What is Management Accounting - Essay Example

? Management Accounting Affiliation: Management Accounting Management is a vital function in the company it is responsible for a majority of actions in the company, for example; directing, controlling, planning and coordination. Once a management function is administered in an organization it remains permanent since it increases the firm’s efficiency in all ways. In the modern world, management is present in approximately 90% of the firms currently in operation. Management has a life on its own in the firm since it grows with time through key improvements and updates in the firm (Earl, Garrison & Noreen, 2012, p. 78). A firm cannot function efficiently without management since it is a core factor, which determines the profitability of the firm. The article highlights clearly that in the modern society numerous individuals hardly understand how the modern management operates in the firm, and this could be a dangerous situation. The world today is built through the effort of all the human beings who work together to ensure key developments occur in the society. Management is obviously ubiquitous since it is vital in all firms, and individuals should understand that it did not just evolve: it was through an invention in the early 1800 (Hoskin & Macve, 1990, p. 845). It is evident that management has played a role in the development of recent businesses since it is related with the culture of ‘managerialism’. Management is equivalent to disciplinary power: this is the only culture that ensures a business runs efficiently. According to Hoskin and Macve (1990, p. 845), evidently, this form of power was invented in the early 1800’s and was later transferred into the business section in the 1840’s. A majority of businesses had not taken shape in those days, but since the introduction of management most of the businesses took shape. Management is a power which is double sided since it runs the organization, and at the same time runs individuals through implementing efficient disciplinary systems. This system controls both the external and internal operations of a firm. In addition, it is a power that develops constantly and improves the organizational systems through knowledge from the expertise in the field of management. The structure of the organization in the modern businesses is highly sophisticated since there is the presence of the line, staff, divisional and matrix in the structure, although the basics of management are constant. Chandler (1977, p. 234) explains that organizations operate through written instructions, both in paper and online, which form a powerful tool for managing an organization in the world at the moment. He further indicates that modern managerialism is impossible without finances and financial numbers. The key functions necessary in the firm include accounting systems, management and financial costs. The structure of the firm has an overall manager referred to as the Chief executive officer (Chandler, 1977, p. 234). The CEO further has a general manager, or two directors, in addition to other managers from various departments reporting directly to the position. The managers include the finance, accounts, human resource, marketing, and research and development manager. Most of the firms have supervisors who report to managers, also known as line managers. According to review by Hoskin & Macve (1990, p. 839), managerial accounting practices in the modern firm originated from the teachings in the military in the early 1800, which were used during the US civil war. Holman (2003, p. 234) supports the argument and observes that the accounting practices utilized in the civil war are similar to the practices carried out in the modern business. The process of carrying out managerial accounting included the management of all expenses in relation to men and materials. In the US civil war, all the army accounting clerks and the quartermasters were educated on all matters relating to all the principles of accounting. The basics of the study include the study in ways of identifying costs, classifying costs, planning and budgeting. This are also processes that all the managerial accounting experts learn while in school. The processes are vital since they enable a firm to run its operations smoothly with the aim of maximizing their profits while utilizing minimal resources. The processes include; paying attention to the process of budgeting, planning and control, creation of payroll, creating a budget for raw materials, and informing the organization on the cost volume point. In addition, it is the responsibility of the managerial accountant to give the company information concerning the profit expected from available resources in the firm. It is vital for the firm to identify whether there is a difference in the budgeted and the actual expenses of the firm, which is a process facilitated by the management accounts section (Hoskin & Macve, 1994, p.321). It is evident that the majority of processes in management accounting emanate from the processes practiced in American military. This was necessary during the war to avoid running out of resources, which could lead to a loss of the battle. According to (Hoskin & Macve, 1990, p. 840), the military and managers in the modern society should be trained to become experts in order to develop a competitive advantage over their competitors. The roles played by the new staff in the modern society are similar to the past responsibilities of the army clerks in the USA civil war. The only difference is that the modern accountants consider the overall situation of the firm, for example, sales, marketing and production so and to enhance the overall administrative coordination of the organization. Question 2 Contributions of (Seal et al, 2012, p. 8) have improved innovation in management accounting through his constructive arguments in the recent years. His argument has led to better management of massive companies and its general improvements in terms of profitability, accountability, and efficiency. Management accounting is not mandatory because each company is independent and has its own way of running its business. Management accounting has no external regulatory bodies, unlike financial accounting. This means that managing accounting is optional. Every organization consists of people working under a manager. This calls for proper management of people and other resources in order to attain the organizational goals. Managing directors