2 Case studies:1st Case: Multiple Versions of the Plan (Pg XXXXXXXXXX2nd Case: Behavioral Implications of Airline Depreciation AccountingPolicy Choices (pg XXXXXXXXXXQuestion for Case 1: How are...

Multiple Version of the Plan: How are multiple versions of the plan a type of MCS? Is it effective? Airline Depreciation: What is the impact of depreciating an aircraft over a very short period of time compared to a very long period – how does this impact the assessment of profitability of various routes, and in turn impact Management Control Systems? https://elearn.fnu.ac.fj/pluginfile.php/582221/mod_resource/content/1/Management%20control%20systems%20-%204th%20Ed.%20Pearson Kenneth A. Merchant & Wim A. Van der Stede Performance Measurement, Evaluation and Incentives MANAGEMENT Fourth Edition CONTROL SYSTEMS MANAGEMENT CONTROL SYSTEMS At Pearson, we have a simple mission: to help people make more of their lives through learning. We combine innovative learning technology with trusted content and educational expertise to provide engaging and effective learning experiences that serve people wherever and whenever they are learning. From classroom to boardroom, our curriculum materials, digital learning tools and testing programmes help to educate millions of people worldwide – more than any other private enterprise. Every day our work helps learning flourish, and wherever learning flourishes, so do people. To learn more, please visit us at www.pearson.com/uk ../../../../../www.pearson.com/uk Kenneth A. Merchant University of Southern California Wim A. Van der Stede London School of Economics Performance Measurement, Evaluation, and Incentives MANAGEMENT CONTROL SYSTEMS Fourth edition Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First published 2003 (print) Second edition published 2007 (print) Third edition published 2012 (print and electronic) Fourth edition published 2017 (print and electronic) © Pearson Education Limited 2003, 2007 (print) © Pearson Education Limited 2012, 2017 (print and electronic) The rights of Kenneth A. Merchant and Wim A. Van der Stede to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN. The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly. Pearson Education is not responsible for the content of third-party internet sites. ISBN: 978-1-292-11055-4 (print) 978-1-292-11058-5 (PDF) 978-1-292-18187-5 (ePub)  British Library Cataloguing-in-Publication Data A catalogue record for the print edition is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Merchant, Kenneth A., author. | Van der Stede, Wim A., author. Title: Management control systems: performance measurement, evaluation and incentives / Kenneth A. Merchant, University of Southern California, Wim A. Van der Stede, London School of Economics. Description: Fourth Edition. | New York: Pearson, [2017] | Revised edition of the authors’ Management control systems, 2012. Identifiers: LCCN 2016053625| ISBN 9781292110554 (print) | ISBN 9781292110585 (pdf) | ISBN 9781292181875 (epub) Subjects: LCSH: Industrial management. | Cost control. | Managerial accounting. | Performance—Measurement. | Industrial management—Case studies. | Cost control—Case studies. | Managerial accounting—Case studies. Classification: LCC HD31 .M3972 2017 | DDC 658—dc23 LC record available at https://lccn.loc.gov/2016053625 10 9 8 7 6 5 4 3 2 1 21 20 19 18 17 Print edition typeset in 9/12, Charter ITC Std Regular by iEnergizer Aptara® Ltd. Printed by Ashford Colour Press Ltd, Gosport NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION ../../../../../www.pearson.com/uk ../../../../../[email protected]/2016053625 To our families Gail, Abbidee, Madelyn (KM) Ashley, Emma, Erin (WVDS) This page intentionally left blank vii BRIEF CONTENTS Preface xiii Acknowledgements xvi SECTION I The Control Function of Management 1 Management and Control 3 SECTION II Management Control Alternatives and Their E" ects 2 Results Controls 33 3 Action, Personnel, and Cultural Controls 86 4 Control System Tightness 128 5 Control System Costs 173 6 Designing and Evaluating Management Control Systems 221 SECTION III Financial Results Control Systems 7 Financial Responsibility Centers 261 8 Planning and Budgeting 297 9 Incentive Systems 353 SECTION IV Performance Measurement Issues and Their E" ects 10 Financial Performance Measures and Their E" ects 397 11 Remedies to the Myopia Problem 448 12 Using Financial Results Controls in the Presence of Uncontrollable Factors 517 SECTION V Corporate Governance, Important Control-Related Roles, and Ethics 13 Corporate Governance and Boards of Directors 573 14 Controllers and Auditors 629 15 Management Control-Related Ethical Issues 677 SECTION VI Management Control When Financial Results Are Not the Primary Consideration 16 Management Control in Not-for-profi t Organizations 721 Index 761 This page intentionally left blank ix CONTENTS Preface xiii Acknowledgements xvi SECTION I The Control Function of Management 1 Management and Control 3 Management and control 8 Causes of management control problems 12 Characteristics of good management control 15 Control problem avoidance 15 Control alternatives 19 Outline of this text 19 Notes 20 Leo’s Four-Plex Theater 22 Wong’s Pharmacy 23 Private Fitness, Inc. 23 Atlanta Home Loan 25 SECTION II Management Control Alternatives and their E" ects 2 Results Controls 33 Prevalence of results controls 34 Results controls and the control problems 37 Elements of results controls 38 Conditions determining the e" ectiveness of results controls 42 Conclusion 46 Notes 46 O! ce Solutions, Inc. 48 Puente Hills Toyota 58 Kooistra Autogroep 71 Houston Fearless 76, Inc. 78 3 Action, Personnel, and Cultural Controls 86 Action controls 86 Action controls and the control problems 91 Prevention vs. Detection 92 Conditions determining the e" ectiveness of action controls 93 Personnel controls 95 Cultural controls 97 Personnel/cultural controls and the control problems 101 E" ectiveness of personnel/cultural controls 101 Conclusion 103 Notes 103 Witsky and Associates, Inc. 105 The Platinum Pointe Land Deal 106 EyeOn Pharmaceuticals, Inc. 114 Axeon N.V. 121 4 Control System Tightness 128 Tight results control 128 Tight action controls 131 Tight personnel/cultural controls 137 Conclusion 139 Notes 140 Controls at the Bellagio Casino Resort 142 PCL: A Breakdown in the Enforcement of Management Control