Dynamics of Managerial Accounting Process - Research Paper Example

?Running Head: MANAGERIAL ACCOUNTING PROCESS Dynamics of Managerial Accounting Process Insert Grade Insert 13 February Table of Contents Running Head: MANAGERIAL ACCOUNTING PROCESS i Dynamics of Managerial Accounting Process i Table of Contents ii Dynamics of Managerial Accounting Process 1 Introduction 1 Conclusions 7 Dynamics of Managerial Accounting Process Introduction This paper seeks to analyze how accounting information is used for achieving organization goals. Managers have been continually unable to effectively use management accounting information concerning existing dynamics. Therefore, the paper will reveal the existing managerial accounting dynamics that have hindered effective communication and decision making by managers. The research will focus on practical solutions that are dynamic to cater for structural weaknesses in an organization’s management and communication of information. Dynamics of an organization’s management provides for a comprehensive introduction of constraints to managerial accounting and decision-making efficiency in profit and non-profit oriented organizations. Organizations are desperately in need of a supportive and fully integrated accounting system that enables efficient communication of accounting information for vital managerial decision-making. Changes in management accounting take place in a variety of dimensions that are of an irregular nature. However, organizations need to adapt their management accounting tasks, techniques, skills, and tools to the relevant dynamics. The study seeks to analyze management accounting practices to come up with functional solutions in adopting the continual changes concerning the practice. Solutions need to influence management accountants to advance and adopt their practices to be able to relate management accounting to information flow that is wider within the organization. Nevertheless, current dynamics depict shifts from financial accounting practices to those oriented to commerce. However, irrespective of the dynamics, the study recognizes that traditional managerial accounting practices such as cost control, interpretation of operational information, and management budgeting remain essential. The research seeks to represent continuous improvement of managerial accounting with the necessity of adopting a broad view of commerce. Study expectations are directed towards the adoption of non-financial measures where users are able to integrate both non-financial and financial measures into planned strategic activities. Study expectations to solutions also require that managers should embrace ethics in carrying out their day-to-day tasks besides developing quality leadership skills. On the other hand, future managerial accounting techniques and tools are expected to be activity-based and forward-looking. The study would also reveal value creation tools that appear to be important for future managerial accounting. Review of Literature Managerial Accounting Dynamics According to Hopwood and Chapman (2009, p. 1222), the manners in which organizations manage various dimensions of change bring about significant implications for managerial accounting dynamics and innovations to changing perspectives. The organization has to understand different types of changes such as predictable and unpredictable, controllable and non-controllable, evolutionary and revolutionary, and comprehensive and incremental among many other types. An understanding of the various types of changes is not only good for organizations, but also a necessity to achieving efficient management. Managerial accounting process is dynamic in nature just like the world dynamics, in order for users of accounting information to remain relevant in future and the present day dynamics the organization needs to have a thorough understanding of the existing change dynamics. Managerial accounting dynamics necessitate organizations to spend resources on solution alternatives to enable standardization of existing accounting tools, skills, and techniques with respect to existing changes. Standards practices are considered as those that embrace present change factors, considering the fact that, what is standard today may not be standard tomorrow due to change dynamics. Organizations therefore need to embrace continuous improvement of the techniques, skills, and tools in line with types of changes and needs that come into play at a particular period. Mandatory Accounting Practices Managerial accounting dynamics is subject to future changes in line with commercial industry dynamics, although negative perceptions exist regarding accounting knowledge, which remains underdeveloped and stale. However, negative perceptions exist due to traditional costing and activity-based accounting, which remain necessary irrespective of the existing dynamics. Although accounting processes may be modified with new concepts, tools and techniques, there are traditional accounting practices that cannot be changed, but rather improved. Such practices are foundation to accounting as a discipline and are the building blocks to its continued importance on ethics among users of accounting information. In as much as dynamics is an issue of concern, traditional perspectives such as simplicity overrides advancement needs. On the other hand, clarity of accounting information is important and remains the basis on which managers are able to easily interpret the information and make relevant organization-wide decisions. The process of achieving clarity involves breaking down complex data into simple interpretive information, which can be easily understood by third parties. Managerial accounting needs not to involve complex data, which would consumes more time and resources in attempts to interpret managerial implications to the organization as a whole. Nevertheless, managerial decisions can only be efficiently made with the use of simple-to-understand information (Northrup, 2004, p.257). Understanding Change Factors Continuous state of growth and improvement of accounting practices by organizations comes out as a complicated task that requires a companywide understanding of detailed demands in a holistic approach. Managerial accounting dynamics analysis is basically a step-by-step in-depth process that defines the critical aspects that are essential for achieving continuous improvement and adaptive processes. Theory of constraints focuses on practical, dynamic solutions to structural weaknesses in an organization, where comprehensive analysis is carried out in management dynamics of profit-oriented organizations. The theory places emphasis on an integrated and supporting system of accounting, where practices emerge as the dynamic motivator that drives continuous improvement. Managerial accounting dynamics facilitate an integration that is smooth to the structures of an organization alongside its existing practices through building on existing