Issues in Management Accounting - Essay Example

Issues in Management Accounting Name: Institution: Date: Understanding the existence of diverse explanations of the process of decision-making Introduction Management accountants play an important role in the organization since they provide in-depth description of decision-making processes. Management accountants have to understand the diverse explanations involved in decision-making processes. A management accountant belongs to a cross functional team and possess unrestricted access to Management Information Systems, gives a contribution through providing facts and figure which provide objectivity of the report. The management accountant ensures that the information provided is relevant, accurate, and timely. The role of management accounting is any company or organization is to support decision-making that is competitive through processing, collecting, and communicating information which helps the management in planning, evaluating, and controlling company strategy and business processes. Understanding the existence of diverse explanations in the processes of decision-making is beneficial for the accountants. This paper discusses the potential benefits of understanding diverse explanations in the process of decision making for management accountants. Discussion Management accountants play crucial roles in the unlocking the potential in business intelligence and finance transformation. Business intelligence that gives the direction to the organization in decision making cannot be achieved if the diversity in the decision making processes is not understood. The needs of organization are diversified; and contemplation of developing of alternatives has to be developed with the diversity that exists. Stakeholders, shareholders, and regulators require greater transparency and more information on the operations of the organization. The management has to understand the diverse explanations of decisions making processes in order to achieve the goals and objectives of the organization. Management accounting deals with analyzing financial information and making decisions that are informed for the business (Burns & Baldvinsdottir, 2007). Management accountants analyze financial information of any company and make future decisions that affect the operations of the company in a positive way. The information provided by management accountants is not shared by outsiders since it is for the internal use of the company. The management accountants study the revenues of the company and provide direction for strategic decisions of the company. The information provided by management accountants is strictly used by the owner of the company and upper-level management. The information that management accountants offer is used for increasing the profitability of the company. Increased competition and globalization has compelled organizations to very careful when it comes to decision making process. Management accountants come up with decisions which target to increase the overall revenues of the company. Management accountants look for ways of increasing revenues of the company. The expenses in a company need to be monitored and controlled. One way of through which the company can increase its profitability is by eliminating expenses that are unnecessary (Ahrens & Chapmann, 2004). The process of decision making is complex and related to many operations of the company that can be affected by one wrong move. Management accountants look at all expenses and looks for ways of decreasing or eliminating them. This process incorporates cost accounting. The dynamic world of business accompanied with uncertainty requires understanding of diversity. Cost accounting involves calculating production costs and looking for the most effective and efficient way of increasing productivity. The basic objective of decision-making is to attain optimum utilization of the company’s resources or capital (Howieson, 2003). The decision made my management accountants can be classified as financial, production, and marketing. These decisions can also be classified as tactical and strategic and short-run and long-run. The primary source of information required for decision-making is the accounting department. After analyzing the expenses and revenues, accounting managers advice which parts of the company are aligned to the strategic goals of the company and which parts are experiencing challenges. Managers come up with decisions which they offer to people concerned for implementation. Management accounting requires a deep understanding of the process of decision making and being aware of the users of the accounting information and their respective needs. The diverse nature of the decision making process enable the management accountants to come up with decisions that are helpful to the organization. Without the knowledge of the diversity of the decision making process, management accountants will come up with decisions that are skewed and do not increase the profitability of the organization (MacCrimmon, 2005). Management controls are developed in diverse environment that require high interpretation by the management accountants. The management accountants have to understood the setting within which the organization exist and what impact do decisions made have to the relationships with other businesses. Decision-making in management accounting may be defined as picking the course of action from the available alternatives. The alternatives cannot be developed and selected if the management accountants do not understand the diversity of explanations of decision making. They have to explain to the people whose needs they are developing their alternatives. The basic assumption is that the best decision is the one minimize costs and increases the expected revenue. The responsibility of the management with the assistance of the management accounts is to finds the best option that will minimize the costs while increasing revenue. The goal is not to make the best decisions but to arrive at a good decision that will not jeopardize the welfare of the company. Management decisions making is very subjective and involve complex interacting relationships. Whether a decision is acceptable or good depends on the objectives and goals of management. It is important for the management to set the objectives and goals of the company before involving management accountants in decision-making. The management has to make decision with regard to strategic objectives like the company’s pricing strategy, product line, profit objective, and quality of product (Chapman, Hopwood & Shields, 2011). Such products of management accounting include lean manufacturing. Lean manufacturing is a practice of production that put into consideration the expenditure of resources for any goal apart from the creation of value for the end customer to be wasteful, and therefore, target to eliminate it. Strategic decisions are qualitative, broad-based type of decisions that reflect or include objectives and goals. In