Cost accounting: Introduction
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Department C
C Controlling, Accounting and Organisation
C1
C2
C3
Corporate Controlling and Strategic Planning
Financial Accounting
Organisation
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Division C 1 Central Office Frankfurt
Corporate Controlling and Strategic Planning C 10
C 11
C 12
C 13
„Standard“ (Personl assessment) Operational Statistics
Cost Accounting, Profitability Analysis, Budgeting and Budget Monitoring
Strategic Planning
Functional Assistance for and Coordination of ESCB/ES related issues
Service centre „Cost accounting data provision“
Regional Office Hamburg
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Section C 11 and Service centre „Cost accounting data provision“ Section C 11: Elaboration of principles on cost type- and cost centre accounting Execution of Standard costing/Budgeting Data analysis, production of non-regluar reports for management Regular Reporting to top and middle level management 9 employees Service centre „Cost accounting data provision“ Established in June 2003, Preparation and provision of cost accounting data, especially with respect to standard costing and budget monitoring 13 employees 4
Agenda
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„What ist our unterstanding of Cost accounting?“ How do we define the scope of Cost accounting and how do we distinguish between Cost accounting an Financial accounting? What is the purpose and what are the objectives of Cost accounting?
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„Why do we practice Cost accounting ?“ What were the impulses for implementing Cost accounting at Deutsche Bundesbank? What is the history of Cost accounting at Deutsche Bundesbank? Is there a legal basis for Cost accounting?
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Cost accounting at Deutsche Bundesbank What is the definition of Cost accounting at Deutsche Bundesbank? How are the different parts of Cost accounting designed and what is “the output” of the different subsystems of Cost accounting?
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Functions of Bundesbank´s Department „Controlling, Accounting and Organisation“ Corperate Controlling and Strategic planning
Budgeting (Standard costing)
Financial Accounting
Risk management (Methodology + bankwide Coordination)
Budget monitoring Office for Risk Control
Cost type accounting Cost centre accounting Cost unit accounting Revenue controlling
IT- Controlling
All Departments: Responsibility for costeffectiveness, security, orderliness; organisational autonomy
Coordination of organisational issues; In-house Consulting Examination of specific procurements and investments Project controlling Organisation surveys (eg analysis of staffing requirements)
Automated staffing assessment procedure Operational statistics Job evaluation 6
Basic understanding of Accounting system Schaubild 1
Accounting system
Financial accounting
Cost accounting
Operational statistics
Budgetary accounting
¾ Financial reporting (Financial accounting system) External addressees; “Products”: balance sheet and profit & loss account Main concept in profit & loss account are the expenses
¾ Management accounting (Cost accounting system) Internal addressees; Main output is management information – cost accounting information
Main concept in cost accounting are the costs 7
Expenses and costs - a theoretical approach financial
Financial accounting system (= external) Non-operating expenses - Unrelated to core business or not relevant for cost accounting - Unrelated to accounting period - Extraordinary
Operating expenses
Basic costs
Other costs
Additional costs
Cost accounting system (= internal) Non-operating expenses :
- Interest charges
„Basic costs“ :
- Wages and salaries - Expenditure on IT, premises, training - Banknote printing expenditures
„Other costs“ :
- Depreciation
„Additional costs“ :
- Cost of capital employed 8
… - just a theoretical approach ? “Framework for reconciling the data in the financial accounting and cost accounting” (by COMCO)
Financial Accounting Profit & Loss Acc.
Cost Accounting Traceable bridge
Cost types Staff costs Other operating costs
structure harmonized according to Guidelines ECB/2002/10
Depreciation Costs of capital employed
cost centres functions products
Operating income
Adjustments 9
Purpose of cost accounting The task of cost accounting is to classify, record, distribute and allocate costs incurred in the provision of an institution‘s output
Provision of cost accounting data for management information „Historical approach“
„Future approach“
- Accountablity - Oversight
- Planning and Budgeting - Internal control
= Current cost accounting
= Budgetary accounting
Current cost accounting comprises all the costs actually incurred (effective costs).
Budgetary accounting deals with planned output and estimated costs (target costs).
Costs are kept under constant review (Continuous comparison of target and effective costs)
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Objectives of cost accounting (I)
¾ To sharpen cost consciousness “I never imagined that this investment/service would cost so much.”
¾ To create or boost (cost) transparency What are the actual cost drivers?
¾ To provide managment information for the decision-making-process - The fee charged by the Bank for service X does not cover the costs - Can a service be obtained more cheaply from an external source?
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Objectives of cost accounting (II)
¾ To identify potential savings - Do we really need service X?
¾ To allow feasability studies - Do the same services really always cost the same (in different offices in different branches)?
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Cost type, cost centre and cost unit accounting Cost types What costs will be incurred by …/ have been incurred ?
