Management Accounting Practices of Canadian Imperial Bank of Commerce - Essay Example

? ACCOUNTING PROJECT Management accounting is an integral part of any business organization. The information generated through management accounting procedures followed in an organization helps the managers of the company to take various strategic decisions for the organization. Canadian Imperial Bank of Commerce (CIBC), Canadian Tire, and Wal-Mart Canada are the three large organizations operating in Canada. CIBC is engaged in the business of providing financial services to its clients. Canadian Tire has a retail division which offers different retail products like automotive parts and its accessories, sports goods and apparels. It also has a business segment offering financial services to its customers. Wal-Mart Canada is one of the international divisions of Wal-Mart Inc. in USA. It is considered to be the largest retail group in the world and offers wide range of products and services to its clients through its retail stores. Different cost management practices followed by these three companies have been studied here. All the three companies have been observed to follow expansion strategies. It results in the growth of sales at a higher pace than the increase in operating expenses of the companies. CIBC and Canadian Tire have been following the Activity Based Costing (ABC) system. JIT, wage management strategy while Wal-Mart has also effectively implemented other cost minimization strategies. Following these management accounting practices, all the three companies are expected to have a sustainable growth in future. Table of Contents Table of Contents 3 Introduction 4 Canadian Imperial Bank of Commerce (CIBC) 4 Canadian Tire 6 Wal-Mart Canada 7 Conclusion 8 References 10 Introduction Accounting relates to a process of recording of business transactions carried out by an organization. The information related to the business activities followed by an organization are first identified, evaluated and then communicated to the various users in order to facilitate the decision making process. Accounting can be divided into three parts, namely cost accounting, financial accounting and management accounting. Management accounting refers to those accounting information which is utilized by the managers of the company to perform their managerial activities within the organization (Khan, & Jain, 2006, p.1.3). Hence, management accounting is an integral part of any organization. Canadian Imperial Bank of Commerce (CIBC), Canadian Tire and Wal-Mart Canada are three of the large organizations operating their business activities in Canada. Some of the key management accounting practices followed by these three companies has been discussed in this study. Canadian Imperial Bank of Commerce (CIBC) CIBC is involved in the business of providing different kinds of financial services to various individuals, corporate, etc. in Canada and outside. It has in offer both retail and wholesale banking products for its clients. CIBC is headquartered at Toronto and was founded in the year 1867. There has been a recent change in the organizational structure of CIBC in the year 2011. As of now CIBC has three Strategic Business Units (SBUs), namely Retail Banking, Wholesale Banking and Wealth Management. Each of these SBUs is considered to be the profit centers of the company. The treasury activities associated with each of these SBUs have an impact on its financial performance. The revenue performance of each of the SBUs are affected because of the policy of using cost of funds based on market prices adopted by the company's management. Transfer pricing system is also prevalent in CIBC (CIBC, 2012, p.41). If we look at the overall cost structure of CIBC, it can be found that it has both interest and non-interest expenses. The interest expenses of the company mostly include interest on deposits. On the other hand its non-interest expenses include employee benefits and compensation, occupancy costs, advertising costs etc. In addition to this the company has a provision for credit losses. The provision for credit losses were down by 20% in 2011 when compared with the year 2010. Card fees for the company went down significantly in the year 2011 because of high volume of securitization activities undergone by the organization. The non-interest expenses of the company went up by 5% in 2011, as compared to the year 2010 (CIBC, 2012, p.33). The net income of CIBC for the year 2011 and 2012 were $3,079 million and $2,452 million respectively. Some of the business activities followed by the company that had a significant impact on the profit figures of the company are as follows: The company is engaged in the business of credit run-off which has contributed a loss of $170 million for the company. The company gained a significant amount from the sale of an investment related to merchant banking. There was a shortening of general allowance of around $37 million in 2011 (CIBC, 2012, p.31). Canadian Tire Canadian Tire Corp. is a Canadian based company and was founded in the year 1922. It is engaged in the business of running its retail stores all over Canada. Its products include automotive parts including accessories, sports products and various home products. It also operates retail stores selling apparels for both men and women. The Canadian Tire branded credit cards is one of the banking facilities offered by the company. Canadian Tire is considered to be the leading company in the business of sporting goods in Canada. It managed to achieve this position with the acquisition of FGL Sports in 2011. Business activities of Canadian Tire can be divided into four major segments. They are: a) Retail division of automotive parts and