Current Issue in Management Accounting

Whether firms manage, lead or ignore them, big changes are a foot in the accounting profession, and the best course of navigation will be collaborative. That journey begins with communication *Accounting And Finance Current Issues In Management Accounting Accounting Essay Performance measurement is the process to use the parameters to measure the performance of the organization. This process of measuring performance often uses the statistical evidence to determine progress toward specific defined organizational objectives. The purpose of the measurement is to improve the performance of the entity.

Performance measurement is to evaluate how well of the entity. It is to formulate a clear, coherent mission, strategy and objectives. Only in an idealized world, an organization with unlimited resources and risk-free living environment, the future can be safely predicted that they would be redundant. Based on this information, management can analysis the data and find out the problems of the entity and make the entity more effectiveness and efficient. Effective measurement can ensure the management has a control for their subordinates.

Academic anxiety?
Get original paper in 3 hours and nail the task
Get your paper price

124 experts online

Particular action can be done after the controls. Budget is the rough tools in improving performance. The achievement of output and outcome is to determine the efficiency of the entity. It may include productivity and cost-data. The motivation of the employee is also important. The use of performance measurement including targets and goals to achieve, it can focus on the employee’s thinking and their work performance. When the goals achieved, Celebration helps to improve performance of the employee, it brings attention to them.

Measurements are used for learning. It acts as indicators to the managers, managers use analysis of performance in measurements to related areas by revealing irregularities and deviations from expected data results. Learning will be occurred when organizations have problems in operations or failure of goals. The entity improves by analyzing the data and finds out the solutions. All the works need to measure otherwise organizations do not know where to improve. Work will be under controls and manage after measurement of performance.

Performance measures are often used to increase the competiveness and profitability of entities via support and encouragement of improvements. There are many methods to have a measurement of organization. Management Accounting and Financial Accounting are two of the performance measurement. Management Accounting Management Accounting concerned in the provision and the use of accounting information to managers of the organizations to analysis the data, provide the basis to make informed business decisions that will have controls functions and better equipped in management.

It is use for planning, evaluating and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also includes the preparation of financial reports for shareholders, creditors, investors and public for decision making and investment. According to The American Institute of Certified Public Accountants (AICPA), management accounting as extends to Strategic Management, Performance Management and Risk Management. Management Accounting has a primary function in developing performance measures.

It assists managers in planning can controlling their organizations. It is concerned with providing information to managers for achieving organizational goals. In many years ago, the measurements focus on the aggregate measures of financial performance. It related to Return on Investment (ROI), Economic Value Analysis (EVA) and nowadays widely on both academics and practicing management accountants and management consultants. The difference between ‘traditional’ and ‘innovative’ accounting practices can be referred to cost control techniques.

Cost accounting is a centralization method in management accounting and variance analysis is a systematic approach to compare the actual figure and budgeted costs of raw materials and labor cost used during a production period traditionally. Most of the manufacturing firms are still using variance analysis, but nowadays the trend was changed and conjunct with innovative techniques such as life cycle cost analysis and activity-based costing (ABC). Its purpose is to specific aspects of the idea of the modern business environment.

Life-cycle costing recognizes the ability of the manager of the entity, influence the cost of the product manufactured when the product is still at the design stage of the product life-cycle. Even a small change of the product, there is a significant cost saving of the products. Activity-based costing recognizes that most manufacturing costs are based on the amount of the production equipment idle time or the number of production units, to optimize the efficiency of production cycle and to effective the cost control.

Both Lifecycle Costing and Activity-based costing avoid the disruptive events such as machine breakdowns and quality control failures. Management accounting has a fundamental role in performance measurement. Performance measurement in management accounting concerned either the use of performance measures to evaluate divisional and managerial performance or the use of standard costing and variance analysis to control production activities. It can help the management to find out the solution for improvement. The analysis of data can also help management forecasting and planning.

Forecast the future and control the cost of manufacturing products. Management Accounting can be used for the overview of the whole internal structure of the organization to facilitate their control functions within an organization. Return on Capital Employed (ROCE) is one of the tools of management accounting. Since management accounting stresses on control costs and responsibilities. Thus, it is helpful in setting up effective and efficiently organization framework. “Management accounting change is very much path-dependent.

