Comments on Cost and Management Accounting

Cost and Management Accounting I

1. One of the course objectives stated is ‘Determine cost of the product or service using
job order costing, process costing and Activity Based Costing’…while there is no topic
about ABC costing. Minor typos and redundancies.

e.g. Apply for spoilage, reworked units, and scrap in job and process costing system.

2. Course description: Is not brief, not easy to understand, and talks about issues that the
course doesn’t cover. E.g. ABC costing.

Suggestion

i. ABC costing shall be included in the course content given its wide practice and
acceptance
ii. Description
 Better if there is module description.

Module Description

This module provides an introduction to the concepts and tools of cost and
management accounting. The first course presents comprehensive coverage of
principles and systems involved in the determination of the cost of a product or
service. The second course covers operational budgeting and standard costing as tools
for planning and control; emphasizes on analysis, interpretation and presentation of
information for management decision-making purposes, especially those decisions as
they relate to cost management.

3. We suggest Chapter one and two to be merged and make one chapter. Cost classification
(Chapter Two) can be managed with in the first chapter as it is too small to be considered
as one chapter by itself and this will also help us to incorporate additional topics or
chapters. In addition, it is better to begin the module/ course with Overview of Cost and
Management Accounting.

1. Overview of Cost and Management Accounting

1.1. Objectives of Cost and Management Accounting
1.2. Cost and management accounting in comparison with financial
accounting: their purposes
 1.3. The role of cost accounting as part of a management information system,
and the need for both financial as well as non-financial information
1.4. Cost classification concepts and terms, such as:
 Direct and indirect costs
 Fixed and variable costs
 Period and product costs
 Controllable and uncontrollable costs
 Avoidable and unavoidable costs
 “Sunk” costs
 Budgeted, standard and actual costs and their comparisons and analyses
1.5. Management Accounting in service organizations
1.6. Cost benefit philosophy and behavioral considerations in management
Accounting systems
1.7. Ethical considerations in Management Accounting
4. Job order costing and Process costing shall make a separate chapter than presenting
them in a single chapter. On the contrary, spoilage, re-work and scrap shall be
embedded within Job and Process costing than making a separate chapter.

2. Job order, batch and contract Costing

 Characteristics of job order costing method
 Accounting for direct and indirect costs,
 Account for spoilage, rework and scrap in job order costing
3. Process and Operation Costing
 Characteristics of the process costing method,
 Identification and use of appropriate cost units,
 Valuation of process transfers and work-in-process using equivalent units of
production and based on FIFO and average costing methods,
 Operation Costing,
 Identification of appropriate cost units,
 Considerations relating to the collection, classification and ascertainment of
costs
 Spoilage, rework and scrap in process costing

5. We suggest for the inclusion of ABC costing

4. Activity-Based Costing

4.1. A comparison of traditional and ABC systems

4.2. Activity-based costing; use of cost drivers and activities
4.3. Activity Based Costing for Customer Profitability
4.4. ABC in service organizations
 Activity Based Management
6. We suggest “Income effects of alternative cost accumulation systems” to move to Part
Two of the course
7. We suggest to blend chapter 5 and Chapter 6. Though the cost allocation methods
are different between them, the overall issue is the same i.e. allocation of common
costs.

5. Service Department and Joint Cost Allocation

5.1. Explain the notions of ‘overhead costs’, ‘indirect costs’, ‘direct costs’,
‘traceable costs’ and ‘allocated costs’.
5.2. Explain why and how costs may be allocated from one cost pool or center
to another.
5.3. Service department cost allocation
5.4. Methods of Allocating Service Department Costs
5.5. Joint and By-products and allocation of joint costs
5.6. Joint Cost Allocation Methods
5.7. Accounting for byproducts

Cost and Management Accounting II

Absorption and variable costing shall be part of part two of the module
1. Absorption and Variable Costing
1.1 External and internal reporting
1.2 Variable costing and absorption costing: a comparison of their impact on profit
1.3 Some arguments in support of variable costing
1.4 Some arguments in support of absorption costing
2. Cost-Volume-Profit Analysis,
1.1 The concept of profit contribution
1.2 Variable and fixed cost behavior and patterns
1.3 Cost-volume-profit (CVP) analysis: understanding the concepts of break-even and
margin of safety
1.4 Planning with cost-volume-profit Data
1.5 Limitation of CVP analysis
1.6 Analysis of Operating Leverage

3.

It will be better to combine chapter Three and Four (in the curriculum) and put as follows
because they are interrelated:
4. Flexible Budgeting and Variance Analysis
4.1 Operation of a standard costing system
4.2 Purposes of standard costing
4.3 Establishing cost standards
4.4 Flexible budgets and variances
4.5 Direct materials mix and yield variances
4.6 Sales mix and sales quantity variances
4.7 Identification of significant variances and their interrelationship
4.8 The uses of planning and operational variances
4.9 Trends, materiality and controllability of variances
 Comments on Auditing and Assurance Services

1. Module: Auditing and Assurance Services

General Comment- the module is named as “Auditing and Assurance Services”, however,
except auditing, there are no other assurance services covered in the module. Either contents
are to be added or named differently such as “Auditing Services”.
2. Comments on Course Contents: Auditing Principles and Practices I
i. The course description states that the “the role of internal auditors in fraud prevention
and detection” is included in the course. However, none are reflected in the course
content. What was indicated in chapter 3 under 3.2 can logically cover the role of
internal audit in relation to internal control and its linkage to an external audit. Fraud
prevention and detection seems to goes far beyond that.
ii. Chapter 2- “Generally Accepted Auditing Standards” is to be replaced with
International Standards on Auditing. Because, with the adoption of IFRS comes the
relevance of international audit standards. The standards referred in the course shall
be explicitly stated as “International Standards on Auditing” (ISAs) and the topics
under it and any standard related matter in the course design shall also be tuned
towards those standards.