coming up with the goals, it is important to making a decision between the tactical and strategic decisions. Strategic decisions are not quantitative in their nature. Strategic decisions are arrived at through subjective thinking of management with regard to objectives and goals. On the other hand, tactical decisions are executable, quantitative decisions which emanate directly from the strategic decisions. The process of decision-making is complicated because the horizon for making decisions may be for long-run or short-run. The choice between the long-run or short-run is especially critical in regard to setting objectives of profitability (Guilding, 2012). Not all companies seek the measures of success. Some of the objectives that can be chosen by the management include maximization of net income, return on total assets, sales, earnings per share, and return on total equity. The process of decision-making is therefore, impacted by the profitability objective as well as the choice between short-run and long-run. Management accountants play an important role in forecasting and budget preparation. Through analyzing the financial information provided, management accountants come up with ideas for increased growth and expansion of the operations of the company. Management accounts have to come up with decisions that are tailor made towards a particular department within the organization. Understanding the needs of various people and coming up with applicable alternatives in the best approach that management accountants have to take. Management accountants play a very important role in implementation of change within an organization. Understanding of diversity assists in development of effective alternatives that help in change implementation in the company. Comprehend the best way to implement change and its effect on the organization requires comprehension of diversity of the setting within change is being implemented (Abdel-Kader & Luther, 2008). Managers use information of management accounting to chose strategy in communicating and determination of how best it can be implemented. Management accounting information is used in coordination of decisions by managers with regard to designing, marketing, and producing a service or a product. Managerial accounting information offers data-driven input to decisions which improve decision-making in the long term. Management accounting offers information necessary in assisting in management control and decision-making. Management accounting is described as an application of professional information in a way that can assist management in the formulation of policies and in the control and planning of operations in an organization. The management accountant process involves creating and using cost, time-based information, and quality in making effective information in the company. Many members of the organization are involved in this process (Byrne & Pierce, 2007). The intricacies of the relationships that exist require that the management accountant come up with various way of supporting their decisions through clear explanations to different members of the organization. Management accounting is closely connected to cost accounting. The two are closely connected that is difficult to tell a clear distinction between them. Cost accounting has the objective of measuring the performance of services and goods and responsible departments. The role of management accountant can be referred to as that of an information manager. The information which is generated assists the management in control business operations and management with decision-making process. Users of information have to be consulted in order to assess the needs to determine what is exactly needed in their departments. Management accounting is an integral part of the management process, and management accountants are viewed as crucial strategic partners in the management team of the organization (Hansen, Mowen, & Guan, 2009). The management team creates value for the organization through managing resources, people, and activities in order to effectively achieve organizational goals. Organizations have to meet evolving reporting requirements through capturing and processing a broad of data in order to produce new business metrics and be innovative. This process cannot be achieved if management accountants in the organizations do not have diversity in their explanations to the process of decision making. Management accountants have to convince the members of the organization how important and useful their decisions are to the success of the organization. Strategic management accounting involves corporate governance and budgeting which require comprehension of various factors that affect the performance of the organization. The operations of the organization are enshrouded in diversity and hence the process of decision-making has to be contemplated in the same context. Effective decision-making is a world full of uncertainty is best carried out in collaborative and practical group process. Better decision making requires the understanding the diverse nature of decision making process. There are complexities that come with the decision making process. Through the understanding of diversity management accountants are able to visualize some of the problems that may come with the kind of decisions that have been implemented (Dolnicar & Grun, 2007). The management accountants have to separate short term from long term decision making and give advice on the goals and objectives that can be attached to them. Superficial understanding of the decision making process will deny the management accountants the chance to realize any mistake in the decisions made by them. Conclusion It is important for management accountants to understand the diverse explanations of decision making-processes that help in developing effective options. The decision making processes are complex and involve various parts of the organization whose opinion has to be sort. The decisions made from the advice of management accountants determine the success of the organization. It is important for management accountants to come up with alternative after thorough consultations and studying the setting of the organization. Management accountants are accountable to various groups in the organization that require a succinct explanation. Therefore grasping the enormity of diversity of explanations of decision making process is very beneficial to management accountants. References Abdel-Kader, M. and Luther, R. (2008). The Impact of Firm Characteristics on Management Accounting Practices: A UK-Based Empirical Analysis. British Accounting Review, 40, 2-27. Ahrens, T., & Chapmann, C. S. (2004). Accounting for flexibility and efficiency: A field study of management control systems in a restaurant chain, Contemporary Accounting Research 21 (2):271-301. Burns, J. & Baldvinsdottir, G. (2007). 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(2009). Cost Management: Accounting and Control, New York: Cengage Learning. Read More