Changes occur in management accounting because of major external changes such as competition and modernization. Also, management accounting changes come form the introduction of taken-for-granted external techniques such as budgeting, capital budgeting, and planning. ” (Gary Spraakman, 2005) Limitations of Management Accounting Management accounting is in the process of development. Therefore, it is subject to the restrictions on all forms of new discipline. Management accounting acquires information from financial accounting and other records.

So management accounting depends on the correctness and reliabilities of these basic records. The limitations of the financial accounting records are also the limitations of management accounting. Management accounting is just a tool for management. It is not a substitution as the final decision is made by management instead of management accounting. There is a heavy cost for installation of management accounting system. That mean that only a big organization can afford those investment cost. Personal judgment is incurred in the financial accounting records.

This result in bias or deviation, the reliability of the records will be reduced. The basic installation of management accounting change related to the establishment of the organization. Framing new regulations also require that the number of affected persons, which are likely to form some resistance or others. Management accounting is only in a developmental stage. There is no exact standard in its concepts. The result is depended on the data of the management choose. Management accounting provides data rather than a decision. It is only notice, not rules.

This limitation should also be borne in mind while using the techniques of management accounting. A wide range of management accounting, it will have many difficulties in the implementation process. Management needs information form the accounting and no-accounting sources. This has led to imprecise and subjective to the conclusion through it. Analyzing the Changing Environment In April 2006, FASB’s establish a draft about the Fair Value Measurement, FASB has renewed attention between historical cost measurement and fair value measurement in financial statements.

There is a strongest argument for the move from historical cost to fair value accounting. But historical cost financial statements do not provide relevant information to investors. So it is the fact that the market price of some listed companies in the New York Stock Exchange is five times the value of its assets. The result is to indicate the inadequacies of historical costing account. The fair value is a framework to measure assets and liabilities at a fair value. But people concern about the proposal.

So FASB has issued a numerous standards to require the use of or provide guidance for calculation fair value measurements in financial accounting in recently years. Supporters of fair value accounting believe that historical cost financial statements are not relevant because they do not provide information on the current value. Dissidents in the fair value of the information provide that the financial statements at fair value are not reliable, do not use financial decisions. It is the discussion how to use of fair value in financial statements.

Although there are some advantages for the relevant information, the changes of fair value accounting have a great resistance. The main parameters of fair value accounting are that it is not reliable. “Relevant information that is unreliable is useless to an investor. We must, therefore, be clear about the nature of the claim being made for an accounting number described as reliable. ” (Financial Executive, March/April 2004) Management bias is the limitation of the fair value accounting. It may results in inappropriate fair value measurements and misstatements of earnings and equity capital.

The overvaluation or undervaluation will not reflect the facts of the organization. One of the benefits of historical cost financial information, it generates revenue figure is not based on assessment other estimate methods. Therefore, the income statement is not likely to be manipulated by management. As the historical cost is not depending on the estimate value, so the data is more reliable. Furthermore, historical cost measure may be more reliable than fair value measurements because managements have the opportunity to manipulate the bottom line in fair value accounting.

The development of reliable methods for measuring fair value, the result is that more reliable, verifiable and auditable of the financial statement. The investors believe that the information reported in financial statements is reliable and reflect the organization financial situation. The argument between historical cost and fair market values are not over. Both investors, analysts are rely on the financial information, so a more efficient system in the financial statement is the final result they want Conclusion Nowadays, organizations need to enhance the competitiveness by performance measurement.

Due to the technology changed rapidly, to evaluate the current performance is most important. So both management accounting and financial accounting have the fundamental role in performance measurement. Financial Accounting records the date to date transaction of the organizations. It is concerned the preparation of financial statement. The accuracy is the key point to record business transactions. As basic on these information, the process of summaries the business transaction is used to provide the information to the people outside of the organization. Under the govern standards, it reflects all the past performance of the organization.

Based on the financial accounting, management accounting is concerned the provision and use of accounting information to management to analysis the data. It is used for planning, budgeting and further decision making and control functions. 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 involves the preparation of financial reports for non-management groups such as directors, shareholders, regulatory agencies and tax authorities”. The fundamental objective of management accounting is to enable the management to maximize profits or minimize losses. So it is very clear that based on the reliable information of financial accounting, it provide the useful and helpful information to management for planning, controlling, reporting and gives estimation for the future. It helps to improve the efficiency and achieve the organizational goals. Contemporary Issues in Management Accounting Alnoor Bhimani Abstract Over the past decade, management accounting has seen changes not just within existing domains of the field but has also witnessed extensions outside its established realms of activity. Wider systemic transformations including changes in political regimes, novel conceptions of management controls, the impact of globalizing forces on commercial affairs, shifts in notions of effective knowledge management, governance and ethics, and technological advances, including the rise of broadband, have all impacted management accounting endeavours.

