Management accounting combines accounting,
finance and management with the business skills and techniques you’ll need to
add real value to any organisation. Management accountants are qualified to
work across the business, not just in finance, advising managers on the
financial implications of big decisions, formulating business strategy and
monitoring risk – much more than just crunching numbers.
Definition of management accounting
According to the Chartered Institute of Management
Accountants (CIMA), Management Accounting is "the process of
identification, measurement, accumulation, analysis, preparation,
interpretation and communication of information used by management to plan,
evaluate and control within an entity and to assure appropriate use of and
accountability for its resources. Management accounting also comprises the
preparation of financial reports for non-management groups such as
shareholders, creditors, regulatory agencies and tax authorities" (CIMA
Official Terminology).
Management
Accounting is that field of accounting which deals with providing information
including financial accounting, information to managers for their use in
planning, decision making, performance evaluation, control, management of cost
and cost determination for financial reporting. Managerial Accounting contains
reports prepared to fulfill the needs of managements.
“Management Accounting is the
application of appropriate techniques and concepts in processing historical and
projected economic data of an entity to assist management in establishing plans
for reasonable economic objectives in the making of rational decisions with a
view towards the objectives”. - American Accounting Association
Management accounting is the
application of accounting knowledge to the purpose of producing and of
interpreting accounting and statistical informations designed to assist
management in its function of promoting maximum efficiency and in formulating
and co-ordinating future plans and subsequently in measuring their execution”.
- H. M. Treasury
"Management
accounting is the presentation of accounting information in such a way as to
assist the management in creation of policy and the day to day operation of an
undertaking"
Management
accounting refers to the processes and techniques that focus on the effective
and efficient use of organisational resources, to support managers in their
tasks of enhancing both customer value and shareholder value. Let’s look more
closely at this definition. Value creation is a central focus for contemporary
managers and can refer to both customer value and shareholder value. Customers
have always been a key concern for organisations.
“Management
Accounting is the application of accounting and statistical techniques to the
specified purpose of producing and interpreting information designed to assist
management in its functions of promoting maximum efficiency and in envisaging,
formulating and co-ordinating their execution”. - AACA, USA
“Management Accounting is the
application of professional knowledge and skill in the preparation of
accounting information in such a way as to assist management in the formation
of policies and in the planning and control of the operations of the
undertaking”. - ICMA, London
Scope
Of Management Accounting
Management accounting
is concerned with presentation of accounting information in the most useful way
for the management. Its scope is, therefore, quite vast and includes within its
fold almost all aspects of business operations. However, the following areas
can rightly be identified as falling within the ambit of management accounting:
- Financial Accounting:Management accounting is mainly concerned with the rearrangement of the information provided by financial accounting. Hence, management cannot obtain full control and coordination of operations without a properly designed financial accounting system.
- Cost Accounting: Standard costing, marginal costing, opportunity cost analysis, differential costing and other cost techniques play a useful role in operation and control of the business undertaking.
- Revaluation Accounting: This is concerned with ensuring that capital is maintained intact in real terms and profit is calculated with this fact in mind.
- Budgetary Control: This includes framing of budgets, comparison of actual performance with the budgeted performance, computation of variances, finding of their causes, etc.
- Inventory Control: It includes control over inventory from the time it is acquired till its final disposal.
- Statistical Methods: Graphs, charts, pictorial presentation, index numbers and other statistical methods make the information more impressive and intelligible.
- Interim Reporting: This includes preparation of monthly, quarterly, half-yearly income statements and the related reports, cash flow and funds flow statements, scrap reports, etc.
- Taxation: This includes computation of income in accordance with the tax laws, filing of returns and making tax payments.
- Office Services: This includes maintenance of proper data processing and other office management services, reporting on best use of mechanical and electronic devices.
- Internal Audit: Development of a suitable internal audit system for internal control.
Importance Of
Management Accounting
The following points
highlight the need and importance of management accounting :
- Management accounting includes all those accounting services by means of which assistance is rendered to the management in their managerial functions i.e decision making, profit planning, control etc. It also helps management for execution of their plans and measurement of performance.
- Financial accounting in its traditional from cannot apply the informations necessary to the management for functioning efficiently and effectively. Management Accounting is the accounting which provides in non-technical language, cost, profits and other information necessary to the management for discharging their functions.
- Management accounting is the presentation of accounting information in such a way as to assist management in the creation of policy in the day to day operation of undertakings.
- Management accounting goes beyond the figures provided by financial accounting which are mute in nature and make them self explanatory.
- Management accounting is an extension of the managerial aspects of cost accounting. It utilises the principles and practices of both Cost Accounting and Financial Accounting.
- The term accounting is used in more broad scene in Management Accounting so that the scope of management is very wide and the term comprises with every activity of a business.
- Since the managerial personnel are accountable to the owners of the company and since their very continuation in the company depends upon the results produced which in turn depends upon the quality of decisions and their implementation, the managerial personnel need a system which furnishes the relevant information to them to take decisions. Therefore, the need for management accounting. It (i.e management accounting) has been devised to serve the management through the report.
Limitations Of
Management Accounting
Management accounting, being
comparatively a new discipline, suffers from certain limitations, which limit
its effectiveness. These limitations are as follows
- Limitations of basic records: Management accounting derives its information from financial accounting, cost accounting and other records. The strength and weakness of the management accounting, therefore, depends upon the strength and weakness of these basic records. In other words, their limitations are also the limitations of management accounting.
- Persistent efforts. The conclusions draws by the management accountant are not executed automatically. He has to convince people at all levels. In other words, he must be an efficient salesman in selling his ideas.
- Management accounting is only a tool: Management accounting cannot replace the management. Management accountant is only an adviser to the management. The decision regarding implementing his advice is to be taken by the management. There is always a temptation to take an easy course of arriving at decision by intuition rather than going by the advice of the management accountant.
- Wide scope: Management accounting has a very wide scope incorporating many disciplines. It considers both monetary as well as non-monetary factors. This all brings inexactness and subjectivity in the conclusions obtained through it.
- Top-heavy structure: The installation of management accounting system requires heavy costs on account of an elaborate organization and numerous rules and regulations. It can, therefore, be adopted only by big concerns.
- Opposition to change: Management accounting demands a break away from traditional accounting practices. It calls for a rearrangement of the personnel and their activities, which is generally not like by the people involved.
- Evolutionary stage: Management accounting is still in its initial stage. It has, therefore, the same impediments as a new discipline will have, e.g., fluidity of concepts, raw techniques and imperfect analytical tools. This all creates doubt about the very utility of management accounting.