constraint management approaches. The process identifies the issues that may arise in organization due to lack of global goal intentions that demonstrate how to use existing and incoming plans to align the strategies of all functional units and organizational hierarchies with the goals of shareholders for improved profitability. Bringing together every aspect of implementation to represent an organization’s global goal needs the management dynamics with respect to budgetary control, pricing, incentive compensation, simplified critical plans, and new structures of management tools. Normal accounting practices have somehow become outdated, although the same practices have stood the test of time, becoming relevant in consideration to continuous stream of obsolete concepts and traditional cost accounting practices. New dynamics are providing accountants and managers with a workable and fully articulated approach and methodology to accounting. New concepts in line with existing dynamics seek to address virtually every problem and difficulty in the modern world of accounting with solutions that are direct, rigorous, and elegant. Such advances include constraints management, which enables accountants to efficiently communicate Archimedean constraints that are of critical importance to finance and management of the organization as a whole. Theory of Constraints Constraints accounting also provides the means of doing this through earning statement, new product pricing strategies, and profit performance of constraints accounting, thereby ensuring that goals be achieved, while maintaining a robust process of continuous and substantial improvement. Theory of constraints is basically among the existing solutions to managerial accounting dynamics; more solutions to managerial accounting dynamics are a necessity to solving organization problems that come with change needs. The theory of constraints puts into consideration identification of existing system bottlenecks and means of bottlenecks exploitation to enable system functionality (Drury, 2008, p.209). Theory of constraints is among the new solutions used by managers to with new managerial accounting dynamics challenges such as organizational constraints. The theory puts into consideration the increasing surpluses of differential revenue as compared to the differential costs of the organization. Surplus differential revenue to differential costs results when an organization is facing bottlenecks with regards to its existing capacity. Theory of constraints has gone a long way in motivating organization managers to increase throughput and relax accomplishments constraints to increase organization’s profitability (Maher, Stickney & Weil. 2008. P.230) Organization-wide solution seeking to solve accounting dynamics issues can allude to the successes of constraint management. The measurements principles of constraints accounting provides a set of tools that can be used by organizations to gain competitive advantage. The measurements also provides a set of tools to provide a clear control for avoiding inappropriate measurements that may lead the organization off-course alongside improving management performance. Among the dynamics need solutions, throughput measurements have also been put in place to enable managers lead the organizations through cost reduction and throughput cost accounting measures to enable more profit generation for organizations. Research studies seek to come up with an in-depth understanding of accounting dynamics to enable solution creation. Analysis The research generally establishes that managerial accounting dynamics can be solved through continuous innovation with respect to existing changes. Solutions for today may not solve for tomorrow’s needs due to the dynamics nature of changes. Literature review has it that, a number of solutions such as constraints management and throughput measures have been useful for solving dynamics complications; however, the need for solutions remains, regarding the unknown future changes. Change characteristics may include predictable and unpredictable, controllable and non-controllable, evolutionary and revolutionary, comprehensive and incremental among many other types. Research studies seek to come up with an in-depth understanding of the different types of changes if the existing solutions fail to remain relevant. Literature supports theories of constraints and throughput, which have been highly relevant in enabling organizations to remain successful regardless of accounting dynamics. Constraints and throughput theories put into consideration the fact that an organization needs to maintain its performance aspects such as profitability, alongside achievement of goals and intentions of shareholders. The executive body of organizations has the mandate of ensuring these is upheld, however, for these to be achieved in the long run with sustainability issues in place, an in-depth understanding of the processes is paramount. The manners in which organizations manage various dimensions of change needs to be adaptive to a variety of change perspectives. Moreover, in-depth understanding of the various types of changes is not only good for organizations, but also a necessity if goals are to be achieved. The literature suggests an understanding of different perspectives that change may occur. Conclusions Managers need to continually be able to effectively use management accounting information irrespective of the existing dynamics and various change dimensions. Continuous improvement and innovation of accounting practices by organizations is evidently a complicated task if the an organization does not have an in-depth understanding of existing and future dynamics. Analysis of managerial accounting dynamics is a systematic in-depth process that defines the relevant and essential needs for improvement and adaptation in line with world dynamics. A comprehensive analysis of existing and future change needs is paramount for building an adaptive system that is relevant. Nevertheless, organizations can only achieve goals if they have an integrated and supporting accounting system that is adaptive irrespective of the various dimensions of change. The system should however maintain traditional managerial accounting practices such as management budgeting, cost control and interpretation of operational information. The system should also adopt non-financial measures where users are able to integrate both non-financial and financial measures into strategic plans. References Drury, C. (2008). Management and Cost Accounting. OH: Cengage Learning. Hopwood, A.G., & Chapman, C.S. (2009). Handbook of Management Accounting Research. NY: Elsevier Ltd. Northrup, L. (2004). Dynamics of Profit Focused Accounting: Attaining Sustained Value and Bottom Line Improvement. J. Ross Publishing, Maher, M.W., Stickney C.P., & Weil, R.L. (2008). Managerial Accounting An Introduction to Concepts, Methods, and Uses. Thomson Learning, Inc. Read More