The field is as fast changing as it has ever been. This book captures key facets of current thoughts, concerns, and issues in management accounting. The book consists of eighteen chapters. The topic areas covered in some chapters reflect established management accounting topics such as budgeting and responsibility accounting, contract theory analysis, contingency frameworks, performance measurement systems and strategic cost management which are considered within the perspective of changing concerns facing modern organizations and present day management thought.

Other chapters deal with newly emerging concerns in management accounting, including network relations, integrated cost management systems, knowledge management pursuits, environmental management accounting and accounting and digitization. Each chapter encompasses discussions of basic premises complemented by insights from modern day practice, research, and thought. 1. New measures in performance management Thomas Ahrens Christopher S. Chapman (Contributor Webpage) DOI:10. 1093/acprof:oso/9780199283361. 003. 0001

This chapter discusses various aspects of the relationship between measurement and day-to-day activity. It emphasizes the potential contribution of academic knowledge to performance management activities. It first reviews situations and ways in which performance management has a track record of working well, then moves on to note that unfortunately, such activity on its own was unlikely to contribute to sustainable competitive advantage. Finally, using a practice theory perspective, it turns the problem of ‘you get what you measure’ on its head.

This perspective offers an appreciation of the role of measurement in the construction of orderly behaviour that can help re-establish a positive link between performance measurement and skilful practical activity. 2. Contract theory analysis of managerial accounting issues Stanley Baiman DOI:10. 1093/acprof:oso/9780199283361. 003. 0002 Contract theory has become the dominant analytical research paradigm in managerial accounting over the last two decades, informing the managerial accounting literature both directly and indirectly.

In the former case, formal contract theory modelling of managerial accounting issues has provided important insights into the design and role of managerial accounting systems. In the latter case, many of the hypotheses tested in recent behavioural and empirical research in managerial accounting have been derived from informal reasoning based on contract theory. Thus, any recipient of recent and future managerial accounting research would benefit from understanding contract theory. This chapter seeks to provide that understanding.

It begins with a non-technical explanation of the contract theory model and a demonstration of how two types of incentive problem are formulated within that framework. It then discusses three managerial accounting issues to which formal contract theory analysis has been applied. 3. Reframing management accounting practice: a diversity of perspectives Jane Baxter Wai Fong Chua DOI:10. 1093/acprof:oso/9780199283361. 003. 0003 This chapter considers the different ways in which researchers have attempted to construct, narrate, and critique the practice of management accounting, providing illustrations from seminal studies.

In doing so, it introduces seven ways of (re)framing practice, each drawing on different theories from the broader social sciences. In particular, this chapter introduces (a) a non-rational design frame; (b) a naturalistic frame; (c) a radical frame; (d) an institutional frame; (e) a structurationist frame; (f) a Foucauldian frame; and (g) a Latourian frame. Each (re)framing of management accounting is discussed in the subsequent sections of this chapter. 4. Management accounting and digitization Alnoor Bhimani (Contributor Webpage)

DOI:10. 1093/acprof:oso/9780199283361. 003. 0004 This chapter draws out some links between digitized technology deployment and management accounting. It argues that in digitized organizations management approaches have to be reconsidered. How the management accounting function must deal with ephemeral digital transactions — each with economic consequences that may be almost negligible when considered individually but that become very significant with volume — presents a significant challenge for managing costs.

A possible step forward may be not just in the procedures of data capture or in the style of information reporting, but also in the professional representation of the information produced. It may be that for the work of management accountants to continue to count, it will be increasingly important to show a knowledge of digital products, digital processes, and digital consequences using information about enterprise activities that itself is digitally generated. 5. The contingent design of performance measures Robert H. Chenhall DOI:10. 1093/acprof:oso/9780199283361. 03. 0005 This chapter examines recent innovations in performance measurement systems and identifies evidence about their effectiveness in assisting managers improve performance. The innovations studied were: economic value measures, non-financial measures, and integrated performance measures. Drawing on contingency thinking, the proposition is that it is unlikely that these innovations will be appropriate for all organizations. It was concluded that positive benefits are not universalistic. Different innovative performance measures may best suit particular contexts.

