Management Accounting – Essay Example

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1.0 Introduction to Management Accounting Management accounting is the application of accounting information by company managers so as to equip them with better management and control aspects of the organization and help them with informed business decision making process in an effective manner. Management accounting is different from financial accounting in the sense that the latter is done for the use of shareholders and company creditors, while the former is designed for the application by company management. The Chartered Institute of Management Accountants (CIMA), describes Management Accounting as the "method of recognition, computation, accretion, evaluation, and communication of financial data used by the company in order to plan, assess and manage inside an organization and to guarantee suitable utilization of and responsibility for its assets.

Management accounting also consist of the preparation of economic news and reports for company shareholders, regulatory bodies, (Atkinson, Booth, Cole, Groot, Malmi, and Wu, 1997). Management accounting covers three main areas of function, Strategic management - which progresses the role of an accountant as a strategic associate within the company, Performance management - which assist in measuring the performance of the company, and Risk management - to identify, evaluate and managing risks. Management accounting can also be explained as the presentation of financial information to assist the company management in the shaping and structuring of policies followed by execution and control of these policies within the organization. 2.0 History of Management Accounting The history of management accounting dates back to the 19th century, a period of intense industrial revolution across the globe, during which most of the companies were firmly controlled and borrowed money based on personal relationships and private assets.

However, with the advent of large scale production requirements, the need for effective financial management and accounting came into picture. The firms needed creditors on a large basis to meet the growing demands of the industry and therefore had to provide audited financial reports to their creditors.

The inventory cost estimate modus operandi implemented by financial accountants made a weighty effect on methods of management accounting. However, with the turn of the century, as the supply chain included more products and complex operations, organizations assessed the need for more management oriented financial data reports which could be differentiated from the company fiscal and economic data and offer the management a thoughtful insight about effective decision making processes, which led to the establishment of management accounting fundamentals, (Luft, 1997). The main factors that led to the emergence of management accounting with a broader focus area is the  globalisation of the markets, progress made in the field of IT and manufacturing / production techniques and  increasing competition.  On a company level, management accounting relates to paying higher importance to managing core competencies, maintaining responsible customer and supplier links, business economizing, outsourcing, compliment organisational configuration and team work, (Chenhall and Langfield, 1998).   3.0 Responsibilities of Management Accountants   In sync with the growing individual responsibilities within the industry, financial accountants now have to play a dual role of both a strategic associate and a provider of financial accounts and operational data of the organization.

These financial managers are responsible for managing the company group by offering them timely information about the company’s financial status. The major responsibilities of the management accountants are to provide comprehensive forecasting and scheduling reports, performance variation investigation reports, evaluation and cost supervision reports.

Further developing reports regarding new product cost estimates, viability, operational assessment, production driver metrics, sales report and shareholder and creditor profitability evaluation reports and risk and regulatory papers is also the additional responsibility of management accountants. Consistent with the concept of continuous value formation in the business, management accountants assist in forcing the way to higher performance of the organization while at the same time maintaining firm hold on the financial accounting of the business. Also, with the increasing utilization and usability of IT in the industry, IT has become a huge source of expenditure for companies.

The management accountants in this case are also responsible for preparing IT transparency cost reports, (Siegel and Sorensen, 1999). 4.0 Management Accounting Functions – Planning and Control The Planning processes are used to plan and administer a successful business venture. This process phase involves the identification of cost, nature, schedule of every minute activity involved in the entire business activity project along with their risks, limitations and assumptions. The planning activities can be called as the progressive detailing phase for the organization which offer future benefits for the company. The controlling aspect is attained by evaluating and assessing the company performances in various departments, and then comparing the required performance levels as laid down by the budget targets and subsequently taking required actions. 5.0 Concluding remarks With the rapidly changing industry scenario, the management accounting principles have possessed a much diversified stature which mainly directs attention towards the evidence there exists a greater need for efficient planning and control rather than just financial accounting.

Significance has been out onto activities related to strategy building and fast efferent decision making techniques, rather than the conventional methods of costing and financial assessment.  6.0 Referneces Atkinson A. A.

Booth P., Cole J. M. Groot T, Malmi T., Roberts H., Uliana E. and Wu A. (1997) “New Directions in Management Accounting Research” Journal of Management Accounting Research, 9, pp. 79-108. Chenhall R. H. and Langfield-Smith K. (1998), “Adoption and Benefits of Management Accounting Practices: an Australian Study”, Management Accounting Research, pp1-19 Siegel G. and Sorensen J. E. (1999), Counting More, Counting Less: Transformations in the Management Accounting Profession. The 1999 Practice Analysis of Management Accounting, Institute of Management Accountants, USA Luft J. L. (1997) “Long-Term Change in Management Accounting: Perspectives from Historical Research”, Journal of Management Accounting Research, 9, pp.


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