Abbott: Management decisions and accounting functions

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1.0 Abbott’s Background

What is Abbott?

Abbott is a pharmaceutical and healthcare company originated from the United States of America.


Abbott Laboratories was established in 1888 by a diligent and hard working physician that goes by the name of Wallace Abbott. Luther Abbott was the father to Wallace Abbott and Wealtha Barrows was Wallace’s mother. He worked on the family’s farm until he was 20, where he opted for an education. He received a formal education. When he graduated from University of Michigan Medical School it was only for a short amount of years. He resented the liquid medication that was popular around his time. Wallace Abbott started to create his own pills in a kitchen that was located behind a drugstore that was owned by him. The pills that he manufactured were named as “dosimetric granules”. The pills that he produced was so successful and triumphant, he reaped at about $2000 of profits on his first year of operation only. The granule business expanded hastily. He moved to 2-storey house to operate his business. In 1894 he made a key requisition of The Alkaloidal Clinic which is a medical journal. By, 1915 the company used the same name that they are using today. In 1929, the company was listed and went to the public. Abbott is a leading company that is leading in the sales of infant formulas.


The headquarters are in Abbott Park, North Chicago, Illinois. It now has over 90,000 staff and has its business run in more than 130 countries all over the world. Plus, Abbott has a market capital of 53.62 billion dollars.


  • Digenecontinues to be # 1 prescribed Antacid with over 5.5 million prescriptions annually. Approximately 29,000 doctors prescribe Digene every month.
  • Duphastonmaintained its # 1 position in its segment (Progestogen and similar combinations) and is a Top 50 brand in IPM.
  • Thyronormwas ranked 8th in IPM in December 2012.
  • Vertinjumped 13 positions from 112 in January'12 to 99 in November 2012 and entered the Top 100 brands in IPM.
  • Zolfreshmoved to #2 in the Extended Sleep Market, jumping 234 positions in a span of 2 years.
  • Digecainehas become the # 3 brand (Antacid + Local Anaesthetic) in a span of 2 years.

Financial Position

Organizational Chart


2.0 Management Decisions.

A) “Abbott has retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation, as well as certain non-income taxes attributable to AbbVie’s business. AbbVie generally will be liable for all other taxes attributable to its busi­ness. In connection with the separation, Abbott has adjusted its employee stock compensation awards and separated its defined benefit programs for pensions and post-employment medical and dental benefit plans.”

B) “Foreign currency translation and other adjustments decreased goodwill in 2013 and 2011 by $168 million and $225 million, respectively, and increased goodwill in 2012 by $69 million. In addition, in connection with the separation of AbbVie on January 1, 2013, Abbott transferred approximately $6.1 billion of goodwill to AbbVie.”

C) “In 2013, Abbott management approved a plan to reduce costs and improve efficiencies across various functional areas as well as a plan to streamline certain manufacturing operations in order to reduce costs and improve efficiencies in Abbott’s established pharmaceuti­cals business.”

D) “In 2012, Abbott redeemed $7.7 billion of its outstanding notes. Abbott incurred a cost of $1.35 billion to extinguish this debt, net of gains from the unwinding of interest rate swaps related to the debt. In 2012, AbbVie Inc., a wholly owned subsidiary of Abbott, issued $14.7 billion of long-term debt with maturities ranging from 3 to 30 years. The debt issued by AbbVie Inc. was guaranteed by Abbott with the guarantee expiring when AbbVie Inc. separated from Abbott on January 1, 2013.”

E) “Abbott has designated foreign denominated short-term debt as a hedge of the net investment in a foreign subsidiary of approximately $505 million, $615 million and $680 million as of December 31, 2013, 2012 and 2011, respectively. Accordingly, changes in the fair value of this debt due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax.”

F) “Abbott is involved in various claims and legal proceedings, and Abbott estimates the range of possible loss for its legal proceedings and environmental exposures to be from approximately $70 mil­lion to $90 million.”

G) “Abbott funded $724 million in 2013 and $379 million in 2012 to defined pension plans. Abbott expects to contribute approximately $400 million to its pension plans in 2014, of which approximately $300 million relates to its main domestic pension plan.”

H) “Abbott recognized a tax benefit in the tax provision related to continuing operations of approximately $103 million for the retroactive extension of the research tax credit and the look-through rules of section 954(c)(6) of the Internal Revenue Code to the beginning of 2012. The $1.515 billion domestic loss before taxes in 2012 includes $1.29 billion of net loss on the early extinguishment of debt.”

3.0 Modern Management Accounting Functions

Management Accounting is the provision of financial data and advice to a company for use in the organization and development of its business. Management accounting knowledge is widely contrastive than financial accounting. As a start, while financial accounting reports tend to be based on data that has occurred, management reports are primarily predicting reports. Management accounting reports are also usually secretive and for insider’s use only, as against to financial accounting statements which are widely reported. Also, management accounting does not follow the generally accepted accounting principles. Management accounting has its own ways.


Planning is executed when the budgeting process occurs. This happens because the managers need to make their decisions based on that. Budgets are financial predictions for the company, so in a way the managers are deciding the company’s future, so extensive research needs to be done so that the future won’t be jeopardized. This management accounting function can be applied to decision C. Reason being, it is because of the company’s effort to plan for the nearest future for the benefit of the company.


To utilize past’s information to predict the path that the company should take in order to experience a brighter future for the times that has yet to come. This is all dependant on whether or not the company is making a sale or not. Plus, it’s also a tool to see whether or not a certain event that happened has anything to do with the company’s performance or the opposite. This can be perfectly shown by decision F. This is due to the fact that, Abbott is taking a step further in predicting their loss so that they could manage themselves when the circumstances do come.


This process of accounting system starts by deciphering the standards against which performance may be calculated such as standard costs and budget. Management accounting plays a major role in the monitoring and controlling of cost and efficiency. This management accounting function can be implemented with decision A. This is because of Abbott’s action to retain all liabilities due to the separation.


Management accounting put down great prominence on accountability through effectual performance gauge. By setting targets, management accounting assists manager in achieving goals in businesses. This management accounting function is closely related with decision G. The reason behind this is, Abbott expects to contribute a huge amount of money for its pension plan.

Tax policies

Management accounting is in charge for tax policies and methods and organizes report composed by different jurisdictions. This management accounting function can be related with decision H and also be loosely related with decision E.

Qualitative information

Aside from monetary and quantitative data, management accounting supplies qualitative data which assists in making superior conclusion. This basically revolves around decision E.