While existing research into the effects of contingencies on performance measure is limited, there are sufficient clues to suggest that the external environment and strategy, technology, structure, and size are likely to be important when considering the suitability of different performance measures. 6. Integrated cost management Robin Cooper Regine Slagmulder DOI:10. 1093/acprof:oso/9780199283361. 003. 0006 Integrated cost management programmes consist of a number of distinct cost management techniques that reinforce each other, with the output of one technique creating the input for another.

This chapter examines two different types of integrated cost management programmes. The first type is the internal integrated cost management programme at Olympus Optical Company, which consisted of five distinct internal cost management techniques that resulted in aggressive cost reduction pressures across the life cycle of the product. The second type is the external integrated cost management programmes at Komatsu, Isuzu, and Tokyo Motors, and their respective suppliers, Toyo Radiator (Komatsu), JKC (Isuzu), and Yokohama Corporation and Komatsu Iron Works (Tokyo Motors).

These programmes consisted of three distinct cost management techniques that resulted in aggressive cost reduction pressures across the organizational boundaries between buyer and supplier. 7. Capital budgeting and informational impediments: a management accounting perspective Lawrence A. Gordon Martin P. Loeb Chih?Yang Tseng DOI:10. 1093/acprof:oso/9780199283361. 003. 0007 The evolution of some of the key issues related to capital budgeting makes it clear that informational impediments is a fundamental theme that has dominated much of the capital budgeting literature over the last sixty years.

This chapter reviews the literature espousing this theme in the context of the following three specific, albeit related, issues: the use of sophisticated methods for selecting capital investments; asymmetric information and capital budgeting; and post-auditing capital investments. The chapter also discusses the role that management accounting systems (MAS) can play to help mitigate the informational impediments to capital budgeting. It takes a broad-scope view of MAS, considering non-financial as well as financial information, ex ante as well as ex post information, and external as well as internal information. . Accounting and strategy: towards understanding the historical genesis of modern business and military strategy Keith Hoskin Richard Macve John Stone DOI:10. 1093/acprof:oso/9780199283361. 003. 0008 This chapter addresses the following double question: precisely how and when did the modern practice of strategy and its theorization emerge? What is its historical and thereby present link to accounting? Section 8. 2 briefly considers the nature of ‘disciplinary’ power, and what it means to say that strategy, as a form of knowledge as well as of power, comes to be ‘disciplinary’. Section 8. considers how these practices could have remade strategy into its modern form.

Section 8. 4 takes up the possible objection that strategy has a long history stretching back into the UK’s military past and then was ‘reinvented’ after the Second World War. Section 8. 5 addresses the question: why is it that modern strategy appears to have shown up, both in the business and military fields, in mid-19th-century America? Sections 8. 6 and 8. 7 ask how this revised history of strategy is relevant to modern theory in both military and business spheres. Finally, two major implications that have arisen from doing this history are discussed. . Modernizing government: the calculating self, hybridization, and performance measurement Liisa Kurunmaki Peter Miller (Contributor Webpage) DOI:10. 1093/acprof:oso/9780199283361. 003. 0009 This chapter begins by describing the modernizing government agenda and flexibilities of the Health Act 1999. It analyzes the aspirations of the reformers, and how they sought to link service delivery with broader political objectives. Based on fieldwork conducted in five sites, it explores how the modernizing government agenda and the injunctions to cooperate have been articulated and made operable in a range of locales.

These issues are addressed under three sections. Section 9. 3. 1 starts from the premise that what is counted usually counts, and that performance measurement systems impact on the capacities and characteristics of the calculating self. Section 9. 3. 2 considers the multiple and overlapping performance measures that currently exist, and the ways in which they tend to respect organizational boundaries and limit the possibilities for hybridization. Section 9. 3. 3 considers the ways in which professional boundaries and self-identities impact on the modernizing government agenda.

The chapter concludes by discussing the broader implications of these issues for management accounting research. 10. Analytics of costing system design Eva Labro DOI:10. 1093/acprof:oso/9780199283361. 003. 0010 Costing is an estimation or approximation exercise: within a relevant range, management accountants seek to derive a linear function that approximates underlying true cost behaviour. This chapter discusses the research literature in this area, identifying where there is sufficient knowledge to guide practitioners and where further advances are needed in both costing research and practice.

