Management Control Systems 4th Edition

This title was recommended as a significant textbook within Bruno S. Frey and Christoph A. Schaltegger (eds), 21^st Century Economics – Economic Ideas You Should Read and Remember (Springer, 2019).

As the market-leading text for Management Control and performance measurement, Management Control Systems 4th Edition will give you a thorough understanding of core concepts and key topics. Including a wide range of international case studies and real life examples means this is the ideal guide for understanding complex topics and bringing this subject to life.

Kenneth A. Merchant is the Deloitte & Touche LLP Chair of Accountancy at the University of Southern California. He is well-known internationally in the field of management accounting.

Wim A. Van der Stede is the CIMA Professor of Accounting and Financial Management at the London School of Economics and Political Science. An author and teacher, he brings a European perspective and a wealth of experience to this book.

Preface xiii

Section i
The control Function of management

1 Management and Control

Management and control
Causes of management control problems
Characteristics of good management control
Control problem avoidance
Control alternatives
Outline of this text
Notes
Leo’s Four-Plex Theater
Wong’s Pharmacy
Private Fitness, Inc.
Atlanta Home Loan

Section ii
Management control alternatives and their effects

2 Results Controls

Prevalence of results controls
Results controls and the control problems
Elements of results controls
Conditions determining the effectiveness
of results controls
Conclusion
Notes
Offi ce Solutions, Inc.
Puente Hills Toyota
Kooistra Autogroep
Houston Fearless 76, Inc.

3 Action, Personnel, and Cultural Controls

Action controls
Action controls and the control problems
Prevention vs. detection 92
Conditions determining the effectiveness
of action controls
Personnel controls
Cultural controls
Personnel/cultural controls and
the control problems
Effectiveness of Personnel/cultural
controls
conclusion
Notes
Witsky and Associates, Inc.
The Platinum Pointe Land Deal
EyeOn Pharmaceuticals, Inc.
Axeon N.V.

4 Control System Tightness

Tight results control
Tight action controls
Tight personnel/cultural controls
Conclusion
Notes
Controls at the Bellagio
Casino Resort
Lincoln Electric: Venturing Abroad
PCL: A Breakdown in the Enforcement
of Management Control

5 Control System Costs

Direct costs
Indirect costs
Adaptation costs
Conclusion
Notes
Philip Anderson
Sunshine Fashion: Fraud, Theft,
and Misbehavior among
Employees
Better Beauty, Inc.
Fit Food, Inc.
Atlantis Chemical Industries

6 Designing and Evaluating

Management Control Systems
What is desired and what is likely
Choice of controls
Choice of control tightness
Adapting to change
Keeping a behavioral focus
Maintaining good control
Notes
Diagnostic Products Corporation
Game Shop, Inc.
Family Care Specialists Medical Group, Inc.
AirTex Aviation

Section III
Financial Results Control Systems

7 Financial Responsibility Centers

Advantages of financial results control systems
Types of financial responsibility centers
Choice of financial responsibility centers
The transfer pricing problem
Conclusion
Notes
Kranworth Chair Corporation
Zumwald AG
Global Investors, Inc.

8 Planning and Budgeting

Purposes of planning and budgeting
Planning cycles
Target setting
Planning and budgeting practices,
and criticisms
Conclusion
Notes
Citibank Indonesia
HCC Industries
Royal Wessanen NV
Multiple Versions of the Plan
Vitesse Semiconductor Corporation
VisuSon, Inc.: Business Stress Testing

9 Incentive Systems

Purposes of incentives
Monetary incentives
Incentive system design
Criteria for evaluating incentive systems
Group rewards
Conclusion
Notes
Harwood Medical Instruments PLC
Superconductor Technologies, Inc.
Raven Capital, LLC

Section IV
Performance Measurement Issues and their Effects

10 Financial Performance Measures and their Effects

Value creation
Market measures of performance
Accounting measures of performance
Investment and operating myopia
Return-on-investment measures
of performance
Residual income measures as a possible
solution to the ROI measurement
problems
Conclusion
Notes
Behavioral Implications of Airline Depreciation
Accounting Policy Choices
Las Ferreterías de México, S.A. de C.V.
Industrial Electronics, Inc.
Haengbok Bancorp
Corbridge Industries, Inc.
King Engineering Group, Inc.
Berkshire Industries PLC

11 Remedies to the Myopia Problem

Pressures to act myopically
Reduce pressures for short-term profit
Control investments with preaction reviews
Extend the measurement horizon
(use long-term incentives)
Measure changes in value directly
Improve the accounting measures
Measure a set of value drivers
Conclusion
Notes
Catalytic Solutions, Inc.
Dortmunder-Koppel GmbH
Johansen’s: The New Scorecard
System
Mainfreight
Statoil

12 Using Financial Results Controls in the Presence of Uncontrollable Factors

The controllability principle
Types of uncontrollable factors
Controlling for the distorting effects
of uncontrollables
Other uncontrollable factor issues
Conclusion
Notes
Olympic Car Wash
Beifang Chuang Ye Vehicle Group
Hoffman Discount Drugs, Inc.
The Stimson Company
Bank of the Desert (A)
Bank of the Desert (B)
Fine Harvest Restaurant Group (A)
Fine Harvest Restaurant Group (B)

Section V
Corporate Governance, Important Control-Related Roles, and Ethics

13 Corporate Governance and Boards of Directors

Laws and regulations
The Sarbanes-Oxley Act
Boards of directors
Audit committees
Compensation committees
Conclusion
Notes
Arrow Motorcar Corporation
Golden Parachutes?
Pacific Sunwear of California, Inc.
Entropic Communications, Inc.
Bio/Precise Medical Devices, Inc.

14 Controllers and Auditors

Controllers
Auditors
Conclusion
Notes
Don Russell: Experiences of a Controller/CFO
Desktop Solutions, Inc. (A): Audit
of the St. Louis Branch
Desktop Solutions, Inc. (B): Audit
of Operations Group Systems
Andrew G. Scavell, Chief Risk Officer

15 Management Control-Related Ethical Issues

Good ethical analyses and
their importance
Why do people behave unethically?
Some common management
control-related ethical issues
Spreading good ethics within
an organization
Conclusion
Notes
Two Budget Targets
Conservative Accounting in the General
Products Division
Education Food Services at Central
Maine State University
The “Sales Acceleration Program”
The Expiring Software License
Wired, PLC
Mean Screens USA, Inc.
Lernout & Hauspie Speech Products
Ethics@Cisco

Section V
Management Control when Financial Results are not the Primary Consideration

16 Management Control in Not-for-profit Organizations

Corporations, B corporations, and
not-for-profits
Key differences between for-profit
and not-for-profit organizations
Goal ambiguity and conflict
Difficulty in measuring and
rewarding performance
Accounting differences
External scrutiny
Employee characteristics
Conclusion
Notes
SCI Ontario: Achieving, Measuring, and
Communicating Strategic Success
University of Southern California:
Responsibility Center Management System
Amanco: Developing the Sustainability
Scorecard
Index

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