovating the technology by investing in research and development. During the year 2015, it expended around US$14.1 billion in researching and developing the technologies Although the company experienced several issues on management accounting, loss in revenue yet Samsung is considered to be the fastest growing organization in the sector of telecommunication and electronic products. It can also be noted that the Samsung has strong marketing efficiency including the operating system of various electronic devices (Kothari, Mizik and Roychowdhury 2015).

Weakness: In the sector of electronic products especially in case of Smartphone, the company is facing competitiveness with the telecommunication company of China. Samsung lacks in matching the marketing efficiency of Apple Inc for instance, the price of Apple’s share increased by 34.9% whereas the market of Samsung dropped by 2.3% during the year 2014- 2015.

Opportunities: Considering the company’s strength in technology innovation, opportunities for sales in mobile electronic devices are growing. Apart from that, demand for online marketing in electronic devices is also growing considering the reasonable price structure of the products.

Threats: Since the primary production and marketing of the company’s product is in electronic devices including mobile devices, its primary dominating entity is Apple Inc. Besides, the management issue for appropriate production process is also a matter of concern with respect to the company’s reputation, product quality and reliability.

Organization’s business decisions are critical and significant for its profitability and sustainability. Considering the recent articles on Samsung the issues on management accounting as well as the potential opportunities has been identified. Accordingly, the company is recommended to prepare a management policy that defines its business strategy to and appropriate product-manufacturing procedures. Since one of the electronic products faced the fault in battery operation therefore, the management is required to conduct verification in the operating system to detect the cause of failure. The policy of the management accounting should state the appropriate systems to prepare and present the cost statements and other required statements for the products and services. In order to manage the performance management, Samsung Ltd. is recommended to adopt the appropriate operating system that assists the company to manufacture the error free products. Further, the management of the company may take the steps to improve the communication process between the executive employees so that any sort of disputes can be sort.

Management accounting compliances

Considering the issues on risk management, the company is required to analyze the economic structure and current market scenario so that the rate of interest and return can be estimated with accuracy. As the market rates tend to fluctuate, the management is recommended to estimate the provisions for potential loss and expenses on investment. Additionally, the management of Samsung Ltd. is required to analyze, evaluate and determine the appropriate value of obligation that the company would need to pay off. Such evaluation and estimation would enable the company to estimate the related expense and determine the profitability. The management is recommended to ensure the compliance of “Generally Accepted Accounting Principles” while preparing the budget statement, cost analysis statement or any other management accounting statement.

Conclusion

It can be concluded that Samsung Limited is one of the fastest growing companies in the sector of electronic products but in recent years, the company is experiencing certain management accounting issues. Company’s business decisions and performance depends on the accuracy and appropriate presentation of the management accounting. It helps in measuring the budgeted costs and sales, optimum production units, investment outcomes and expected risks, optimum process of production and several other business functions. Over the past years, Samsung is facing problems in strategic and performance management along with the risk management because of which it incurred huge loss in the revenue. Further, the company faced issues in maintaining the risk management for rate of interest and rate of return due to unfavorable market fluctuations. However, the company has been recommended to follow policies, better communication measures and compliance of principles in preparation and presentation of management accounting. It can be said that despite of the management issues, Samsung is one of largest dealer of the electronic products and the company is taking measures on preparing accurate management accounting.

Reference List

afr.com, 2016. samsung halts sale of galaxy note7 over fire concerns. [online] https://www.afr.com. Available at: .https://www.afr.com/technology/samsung-halts-sale-of-galaxy-note7-over-fire-concerns-20160902-gr7uxf [Accessed 20 Sep. 2016].

Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public sector: The ultimate challenge. Financial Accountability & Management, 31(1), pp.1-22.

Bromiley, P., McShane, M., Nair, A. and Rustambekov, E., 2015. Enterprise risk management: Review, critique, and research directions. Long range planning, 48(4), pp.265-276.

Eshwaish, A., Hussein, W.N. and Abdullah, Z.M., 2016. ACCOUNTING RESPONSIBILITY-ENHANCING ITS ROLE IN RISK MANAGEMENT-AN EMPIRICAL STUDY OF A TRADE BANK OF IRAQ. Economic and Social Development: Book of Proceedings, p.575.

Kothari, S.P., Mizik, N. and Roychowdhury, S., 2015. Managing for the moment: The role of earnings management via real activities versus accruals in SEO valuation. The Accounting Review, 91(2), pp.559-586.

Lay, T.A., 2016. Business Strategy, Strategic Role of Accountant, Strategic Management Accounting and their Links to Firm Performance: An Exploratory Study of Manufacturing Companies in Malaysia. Asia-Pacific Management Accounting Journal, 7(1).

Quattrone, P., 2016. Management accounting goes digital: Will the move make it wiser?. Management Accounting Research, 31, pp.118-122.

samsunglife.com, 2016. companyeng/pdf/2010_SR_eng_1_Business_1_3. https://www.samsunglife.com. Available from: https://www.samsunglife.com/companyeng/pdf/2010_SR_eng_1_Business_1_3.pdf [Accessed on: 19 Sep. 2016].

Theaustralian.com.au. 2016. Samsung’s mining foray backfires. Available from: https://www.theaustralian.com.au/business/mining-energy/samsung-mining-foray-with-gina-rineharts-roy-hill-mine-backfires/news-story/5a30a680de25e0cfd4ff28dd9b1bcd47 [Accessed on: 19 Sep. 2016].

Verbeeten, F.H. and Speklé, R.F., 2015. Management control, results-oriented culture and public sector performance: Empirical evidence on New Public management. Organization studies, 36(7), pp.953-978.