The focus is mainly on analytical and empirical work based on theoretical constructs. Section 10. 2 briefly discusses what costing systems should seek to approximate, while Section 10. 3 looks at how system objectives are pursued. The next section provides an overview of where approximations can go wrong. Section 10. 5 discusses how to choose among alternative costing system approximations. Section 10. 6 concludes with some avenues to advance costing system design research and practice. 11. Understanding management control systems and strategy

Kim Langfield?Smith DOI:10. 1093/acprof:oso/9780199283361. 003. 0011 This chapter explains the relationship between management control systems (MCS) and strategy, and how this research area has developed over the last two decades. Examples of empirical studies that utilize various theoretical frameworks and research methods are presented to indicate the breadth of the research area and the ways that researchers have studied the field. Section 11. 2 defines different perspectives of strategy that have emerged and explains how they have been used in MCS research.

Section 11. 3 tracks the development of MCS from its origins as a static cybernetic process, through to its focus as a strategic tool. The remainder of the chapter gives detailed examples of empirical research in the MCS-strategy area that illustrates the major types of research that have influenced our thinking of the MCS-strategy relationship. 12. Management accounting, operations, and network relations: debating the lateral dimension Jan Mouritsen Allan Hansen DOI:10. 1093/acprof:oso/9780199283361. 003. 0012

This chapter examines how management accounting responds to the challenges that operations management poses in research and practice today. It asks how management accounting practices are made sense of in operations management research and management accounting research in relation to the central proposition made in operations management literature, namely the introduction of modern manufacturing systems typically under the auspices of lean manufacturing. The chapter focuses on what operations management and management accounting say about the sources of performance, and then looks at interorganizational control.

Through these two debates, it is possible to develop a new appreciation of control in modern manufacturing environments: informational and physical/technological carriers of control can form a trading zone where they can stand in for each other. 13. Trends in budgetary control and responsibility accounting David Otley DOI:10. 1093/acprof:oso/9780199283361. 003. 0013 This chapter begins by reviewing the roles that budgetary control systems take in helping managers assure organizational performance and by considering some of the growing criticisms of their efficacy that have been made in recent years.

Two distinct views have been taken about the best way to proceed. The first espouses incremental improvement to budgetary control processes, both in terms of linking them more closely to operational requirements and planning systems, and also coping with the issues of rapid change with more frequent budget revision and the adoption of techniques such as rolling budgets. The second suggests the abandonment of budgetary control, replacing it with a variety of alternative techniques that will enable organizations to become more agile and adaptive.

The chapter concludes with an outline of the main issues facing control systems designers, and indicates some ways forward for both practitioners and researchers. 14. Making management accounting intelligible Hanno Roberts DOI:10. 1093/acprof:oso/9780199283361. 003. 0014 This chapter examines how existing managerial accounting mechanisms and conceptual frameworks can be brought to bear on the coordination and integration of (accumulated and generated) knowledge. The resource-base theory (RBT) and the roles of learning processes, knowledge, and the generation of organizational capabilities are briefly discussed.

The intellectual capital framework is introduced and the place that management accounting takes within that framework is considered. The implications of the intellectual capital concept for the management accounting field are discussed, focusing on the concepts of connectivity and relational networks. 15. Changing times: management accounting research and practice from a UK perspective Robert W. Scapens DOI:10. 1093/acprof:oso/9780199283361. 003. 0015 This chapter discusses the changes that have been taking place in management accounting research and practice in recent years, focusing on management accounting research and practice in the UK.

The chapter begins with a brief history of management accounting thought over the last thirty-five years. Following this, some of the UK responses to Johnson and Kaplan’s claim about management accounting’s lost relevance are discussed. The changing nature of management accounting practices in the UK over subsequent years is described, followed by a discussion of recent trends in management accounting research. Some current issues in management accounting are outlined.

The chapter concludes with some comments on the nature of UK management accounting research and directions for the future. 16. Strategic cost management: upsizing, downsizing, and right(? ) sizing John K. Shank DOI:10. 1093/acprof:oso/9780199283361. 003. 0016 This chapter examines the concept of strategic cost management (SCM). It argues that most management accounting professors and management accountants in the business world prefer the often complicated, but conceptually less complex, world of ‘management accounting’ versus the conceptually challenging world of ‘strategic accounting’.