of multilateral companies cannot possibly execute all of the companies’ strategies alone and must rely on other subordinate managers and staff for assistance. This is gained through the creation of an organizational structure that embraces decentralization of the management duties. The key innovations that emerge in managerial accounting include decentralization. Decentralization is the delegation of certain authority, such as decision-making, to managers at various managerial levels. These managers are allowed to make critical decisions in respect to their mandate and speciality. Different organizations have different levels of decentralization such that some are more decentralized than others. Top managers make the key strategic and crucial decisions for the company such as opening new branches, issuing of tenders, and shareholding. Much of the remaining duties are delegated to the subordinate managers at different levels for decision-making (Seal et al, 2012, p. 9). It is evident that decentralization is essential for the prosperity of an organization in many ways. These include; faster decision-making, flexibility of the company, teamwork, knowledge and skill. A decentralized organization has the ability of making decisions faster. This is because the organization allows separated departments of an organization to make their own decisions. The decisions made are accurate and reliable because different ideas have been assembled to come up with a grand decision. This is to ensure that the decisions made comply with the companies’ values and strategies. Flexibility is another advantage of decentralization (Seal et al, 2012, p. 10). Small units responsible for specific products or markets are able to respond quickly to changes that occur in an organization. If these changes require an improvement of any products, a decentralized organization can tackle such an issue faster than a centralized organization. Teamwork is another advantage that a decentralized organization. The close working relationship in a decentralized management is crucial, particularly, in situations where new products are being introduced in the company. A small team working together achieves a higher level of creativity and innovation. Teamwork also improves through communication in an organization. As people work together to gain a common goal, they learn to correct each other and make constructive friendship among themselves and their managers (Booth & Rowlinson, 2006, p.432). Acquisition of knowledge is also another importance of a decentralized organization. Communication and collaboration when working together benefit all workers since knowledge is shared when different groups discuss different serious matter concerning the organization. The informal groups of people can also get to know some knowledge about the company through communication. Since knowledge is power, it is necessary for all employees in an organization to be knowledgeable. The top manager organizes his subordinates in such a way that a certain chain of command called an organizational chart is followed. An organizational chart is better defined as the chronologic arrangement of management from the top to bottom. The managers are answerable to the one subsequently above them. The purpose of an organizational chart is to indicate how responsibility has been divided among various managers and also show formal channels of communication and reporting. An illustration of an organizational chart is simplified by the use of boxes and straight lines. The boxes indicate the specific area of management responsibilities and duties while the lines depict formal authority between managers as well as the proper chain of command (Ezzamel, Hoskin, & Macve, 2000, p. 211).  An organizational chart consists of the top most managers who are the board of directors. They play a number of roles in an organization. These roles include setting of the company’s strategies and delegation of duties to management. They also exercise accountability to the shareholders and are responsible to the relevant stakeholders. The board of directors also establishes the company’s vision values and mission. Below the board of directors, are managing directors. Their main responsibility is to look after the company’s affairs and ensure the smooth running of the company. They also ensure that the books of accounts are updated on time. Below the managing director are different departments such as finance personnel and purchasing departments. These departments are directly answerable to the managing directors. Directly below these departmental heads are different other managers in charge of the stores and distribution of company goods and services. These managers deal with the people working on the ground. They motivate the workers and encourage them to achieve the organizational goals. These managers also ensure that the workers have comfortable working conditions and that they get maximum safety at their working places (Seal, 1993, p. 212).  Bibliography Booth, C and Rowlinson, M 2006, ‘Management and organizational history: Prospects’, Management and Organizational History vol. 1, pp. 5-30. Chandler, A. D 1977, The visible hand: the managerial revolution in American business. Cambridge, Mass, Belknap Press. Chandler, C. J. 1995, Transfer pricing: economic, managerial, and accounting principles. Washington, D.C, Tax Management Inc. Eal, W. B, Garrison, R. H, & Noreen, E. W 2012, Management accounting. London, McGraw-Hill Higher Education. Ezzamel, M, Hoskin, K, & Macve, R 2000, Managing it all by numbers: a review of Johnson & Kaplan's 'Relevance lost'. Fleischman, R. K, Hoskin, K. W, & Macve, R. H 1995 ‘The Boulton & Watt Case: The Crux of Alternative Approaches to Accounting History’, Accounting and Business Research. Vol. 25 no. 99, pp. 156-176. Garrison, R. H, Noreen, E. W, & Seal, W 2003, Management accounting. London, McGraw-Hill. Holman, B. W 2003,  Military training DOD approach to managing encroachment on training ranges still evolving. [Washington, D.C.], U.S. General Accounting Office. Viewed 29 November 2012 Hoskin, K and Macve, R 1994 ‘Reappraising the Genesis of Managerialism A Re-examination of the Role of Accounting at the Springfield Armory’, Accounting, Auditing & Accountability Journal Vol. 7 no. 4, pp. 1815-1845.  Seal, W. B. 1993, Accounting, Management Control, and Business Organisation: an Institutionalist Perspective. England, Aldershot Hants, Avebur. 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