2.The Auditing Profession ISA Reference

2.1 The Regulatory Framework Governing Auditing  ISA 200, Overall Objectives of
2.2 International Standards on Auditing (ISA) the Independent Auditor and the
2.3 Professional Ethics: Fundamental Principles, Threats and Conduct of an Audit in Accordance
Safeguards with International Standards on
2.4 Legal Liability of Auditors Auditing
2.5 Rights and Duties, Appointment, Dismissal and Resignation of an  ISA 250, Consideration of Laws
Auditor and Regulations in an Audit of
Financial Statements

Internal control takes inputs from Materiality and risk and hence better if it comes after audit
planning and audit evidence.

6.Internal Control
6.1. Meaning of Internal Control
6.2. Internal Control and Internal Audit
6.3. Control Environment
6.4. Risk Assessment
6.5. Control Activities
6.6. Limitation of Internal Control
6.7. The Auditor's Consideration of internal control
 iii. Chapter 8-Auditing and Auditors in Ethiopia- The nature, source and content of the
issues to be covered shall be indicated somehow.

iv. Assurance services include a range of assignments from external audits to review
engagements. In this regard, the course provides an overview of the basic principles
and essential procedures for professional accountants in public practice for the
performance of assurance engagements other than audits of historical financial
information. Applicable standards and procedures relating to engagements to review
financial statements and examination of prospective financial information are briefly
covered.

CHAPTER 8: Other Assurance Services: An Overview

• Engagements to Review Financial Statements
• The Examination of Prospective Financial Information
CHAPTER 9: Auditing and Auditors in Ethiopia
3. Comments on Course Title: Auditing Principles and Practices II
Considering the course’s focus on the application part, the emphasis given to the
student’s role of ‘preparing an audit program’ is the strength of the course design.
1. Course naming lacks consistency. In one place it is referred as “Applied Auditing” and in
another “Applied Auditing Principles and Practices II”. However, in the later case, it is
worth considering the following. The word ‘Practices’ in the “Auditing Principles and
Practices” course intends to show the application part. Adding the word ‘Applied’ to it
seems to create redundancy. It is clear that the first part of an audit course focuses on
fundamental concepts and the application aspect comes in the second part. As a
suggestion, if “Applied Auditing” is preferred name for the second course in the module,
“Auditing Principles” or “Auditing Fundamentals” or …. might seem appropriate for the
first course in the module.

2. The topics included in the chapters generally focus on account balance audit and seems to
undermine the tests of control and audit of transactions aspects. For instance, essential
tests of control and audit of transaction for ‘acquisition transactions’ are totally left out.
We suggest the ‘cycle based’ approach. That gives a clear flow of sequence of tasks
involved in an audit process-from internal control to transaction audit and then to an audit
of an account balance. The topics included in each chapter shall provide a clear guidance
on the need to cover tests of control, transaction audit and account balance audit. The
contents are also not in tune with the text book. The text book follows a cyclical
approach.

2. Audit of the Sales and Collection Cycle

2.1 Overview of the cycle
2.2 Key Internal Control
2.3 Tests of Controls & Substantive Tests of Transactions
2.4 Tests of Details of Balances
 3. Audit of Payroll and Personnel cycle
3.1 Overview of the cycle
3.2 Key Internal Control
3.3 Tests of Controls & Substantive Tests of Transactions
3.4 Tests of Details of Balances

4. Audit of Acquisition and Payment Cycle

4.1 Overview of the cycle
4.2 Key Internal Control
4.3 Tests of Controls & Substantive Tests of Transactions
4.4 Tests of Details of Balances of Accounts payable
4.5 Tests of Details of Property, Plant and Equipment
4.6 Tests of Details of Other accounts

5. Audit of Inventory and Warehouse Cycle

5.1 Nature of inventory
5.2 Control activities and Tests of Controls
5.3 Auditing Cost accounting
5.4 Observing physical inventory
5.5 Tests of pricing and compilation

6. Audit of the Capital and Repayment Cycle

6.1 Overview of the cycle

6.2 Key Internal Control
6.3 Auditing Long-term debt
6.4 Auditing Capital stock
6.5 Auditing Dividends
6.6 Auditing Retained Earnings

7. Audit of Cash Balances

7.1 Cash in the Bank and transaction Cycles
7.2 Audit of the General Cash Account
7.3 Audit of Imprest Bank account and Petty Cash

8. Completing the Audit

8.1 Review of Contingent Liabilities and Commitments
8.2 Review of Subsequent Events
8.3 Communication with the Audit Committee and Management
8.4 Management Letter

3. In Chapter 5 under 5.2-I do not get what the topic ‘The plant and equipment budget’
intended to cover.
4. Would be preferred if some overview of the “Auditing Computerized Accounting
Systems” is included
 9.Auditing Computerized Accounting Systems: An Overview
9.1 Impact of Information Technology on the Audit Process
9.2 Controls in a computerized environment
9.3 Computer assisted techniques (CAATS) in gathering audit evidence

5. Text Book: Latest edition is to be recommended for both courses i.e. edition as per ISA.
Arense shall be a reference.

 Hayes R., Wallage P., and Gortemake H., Principles of Auditing: An Introduction to International
Standards on Auditing, 3rd Edition, 2014
 Arens, Elder and Beasley, Auditing and Assurance Service, Global Edition, 16th Edition, 2017