SCM’s ‘softness’ is too ‘hard’ for them, forcing them towards a world view that is much more multidisciplinary and integrative than they are trained for or comfortable with. The chapter foresees very few champions for SCM in the corporate world or in academe, while a large array of forces are working against the development of such champions, either in universities, accounting firms, or lower-level corporate training programmes. A case study of the business model of one of the best capitalized competitive local exchange carriers (CLECs) — Comprehensive Home Communications (CHC) of Atlanta, Georgia — is presented. 7. Environmental management accounting Kazbi Soonawalla DOI:10. 1093/acprof:oso/9780199283361. 003. 0017 This chapter discusses the emergence of the environmental movement within the context of corporate responsibility and sustainability management, focusing on the development of environmental management accounting (EMA). It illustrates how media coverage on the harmful aspects of environmental problems played a defining role in management’s desire to be considered ecologically sound and environmentally friendly.

It describes in some detail how mainstream management accounting practices such as activity-based costing (ABC), life cycle costing (LCC), and the balanced scorecard (BSC) have been modified to incorporate environmental aspects. The chapter also discusses the role of government agencies and financial reporting, and the impact these have on managerial decisions. 18. Organization control and management accounting in context: a case study of the US motion picture industry S. Mark Young Wim A. Van der Stede James J. Gong DOI:10. 1093/acprof:oso/9780199283361. 003. 0018

This chapter seeks to expand the domain of management accounting and organizational control research into creative industries, and develop a framework for studying perhaps the best known of these industries — motion pictures. It discusses both traditional and emerging issues in-context that managerial accountants ordinarily address in most organizations across a diversity of industries. These include issues of performance evaluation, incentives, contracting, strategic assessment, value chain analysis, budgetary systems, cost control, cost behaviour, and profit analyses.

The framework for achieving this focuses on the US motion picture industry, which has the longest history and is the most developed film industry globally. INTRODUCTION A business is an activity carried out with the intention of earning the profits. A person carryingout the business is interested in knowing basically two facts about his business -(a)What is the result of operations of the business activity? In other words, whether thebusiness has resulted into the profit or loss? Excess of revenue over the expenses willbe in the form of profits whereas excess of expenditure over the revenue will be in theform of loss. b)Where the business stands in financial terms at any given point of time. Providing the answers to the above questions is not possible unless the transactions relatingto the business are recorded in a systematic manner. Here the process of accounting comesinto the picture.

According to American Institute of Certified Public Accountants, “Accountingis the art of recording, classifying and summarizing in a significant manner and in terms ofmoney, transactions and events which are of a financial character and interpreting the resultsthereof. ” The process of recording the business ransactions in a defined set of records, whichin technical words are called as Books of Accounts, is referred to as Book Keeping. Accountingrefers to the process of analyzing and interpreting the information already recorded in thebooks of accounts with the ultimate intention of answering the above stated questions. This intention is satisfied by preparing what are called as Financial Statements. The financialstatements prepared by the organization are basically in two forms-(a)Profitability Statement, which is the answer to the first question i. e, what is the result ofoperations of the business activity.

Thus, profitability statement indicates the amount ofprofit earned or the amount of loss incurred. (b)Balance Sheet, which is the answer to the second question i. e. where the businessstands in financial terms at any given point of time. Thus, balance sheet indicates thefinancial status of the business at any given point time in terms of its assets and liabilities. Definition of Management Accounting The Institute of Chartered Accountants of England and Wales has defined managementaccounting as “any from of accounting which enables a business to be conducted moreefficiently”.

Management Accounting Team of Anglo-American Council on Productivity has described theterm Management Accounting as “the presentation of accounting information in such a wayso as to assist management in the creation of policy and the day to day operation of anundertaking. ”American Accounting Association has defined the term ‘Management Accounting as “theapplication of appropriate techniques and concepts in processing historical and projectedeconomic data of an entity to assist management in establishing plans for reasonable economicobjectives and in the making of rational decisions with a view towards these objectives. The various definitions of the term ‘Management Accounting’ reveal the following features ofthe same. (1)Management Accounting is a service function which is concerned with providing variousinformation to the management to facilitate decision making and review of implementationof those decisions.

