Understanding Management Accounting: Evolution, Significance, and Limitations

MANAGERIAL ACCOUNTING AND

ITS IMPORTANCE

MANAGERIAL ACCOUNTING 1

Table of contents:

1. Background and rationale of the project: 2

2. Preliminary review of literature: 3

3. Ethical considerations: 7

4. Research questions: 8

5. Limitations of the research: 9

6. Research plan: 10

MANAGERIAL ACCOUNTING 2

1. Background and rationale of the project:

The subject of management accounting is quite wide and is included in a variety of topics

when it comes to accounting. The term Management Accounting comprises of two words, the

first being management and the second being accounting. This means accounting for the

purposes of management of the business activities. Management accounting refers to the

procedure of managing the things and the management of the various reports and the

accounts that represent the precise and the timely management of the financial and the

statistical information that assists the managers in making timely decisions and for the

process of decision making. This accounting helps the managers in making the decisions that

pertains to the short term and long term. The process of management accounting is connected

with the management. The in depth study of the managerial characteristics of the financial

accounting is termed as the accounting in relation with the function of management (Palgrave

connect, 2016). It demonstrates the function of accounting that can be re-oriented in order to

fit into the structure of the function of the management. It helps in demonstration of the

alignment of the function of accounting and the way it can help the managers in the

accomplishment of the goals and the objectives with which the organization has been formed.

The main aim of the management accounting is to undertake the reform of the entire system

of accounting so that the operational needs and the desires of the organization can be fulfilled

with ease (Open archives, 2016). There are various authors that have successfully explained

the various practices of accounting as the array of the methods that could be considered for

the businesses for supporting the infrastructure of organization and the processes of the

management accounting. The term management accounting is also connected with the tax

accounting, financial accounting and the internal auditing (Science direct, 2016). The

researchers like Johnson and Kaplan have stated that the system of management accounting

revolve in and around the way in which it encourages and assesses the efficiency of the

internal processes but it fails to measure the overall profits of the organization. There have

been many of the advances in the management accounting that is associated with the

movement of the scientific management (Nelson, 2016).

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2. Preliminary review of literature:

The area of the organizational movement is covered by the management accounting and this

has successfully developed four identifiable stages. The first stage was the one that focussed

in the determination of cost and the financial control and this was achieved by the way of use

of budgeting and the technologies of cost accounting (Research gate, 2016). The second stage

was the one that had belonged to the period of 1965. During this stage, the main aim and the

concentration was on the provision of the information for the purposes of planning and

control. This held good even when the main focus had shifted to the providing of the

information for the management of the planning and control, this was even so when the

technologies like the decision analysis and the responsibility accounting was being used. The

stage 3 was entrusted with the responsibility of accounting (Research gate, 2016). The stage

number 3 extended to the period of the year 1985 during which the main concentration was

on the use of less number of wastes in the resources that were being used in the various

processes of the business. This was used through the use of the analysis of the various

processes and the technologies of cost management. The stage numebr4 belonged to the year

of 1995 in which the main attention was on the creation of the value even when there was a

use of the efficient resources. This was through the use of the various technologies that

scrutinised the drivers of the customer, the value of the shareholders and the improvements of

the various organizations (Durden, 2016).

The following picture shows the various evolutionary stages of the management accounting:

Evolutionary stages of management accounting (Source: IFAC, 1998):

The concept of management accounting helps in the creation of the various reports that are to

be reported once in a week to the various different internal audiences such as the

departmental managers and the chief executive officers. These are the reports that

demonstrate the amounts of the cash that is valuable, the sales that has been generated, the

number of the orders that are in hand, the state of the accounts payable and the accounts

receivables, the debts that are outstanding, the raw materials and the inventory and this also

consists of the trend charts analysis of the variances, and such other statistics that may be

required form time to time. The effectual system of management accounting helps in the

superior quality, timely information to all the relevant persons. Though there is an emergence

of the information technology that has made the provision of the information even cheaper,

the cost that is incurred in refining the system of information is in an urgent need of the

MANAGERIAL ACCOUNTING 4

benefits that could result in the modification of the stated system. But it is also true that

management accounting is still a new discipline and the theory and the devices that it uses are

still growing and this has found the way of providing the information that helps the

management in the process of decision making. Anthony has described that “Management

Accounting is concerned with accounting information, which is useful to the management”.

There were some of the other researchers that stated that the term management accounting is

concerned with an efficient management of the business so that the information could help

the managers in an efficient planning and control of the various activities.

In the complex business today, it is very important to perform some of the most systematic

planning of the management. The delegation of authority and the decentralisation of the

process of decision has become one of the most important aspects of today’s world for the

purposes of conducting the functions of the business. The functions of the management are

no longer considered to be private. The system of information is required for the purposes of

assisting the management for the purposes of investigating, evaluation and the verification of

the various functions of the divisions or the various units for the purposes of making the

decisions for the purposes of making the decisions. The managerial accounting is of utmost

importance since it helps the management in taking the most appropriate decisions and also

helps in facilitation of the accomplishment of the various gaols and the objectives with which

the organization has been formed. The term management accounting helps in measuring and

reporting to the management and helps in the facilitation and accomplishment of the

corporate objectives. It is very important that the information given must be used by the

management so that the same is pertinent and it is issue based when it comes to the fulfilment

of the objectives of the corporate. It is also imperative that the information given to the

management is conclusive (Small business chron, 2016). The main aim of the management

accounting is required for the purposes of recognising the financial situation of the business

since it helps in reporting as to what has bene going on inside the organization for the

purposes of planning, directing, motivating, controlling and the evaluation of the

performance. It gives some special emphasis on the decisions that affects the future of the

company. It helps in the creation of the plan (Civil service india, 2016).