accessories called Canadian Tire Retail (CTR), b) Mark's, which is the retail segment offering products like apparel for both men and women, household goods, etc., c) Financial services segment and d) FGL Sports segment which has been acquired recently. The costs related to its operating expenses are assigned separately for the costs incurred in each of its divisions. The operating performances are measured separately for each of the four divisions. The investment activities of the company mainly includes capital expenditures in the form of various real estate projects undertaken which amounted to around $172 million in the year 2011 (Canadian Tire, 2012, p.61). Canadian Tire also incurred a significant amount of business acquisition cost as a result of the acquisition of FGL Sports in 2011. The company has a wide range of financing sources available which helps it to maintain a strong liquidity position. With recent adoption of IFRS, the company has limited its reporting segments to two, namely the retail segment and the financial services segment. Previously the retail segment consisted of three different segments as indicated above. These two segments form the SBUs of Canadian Tire which offers different types of products and services for its clients. These two segments operate independent of each other. Segment income before tax forms the basis for the measurement of performance by the company. The operating income of the retail and financial services segments were $483.5 million and $278.6 million respectively for the year 2011. These figures for the year 2012 were $457.6 million and $264.9 million respectively. Interest expenses are mostly incurred by the financial services division of the company (Canadian Tire, 2012, p.108-109). Wal-Mart Canada Wal-Mart is considered to be one of the retail giant in the world and its Canadian division is known as Wal-Mart Canada. It started operating its retail stores in Canada after the successful acquisition of Woolworth Canada's Woolco division in the year 1994. Wal-Mart engaged in the business of running its supercentres and retail stores in Canada offering wide variety of products and services for its customers. Its products include grocery items, apparels, sports goods, banking services, etc. Wal-Mart has three reportable segments, namely the US segment, the international segment and the Sam’s Club segment. Wal-Mart Canada falls in the international segment. Wal-Mart effectively manages its costs and leverages its operating costs to have a sustainable growth in its performance over the years. When compared with the fiscal year 2011, the company managed to leverage its operating expenses by 4.85% in the fiscal year 2012. The net sales increased by 5.9% at the same period. The company continued to have significant investments related to the various e-Commerce activities initiated by it (Wal-Mart, 2012, p.20). For the Wal-Mart international segment, there was a 15.2% rise in the net sales in 2012 as compared to 2011. However the company had to encounter a decline in the gross profit margin because of the increased competition in the retail sector and high fuel costs incurred by them. In spite of this, the company managed to reduce its operating expenses considerably because of its effective cost management practices which include an improved wage management strategy (Wal-Mart, 2012, p.25). The company also follows JIT inventory management strategy which helps in managing its operational costs effectively and efficiently. The company is also engaged in the implementation of global expansion strategy which is mainly supported by the cash generated from its operating activities and debt financing options available to it. Wal-Mart is committed towards implementing innovative strategies in their business activities so as to ensure minimum incurrence of cost in all of its operational activities. This would ensure that it is able to generate increasing profits every year and have a sustainable growth and performance in future. Conclusion The three companies namely CIBC, Canadian Tire, and Wal-Mart employ different approaches towards managing the costs incurred by them in their business activities. However, the types of costs incurred by them are quite similar in nature. It is so because of the similar business activities performed by them. Wal-Mart and Canadian Tire are engaged in implementing business strategies towards the expansion of their business through capital investments in acquiring other business concerns. It ensures growth in sales revenues for the companies. The rate of increase in sales is more than the rate of increase in operating expenses. This strategy is quite advantageous for both the companies to ensure increasing profit in the long run. All the three companies that have been studied here are supposed to follow the Activity Based Costing (ABC) as their cost management strategies. Hence, it can be concluded that the three companies that have been mentioned here resort to cost management practices which are effective in minimizing its operational costs and boosting its profits. References Canadian Tire. (2012). Life in Canada for 90 Years. Annual Report 2011. Retrieved from http://corp.canadiantire.ca/EN/Investors/FinancialReports/Annual%20Reports%20Library/CTC_AR_2011.pdf. CIBC. (2012). Strong Fundamentals in a Changing World. Annual Report 2011. Retrieved from https://www.cibc.com/ca/pdf/about/ar11-en.pdf. Khan, M. Y., & Jain, P. K. (2006). Management Accounting: Text, Problems and Cases (4th Ed.). New Delhi: Tata Mc-Graw-Hill Education. Wal-Mart. (2012). 50 years of Helping Customers Save Money and Live Better. Annual Report 2012. Retrieved from http://www.walmartstores.com/sites/annual-report/2012/WalMart_AR.pdf. Read More