Cost centres Where will the costs be incurred / where have the costs been incurred ?
Cost units For what service / what “product” will the costs be incurred / have the costs been incurred ?
Cost type 1
Cost centre 1
Cost unit 1
Cost type 2
Cost centre 2
Cost unit 2
Cost type 3
Cost centre 3
Cost unit 3
Total cost types
Total costs Incurred by all cost centres
Total costs of all units (direct costs/ full costs)
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History of Cost accounting at Deutsche Bundesbank - starting position (I) A central bank like Deutsche Bundesbank renders services, that are generally accepted (by the public)
Deutsche Bundesbank is an independent central bank and does not draft a government budget, that must introduced to and approved by the parliament
As a basic principle, business operations in a public authority like Deutsche Bundesbank cannot be in the focus of cost planning and internal control
ÎResult: Low (internal) sensitivity for the implementation of a cost accouting system !
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History of Cost accounting at Deutsche Bundesbank - starting position (II) Since the 1960‘s, Deutsche Bundesbank uses a sophisticated staffing assessment procedure, so that the most important cost driver is under permanent monitoring (human ressources controlling)
Several specific and for Deutsche Bundesbank relevant legal acts, (e. g. legal act concerning procurement by public tender) assure, that large-value procurement decisions are made under consideration of the principle of cost-effectiveness
In addition, specific procurements, specific investments and projects are examined by the „controlling department“
ÎResult: Cost accounting and internal control at Deutsche Bundesbank not necessary !
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History of Cost accounting at Deutsche Bundesbank - external impulses (I) Federal Court of Auditors (BRH) demands in the late 80‘s/the early 90‘s the implementation of a standard cost account and a a budget monitoring procedure
An external study of management consultants in the early 90‘s proposes • Implementation of a standard cost account in the central office is convenient • Implementation of cost centre accounting in the central office • Set-up of an „allocation system“ for the costs of internal services
„Case Münzrolle“ in the early 1990‘s 16
History of Cost accounting at Deutsche Bundesbank - development in the 1990‘s 1993: Introduction of a detailed cost centre-structure in the central office 1995: harmonised structure of cost centres for the branches
1994: Implementation of a costing procedure for price calculation („Case Münzrolle“)
1994: Implementation of Standard costing in the central office 1996: Standard cost accounts in all regional offices (LZBen)
2002: First Budget Monitoring Report („analysis of budgeted figures and actual costs and investments“) for the entire bank (aggregation of the standard cost accounts of central office and the until 2002 independent regional offices/LZBen) 17
Legal basis of Cost accounting and Budgeting - Bundesbank Act (amendment 2002) 26 Annual accounts, cost accounting ...
(4) To assist it in its management and administrative tasks, the Deutsche
Bundesbank shall prepare a cost account. Before the start of a financial year, the Deutsche Bundesbank shall draw up a standard cost account and an investment plan. At the end of the financial year, it shall make a comparative analysis of the budgeted figures and the actual costs and investments. This analysis shall be reviewed separately by the auditors. ...
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Legal basis of Cost accounting and Budgeting - Bundesbank Act (amendment 2002) 26 Annual accounts, cost accounting ...
(5) The annual accounts, the standard cost account, the investment plan, the analysis of the budgeted figures compared with actual costs and investments, and the auditors‘ report shall be forwarded to the Federal Ministry of Finance and the Federal Court of Auditors. The annual accounts, the analysis of the budgeted figures compared with actual costs and investments and the auditors‘ report shall be presented to the Bundestag (the lower house of parliament). ...
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History of Cost accounting at Deutsche Bundesbank - external impulses (II) The Federal Court of Auditors (BRH) checks under consideration of the legal basis from 2002, wether the conception of the cost accounting system is appropriate and in accordance with the law
The auditors are reviewing the cost accouting system on the basis of clause 26 Bundesbank Act. In the focus of this review is both, the output and the conception of the cost accouting system
The results of the Commitee on Common Cost Methodology (COMCO) – „COMCO-approach“
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History of Cost accounting at Deutsche Bundesbank - development since 2002 Further development of cost type accounting and cost centre accounting implementing a standard ERP-software for the entire bank
Introduction of a harmonised structure of cost centres for the entire bank
Further development of cost unit accounting with the target to allow feasability studies
Adaption of the cost accounting system to the new harmonised framework in the Eurosystem („COMCO-approach“)
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Cost accounting - a must?
¾ Is the coexistence of financial accounting and cost accounting really necessary ? The profit of an institution is the most important information (for the ministry of finance) !
The amount, which must be paid for the personnel, can be inferred simply from the profit and loss account !
¾ Cost accounting information is indispensably for the management ! Only with the product-view the contributions to the success of an institution can be analysed
For price decisions or outsourcing decisions, the managagement should expect the provision of appropriate information 22
