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The Role of the Management Accountant - Coursework Example

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The traditional role of management accountants which involved the provision of cost information and prices for management decision-making purposes has changed significantly over the past four decades…
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The Role of the Management Accountant
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Introduction The role of the management accountant is one that has evolved over the years. The traditional role of management accountants which involved the provision of cost information and prices for management decision-making purposes has changed significantly over the past four decades. Management accountants are playing a more strategic role than they did in the past. The do not work in isolation anymore. They now work as a crucial and significant part of the organisation they work for. This paper provides a critical review of the role of the management accountant. It would attain this end by examining the traditional role of the management accountant and how it existed in the past. The paper would go on to critique the relevant changes in the work environment which has affected the corporate and strategy systems that are used by firms. The paper would then outline the changes in the activities of the management accountant and how it has affected the corporate environment. Traditional Role of Management Accountants The enquiry into this section involved a critical review of the concept of management accounting and how it evolved over the years. Maskell (1993) provides a very insightful into to evolution of management accounting. He idetnifies that the traditional concept of cost and management accounting were developed in the last 19th and early 20th Century. The evolution of cost and management accounting was as a result of the adoption of best practices in running industries in Europe and America (Maskell, 1993). These concepts were formalized in the 1930s and it was seen as an innovative way of tracking and and monitoring commercial transactions in these companies. The idea was to use management and cost accounting to track long-term capital investments and identify how they work together to attain results. This was complemented with the break down of work and cost build up systems for analysis. Thus, management and cost accounting developed originally to track conversion costs, profit targets and how costs build ups in order to take decision about return on investments and management (Maskell, 1993). Thus, throughout most of the 20th century, cost and management accountants were involved in five main things: 1. Pricing. 2. Budgeting 3. Performance Measurements 4. Integration with Financial Accounts and 5. Investment Analysis (Chapman et al, 2009) A classic definition of the management accounting function is that it is “a profession that involves partnering in management decision making, devising plans and performance management systems and providing expertise in financial reporting and control and implementation of organizational strategy” (Needles et al, 2010: p720). This definition above indicates that management accountants are an expert group who have competence in finance and accounting decision-making and appraisal. Thus, they provide important information and data where necessary for the assistance in decision-making. Hence, the management accountant is not seen as a traditional part of the leadership structure, but a support staff who knows some techniques in cost analysis and appraisal. Jackson et al (2009) state that in the traditional setting, management accountants provide information about internal matters. This include the collection of data, reporting on trends in the organisation and information for analysis and management decisions. This means that the management accountant has to occupy himself with information about cost and other relevant build ups (Khosrow-Pour, 2008). From the examination of the traditional role of management accountants, it is apparent that management accounting is a shareholder oriented function. In other words, management accountants are hired to ensure that management take the most optimal decisions on matters and subjects. This is because shareholders are the ones who benefit when there are cost savings and investment increases. Also, from the discussion, it is apparent that the role of the management accountant is geared towards profit maximisation. This is because a management accountant is hired to ensure that the company cuts down on its costs and provide higher profits. Thus, the worth of a management accountant is judged by how much he saves. It is also apparent that accountants are outside the strategic fold of organizations. They are not involved in leadership and organizational management and organizational fundamental decisions. They are more of a group of external stakeholders who are called upon to provide information and they do not play a primary or fundamental role in the attainment of results for organizations. However, over the past 40 years, the world of business has evolved from just being profit oriented. Businesses now look at the broader picture. Also the fundamentals of business has changed significantly. This has influenced and affected the role and activities of the traditional management accountant. Changes in the Corporate Environment Clearly, the way business is conducted in the 21st Century is different from the way it was conducted in the previous century. It is because of some fundamental changes that makes it so distinct and different to run a corporate entity. Collier and Agyei-Ampomah (2009) state that there are four main areas and aspects in which businesses have changed: 1. Globalization: There is a tendency towards globalization and competitive advantage is a major element and aspect of business operations 2. Technology: Business activities are bolstered by technology which is the source of a major competitive advantage 3. Financial Re-engineering: The financial structures of businesses keep changing. Different people have different financial arrangements and mergers, acquisitions and other activities causes businesses to change their operations and activities quickly. 