Managerial accounting is all about the creation of the documents and the reports that helps

the management in the process of decision making and it also helps in running the company.

It conveys the information that the managers need for the purposes of making the decisions as

to how the company could be improved. Managerial accounting is about what the managers

need to measure the success or the failure of the business and what the business needs to meet

its goals. It’s the way that the managers tells us the department or the project is doing well

and meets the various expectations. The goals of the management could go with cost cutting

or the output for the production.

Unlike the financial accounting, the managerial accounting is used for the purposes of

working out the project and meeting the expectations. There are many of the differences

between the managerial accounting and financial accounting.

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The first difference is the fact that the managerial accounting is something that is based upon

the internal performance like that of the departments, projects, processes whereas the

financial reporting focusses on the entire business in its entirety.

The second difference is that the managerial accounting helps the managers in improving the

various processes of the business but the financial information helps the investors in making

the right decisions when it comes to making the right choice of the investments (Canberra,

2016).

The third difference is that the managerial accountants do not follow the accounting standards

contained in GAAP but the financial accountants do. This is mainly due to the reason that the

management reports never get issued to the banks or the external parties just like the financial

reports (Hoffjan et all,2016).

The managerial accountants tend to look at the reports and also the various calculations

pertaining to the performance like the inventory turn reports, the aging summarise of the

accounts receivables and the work efficiency reports of the various employees. All of these

reports are used by the management for the purposes of improving the processes of

production and the departments (Accounting course, 2016).

The following are the various advantages of management accounting:

• It helps in increasing the efficiency of the various functions undertaken by the

management.

• It helps in the fixation of the targets, decision making, in fixing the prices, section of

the mixes of the various products and so on and so forth

• It helps in the method of forecasting and budgeting since that helps in planning the

future and in undertaking the various activities of finance

• There are a number of tools and the techniques that helps in providing the reliability

and authenticity for the purposes of carrying out the various functions of the business.

• It helps in controlling the wastages and also the defects

• It helps in completing the communication between all the different levels of the

management (Careerride, 2016).

• It help in controlling the cost of production and this leads to an increase in the

percentage of the profits.

• It is a proactive analysis of the various policies of the government and the socio

economic scenario that helps in assessing the various impacts of the environment in

the organization.

The following are the various limitations of the management accounting:

• It is something that is concerned with the financial and the cost accounting. In cases,

these records are not considered to be reliable, then that would affect the effectiveness

of the management accounting (Your article library, 2016).

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• There are a number of decisions undertaken by the management accountant that could

or could not be executed by the management.

• It is quite expensive and only the big fishes in the market can help in it and also in the

adoption of this method of accounting.

• There are a number of new rules and regulations that are to be framed and there is

quite a possibility form the opposition form the employees.

• It is only at the stage of development.

• It help in providing only the data and not the decisions.

• It is a tool that helps in the management and is not an alternative of the management.

The following are the various characteristics of the concept of management accounting:

• It helps in providing all the necessary information to the management. This might be

any data numbers, gross profits, net profits, comparative financial statements, profit

and loss account.

• It is mainly and purely analytical

• There are various interpretations that could help the management in making the timely

decisions (Quora, 2016).

• It helps in adoption of the selective techniques for the purposes of arriving at the

results.

• It helps in shorting the future course of action

• It helps in knowing the exact present financial condition of the company and also the

implication of the various stakeholders (Management guru, 2016).

This is a kind of knowledge that can result in the sustainable higher returns to the company.

The authors states the following points when it comes to being involved in the changes that

their companies are going through:

• Helps in the timely feedback of the performance and the financial controls over the

projects that are considered to be discrete in nature and these involves the project lines

or the company acquisition. This includes working the integrating predecessors

accounting systems for the purposes of maintain the conformity of reporting.

• It helps in exerting the control over the day to day activities by the way of providing

the benchmarks for the purposes of measuring the progress towards the strategic

objectives.

• It helps in emphasising on the flexible basis of the data that provides the forecasted or

the simulated results under the various strategies of competition

• It would help in providing the oversight and also advise on the reliability of the data

that is provided by the other companies in the strategic alliances as on the basis of the

contractual agreement (Palgrave, 2016).

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3. Ethical considerations:

Ethics have been adequately dealt with and adequate research was undertaken for the

purposes of undertaking the answering the various questions pertaining to the research.

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4. Research questions:

This paper has been written in order to describe the ways in which the managerial accounting

is important and how it helps the management in accomplishing the various objectives of the

organization. Further, the paper describes the various limitation of the managerial accounting.

The concept of managerial accounting is many a times confused with financial accounting

and this paper lists out the various differences between the two. Then this papers describes

the limitations of this research. And yes, all of these research questions can be answered with

the help of literature review (Jonall, 2008).

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5. Limitations of the research:

This paper can be improved with the engagement of the management accounting researchers

when they adopt a process oriented approach that is somewhat based upon the qualitative

researcher (Emerald insight, 2016).The majority of the research of management accounting

has maintained the hypothetic-deductive positive focus on the qualitative research community

along with its outputs that have expanded and developed into a very strong tradition. The

quantitative research approach has somewhat prioritised with what can be counted and

measured. The following of this research also has a limitation that it might fall to recognise

the fact of what is not always important and what cannot always be measured. For the

purposes of overcoming with this limitation, the qualitative research can help in providing the

most important subsidies for teasing out the how and the why questions in the research

project. This helps in adoption of the position that all the research is infused somewhat into

the culture, values, beliefs, stories, language, perception, cognition, ideology, power, and

politics (Spell, 2016).

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6. Research plan:

For the purposes of answering the various research questions an adequate amount of

preliminary review of the literature written by the various different authors has been

undertaken and this would adequately answer the relevant questions under review.