Cost Accounting: The State of Management Accounting
A number of management accounting solutions and techniques have continuously emerged these days due to increased competition and business turmoil affecting corporate management - Cost Accounting: The State of Management Accounting introduction. There are issues raised concerning cost management and decision-making as to which accounting tools will be used. In the survey conducted by the Institute of Management Accounting (IMA) and Ernst & Young (E&Y) in 2003, the role of management accountants was examined such as the goals of their organization and the management strategies they employ.
The survey, released in July 2003, have six major findings: (1) the key input to strategic decision makers is cost management, (2) the topmost priority of decision makers and decision enablers is the “actionable: cost information, (3) the cost visibility is diminished by several factors, (4) employing new cost management is not one of the priorities in today’s economic environment, (5) majority still uses the traditional management accounting tools, and (6) the adoption of best practices is triggered by management buy-in, adequate technology, and in-house expertise (Garg, Ghosh, Hudick, & Nowacki, 2003).
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Among the estimated 2,000 respondents, 89% said that cost management is the key to their organization’s overall strategic performance. Today’s economic slowdown has triggered higher demands for cost management and cost transparency resulting to companies seeking efficient managing costs, according from 75% of respondents. Management accountants are now treated as important players in strategic issues aside from the conventional ones since they contribute greatly to core strategic issues. Decision makers and decision enablers agreed on generation of “actionable” cost information and reduce costs and drive efficient as the top priorities for the costs managers. The 82% of the respondents said that generating timely and accurate information is a high priority for management accountants to achieve strategic decision making, to improve the corporation, affect employees’ behavior, and manage costs more efficiently (Garg et al., 2003).
According from more than 50% of the respondents, the most popular management tools were Operational Budgeting, ABM/Std. Budgeting, Capital Budgeting, Quantitative Techniques, Breakeven Analysis, Internal Transfer Pricing, Traditional Costing, Overhead Allocations, and Benchmarking. It was also found out that figures were not accurate causing distortions in the cost information. The top three factors affecting cost visibility were overhead allocations (30%), shared services (20%), and greater product diversity (19%). However, adopting new management accounting tools was not a priority in both large and small companies due to lack of sufficient technology, lack of in-house support, and lack of management buy-in; where 76% were still using traditional costing techniques.
The first major issue established from the survey is: the importance of the role of management accountants. Management accountants were viewed much as strategic partners to decision makers because of the scope of their responsibilities. Nowadays, there is an increasing demand for management accountants with specialization not only on cost and tax accounting, but also understanding of global market environment and handling of fast-changing technology demands (Fowler, 1991).
The second major issue is the inaccuracy of the cost information from the current cost systems due to firms’ reluctance in adopting new management accounting tools and techniques. However, the economic conditions, problems in the internal resources, and changing familiar practices are preventing such adoption. Other corporations believed that no software or ‘specific point solution’ can solve problems in management accounting. Even though the profession of management accounting has increased importance, the accompanying tools and techniques are left behind. Besides, new software technologies are expensive that is why companies resort to conventional ones.
Fowler, A. M. (1991). Careers; Management Accountant’s Wider Role [Electronic Version]. The New York Times. Retrieved 12 may 2008, from http://query.nytimes.com/gst/fullpage.html?res=9D0CE7DF1E3DF930A2575BC0A967958260
Garg, A., Ghosh, D., Hudick, J., & Nowacki, C. (2003). Roles and Practcices in Management Accounting Today: Result from the 2003 IMA-E&Y Survey: IMA and Ernst & Young’s Economics and Business Analytics Practices. Document Number)