4. Change Management: Organizations conduct different changes on a more regular basis. Hence, it is imperative for businesses to manage them. Competitive advantage is a major element of businesses this is because a business would need to survive through the use of tools and techniques that would allow it to make profits. However, in doing this, they would have to beat their competitors by capturing and sustaining market share. “An organization may achieve and sustain competitive advantage by leveraging its unique resources to take advantage of current and future opportunities” (Piller and Tseng, 2010: p83). And this is done through the identification of a firms unique competency and making the best use of it to retain a market share and also expand its operations throughout the area of operating. “An enterprise has competitive advantage if it is able to create more economic value than marginal competitor in its product markets” (Xu et al, 2007@ p1173). Porter (2008) identifies that competitive advantage can be achieved through the identification of industrial boundaries, segmentations and strategic relationships as well as through structured analysis. This means that there is a lot of planning and positioning in order to ensure that a firm attains and retains competitive advantage. Also, technology and innovation are important sources and tools of competitive advantage. This is because technology improves operations and interaction of variables in a given entity. The acquisition and usage of more modern and more complicated versions of technology enhances the strength and competitive position of a given firm or business. It is also noticeable that the former position of limiting financial information to just the management accountant is dying out. This is because the use of systems like enterprise report planning has led to the hybridization of the accounting function (Abdel-Kedar, 2009) . This is done by using the management information function as a system that links all departments. Hence, the targets and other information are made available to all units of the company. Also, the use of information systems allow real-time information to be acquired. Thus, the function of collecting data and wasting time to put information and other elements together is no more a significant part of the management accountants activities. Rather, management accountants have to spend time on more critical activities and analyses. Current Role of the Management Accountant It is very apparent that the changes in the modern business environment has led to significant re-arrangements and re-orientation and prioritization in the field of management accounting. There are many views and opinions about this. Collier and Agyei-Ampomah identify that there is a different approach in the definition of the role of management accounting as a business function today. They quote the CIMA definition of management accounting as follows: “It is the application of principles of accounting and financial management to create, protect, preserve and increase value so as to deliver that value to stakeholders” (Collier and Agyei-Ampomah, 2009: p173). This means that the role of the management accountant is about the application of the ideas and concepts of management accounting to support in the completion of different functions and activities of a given organization or entity. This is done through the use of standard principles and ideas to help to provide value for a firm. Another notable difference between management accounting in the past and management accounting today is that, it used to be focused on assisting a firm to meet its profit and investment targets. However, it is now changed significantly. A firm would need to use management accounting and the expertise of management accountants to provide value for stakeholders. The shift of management from being a shareholder oriented function to a stakeholder function relates to the idea that firms need to be more responsible and focused on the attainment of results that provide a positive outlook for all the persons and parties involved or affected by the organization. In examining how management accountants operate in todays world of business, Collier and Agyei-Ampomah go on to say that there are six main concerns which the modern managemetn accountant needs to adhere to: 1. Formulation of business strategy: Unlike the past where the management accountant was mainly involved in doing calculations and coming up with data, now the management accountant is actively involved as a functional manager in decision making. He plays a significant role in advising and working with the top level management. 2. Planning and Controlling Activity: The management accountant still retains some degree of technical activities in an organization. This involves the monitoring of costs. However, a management accountant needs to be more careful and thorough in the examination of information that is put forward for qualitative and quantitative compatibility. 3. Decision-making: The management accountant needs to provide guidelines for decision making. This is done by providing information backed by evidence in the collection of information. 