2)Management Accounting uses not only the historical data but may also use the databased on projections and forecasts for the purpose of evaluation of various possiblealternatives. (3)Management Accounting ssists the management in establishing the plans to attain theeconomic objectives and in taking proper decisions required to be taken for the attainmentof these objectives. (4)Management Accounting involves the application of various special techniques andconcepts for the attainment of its objects. The techniques used in the process ofmanagement accounting are discussed in the following chapters. Objects of Management Accounting The above discussions reveal that the Management Accountant is an invaluable aid to themanagement to discharge the basic functions of planning, execution and control.

This is doneby -(1)Making available accounting and other data to enable the management to plan effectively. (2)Measuring the actual performance and reporting the same to the various levels ofmanagement to indicate the effectiveness of the organisational methods used. (3)Computation of deviation of actual performance from the plans and standards set. (4)Presenting to the management the operating and financial statements at reasonableintervals and interpreting the same to enable the management to take action/decisionsregarding future policy and operations.

Scope of Management Accounting After considering the various objectives the Management Accounting aims at, it can be notedthat the scope of Management Accounting is much wider. It covers virtually every area andevery aspect of business operations. However, to be more precise, the various areas coveredby Management Accounting can be stated as below. (1)Accounting : It deals with recording, summarising and analysing various businesstransactions. The process of accounting may take basically two forms. (a)Financial Accounting :

It deals with recording the business transaction which arefinancial in nature. It aims at the preparation of what is called financial statementswhich may be basically in two forms. Firstly, the Balance Sheet which tells aboutthe state of affairs of the business in terms of the various assets and liabilities andSecondly, the profitability statement which tells about the result of operations of the business i. e. profit earned or loss incurred. The financial statements are mainlymeant for the outsiders dealing with the business. (b)Cost Accounting :

It deals with recording of income and expenditure, ascertainmentof cost and profitability and the presentation of information derived therefrom for thepurpose of managerial decision making. Thus, the cost accounting is basicallymeant for the management to enable it to take decisions. (2)Cost Control Procedures : It deals with the various steps involved in the process ofcontrolling the cost. Thus, in turn it may deal with. (a)Establishment of plans or budgets for the future. (b)Comparison of actual performance with the planned or budgeted performance. (c)Computation of variations between the planned and actual performance. 3)Reporting : It deals with the presentation of cost data, statistical data or any otherinformation to the various levels of management. It may be required for the purpose ofdecision making or for the purpose of fulfillment of various legal obligations.

(4)Taxation : It deals with the computation of income as per the law and filing the taxreturns and making the tax payments. (5)Audit : It deals with devising the internal control systems and internal audit system tocover the various operational areas of business. In many cases, it may also deal with themanagement audit which is the evaluation of the managerial performance. 6)Methods and Services : It deals with providing the management services and themanagement information systems. It also deals with the various methods of reducingthe cost and improve efficiency of accounting and other office operations and preparingand issuing the accounting and other operational manuals. Disadvantages/Limitations of Management Accounting In spite of the various advantages available from the management accounting in the era of everincreasing complex business operations, it suffers from some limitations,(1)A very wide scope of management accounting is the limitation by itself.

It attempts tooperate in a wide range of areas and it is quite possible that it may not be able to makeproper justification to all of them. (2)In spite of the fact that the management accounting provides the various details requiredfor qualitative decision making thus attempting to avoid the possibility of intuitive decisionmaking, in many cases in practice, the decisions are based upon the intuition of thedecision maker rather than the scientific data available therefor. (3)The installation and operation of management accounting requires a very elaborateorganisational structure and a large number of rules and regulations.

It may make themanagement accounting system a costly proposition which can be implemented onlyby large scale organisations. (4)Management Accounting system is still in the evolution stage and hence suffers fromthe various limitations which any system may face in the initial stages like the requirementof constant improvements of the techniques and uncertainty about the application of thesystem etc. (5)The installation and operation of management accounting system may call for the radicalchanges in the entire organisational structure which may cause severe opposition andresistance from the existing personnel.

This essay was written by a fellow student. You may use it as a guide or sample for writing your own paper, but remember to cite it correctly. Don’t submit it as your own as it will be considered plagiarism.

Need a custom essay sample written specially to meet your requirements?

Choose skilled expert on your subject and get original paper with free plagiarism report

Order custom paper Without paying upfront

Current Issue in Management Accounting. (2016, Nov 13). Retrieved from https://graduateway.com/current-issue-in-management-accounting/