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The Rise of Strategic Management Accounting - Essay Example

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This paper explains the difference between management accounting and financial accounting. It also seeks to determine whether SMA is currently being used extensively in organisations, and whether traditional management accounting tools continue, to hold their own in those organisations, by comparing the extent of the usage of both worldwide. …
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The Rise of Strategic Management Accounting
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Download file to see previous pages Management accounting systems ideally provide information regarding all aspects of an organisation’s transactions; by covering all spectrums of the organisation they represent an important source of information for decision making. As mentioned above, traditional management accounting has come under attack for failing to provide sufficient information for strategic decision making purposes. This failure lies in the inability of traditional management accounting to fulfil those information requirements that would contribute to both the competitiveness of the organisation vis-a-vis its competitors in the industry, and its long term performance. Langfield-Smith states that surveys of practice in the 1990’s suggested that the adoption of SMA was slow; others also go on to mention that it was ill—defined and it is unclear in terms of coverage. Others have said that there are gaps in the understanding provided by SMA and this is attributed to various interpretations that have been put forward by writers advocating its use. This paper explains the difference between management accounting and financial accounting. ...
Management Accounting versus Financial Accounting Management accounting is distinct from financial accounting in that it provides information to persons internal to the organisation to facilitate decision making, while financial accounting provides information for external stakeholders. Internal stakeholders are the management personnel of the organisation, based within various departments/sections/divisions working together to achieve organisational goals. External stakeholders include shareholders, advisors, potential investors, regulators, government authorities and creditors – including suppliers, banks and holders of debt instruments (Atkinson et al, 2003). This however does not imply by any means that financial accounting information is not used for internal purposes; it is in fact, crucial. The only difference is that it is not necessarily appropriate to apply it in the same format as it is for external purposes; although, it does derive from the same integrated accounting system. While financial accounting information conforms to standards and guidelines that have been instituted by standard setting bodies such as the International Accounting Standards Board (IASB), management accounting does not conform to any particular standard since it is used for internal purposes only. Management accounting deals with both financial and non-financial information. Traditional Management Accounting versus Strategic Management Accounting In his seminal work entitled “Strategic Management Accounting” (SMA) Simmonds (1981) defined SMA as “the provision and analysis of management accounting data about a business and its competitors, for use in developing and monitoring business strategy.” Bromwich (1990, p.28) defines it as: ...Download file to see next pagesRead More
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