4. Efficient reserve usage: The management accountant needs to advise management on how best to use resources. This is done in a more autonomous capacity and the manager can lobby and partake in all relevant decision-making. 5. Performance Improvement and Value Enhancement: The manager would need to improve performance and enhance the value of organizations. This is done through the use of innovative systems and techniques that helps the firm best. 6. Safeguarding tangible and intangible assets: The management accountant has to put in place the right approaches and methods to ensure that the assets of a firm are used for the best interest of all stakeholders. 7. Corporate Governance and Internal Control: In todays world, the management accountant is involved in the directing and running of the business. He provides information for the decision-making process and he is a representative of the firms top level and advanced managers. Use of Tools and Techniques in Management Accounting The management accountant has to play different roles and use different techniques to ensure three main things in an organization: 1. Globalization and its concerns. 2. Survival and 3. Innovation Due to this, todays management accountant has to ensure that the best tools and techniques are used to guide and direct an organization and enhance its operations and activities. This has led to the variation of the approaches used for carrying out the management accounting function. This involves different methods that provides better decision making. These decision making helps in promoting competitive advantage, enhancing performance and keeping the firm in line with new trends and activities. Three of such views are examined below: Activity Based Costing In the past, most accounting decisions and cost build ups were done throught he traditional departmental flow system. This involved identifying direct costs and apportioning indirect costs (Hansen et al, 2009). However, the introduction of activity based costing (ABC) has led to the identification of cost drivers and cost pools. This has enhanced control over overhead costs and promotes better management decisions (Weygandt et al, 2009. Total Quality Management The concept of total quality management has made it imperative for businesses to link their operations with their quality standards (Anand and Saul, 2004). Quality is about setting a specification and meeting it. Total quality management enables the firm to come up with systems and structures that allows it to link quality to its production standards and levels Balanced Scorecard This is another performance measurement tool that helps the management accountant to link up the quality and financial targets of the company with all the relevant units of operations. It helps the firm to attain a higher standard in its monitoring and evaluation. This acts as a tool for long-term and continuous improvement for all stakeholders. Conclusion The role of the traditional management accountant was steeped in the need to cut costs and improve performance. Management accountants were more or less an external entity that provided figures for leaders to make decisions. Most of the decisions were meant to increase profitability. However, there have been significant changes in the world of business. This include the increase in globalization and the growth in the quest for competitive advantage. Also, there is the need for constant monitoring to ensure survivability and manage change. The role of the management accountant has therefore been modified by these changes. One significant change of the way management accounting is carried out is that it is done with a stakeholder focus now than it was in the past. Most management accounting views are related to the improvement of stakeholder interest. The management accountant is involved in decision making directly and they are a crucial part of corporate governance. Management accountant need to use more innovative methods and tools for the improvement of the overall function of the company. Thus, it is now a more strategic function than it was. Management accountants also have to use innovative tools to ensure improved performance and successful analysis of costs. References Abdel-Kedar, M. G. (2009) Review of Management Accounting Research Sydney: Palgrave Macmillan. Anand, L. S. and Saul, A. (2004) Total Quality Management Delhi: Prentice Hall International Chapman, C. S., Hopwood, A. G. and Shields, M. D. (2009) Handbooks of Management Accounting Research London: Elsevier Access Online. Collier, P. M. and Agyei-Ampomah, S. (2009) Managemetn Accounting: Risk and Control Strategy London: Elsevier. Hansen, D. R., Mowen, M. M. and Guan, J. (2009) Cost Management: Accounting and Control Mason, OH: Cengage Jackson, S. R., Sawyers, R. B. and Jenkins, G. J. (2009) Managerial Accounting: A Focus on Ethical Decision Making Mason, OH: Cengage Kohsrow-Pour, M. (2008) Effective Utilization and Management of Emerging Information Technology New York: IGI Publishing. Maskell, B. H. (1993) Performance Measurement for World Class Manufacturing New York: Productivity Press. Needles, B. E., Powers, M. and Gosson, S. V. (2010) Financial and Managerial Accounting Mason, OH: Cengage Piller, F. T. and Tseng, M. M. (2010) Handbook of Research in Mass Customization New York: World Scientific Porter, M. E. (2008) Competitive Advantage: Creating and Sustaining Superior Performance London Simmon and Schuster. Weygandt, J. J., Kimmel, P. D. and Kieso, R. E. (2009) Management Accounting: Tools for Business Decision London: Wiley. Xu, L., Tjoa, A. M and Chaudry, S. S. (2007) Competitive Advantage in SMEs London: Springer Read More
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