Management Accountants and Decision Making - Essay Example

Management accountants and decision making Name Institution Course Date Potential benefits for management accountants in decision making processes Introduction According to The University of New South Wales (2005), management accounting is an area of study that deals in bringing together management in making decision, coming up with planning and performance systems and offering professional financial reporting and control in order to enable the management in formulating and implementing the organization strategy. On the other hand accounting is a collection of systems and procedures which are used to record, report and interpret the transactions of a business, and helps the managers to meet the stakeholders satisfaction and demand that they have acted in the best interest of the organization rather than themselves (Collier, 2003). Innovations Management accounting According to the “chartered institute of management accountants” (CIMA), accountants in administration perform significant duties in unlocking the potentials in transforming business intelligence in finance which provide a chance to shape the way to arrive at a decision and increase productivity (CIMA, 2008). Understanding the various explanations in decision making by the management accountants is very important to both the accountants and the organisation (Kiriri&Gumus, 2011). According to CIMA (2008), there are many benefits that arise as a result of understanding by the management accountants on the devise ways in decision making. Through better decision making as result of better management information competitors are able to establish a competitive advantage (CIMA 2008). Although business intelligence (BI) poses a danger to the known roles in accounting to producing information that offers new ways that stimulate delayed transformation of financial projects and improves the accounts capacity to support in roles on decision making (CIMA, 2008). By understanding the various explanations of decision making processes, the roles in finance are changing significantly. The top organisations have held the opportunities presented by transformation in finance to improve the productivity in of accounting operations. These organisations have put in place peopleadd a lot of input in arriving at the right decision in the business (CIMA, 2008). On the other hand, business intelligence (BI) has matured to technology,and has included reporting, analysis and performance management tools that are used by accountants. Business intelligence (BI) is not only change in the hardware or the software, but the wide acknowledgment that data in the organisation is an important asset and can result to important information for management as well as implementing change in order for this information to be used in improving decision making(CIMA, 2008). Potential benefits for management accountants There are potential benefits to management accountants in understanding the various decision making processes.The management accountants must understand the basic accounting assumptions in decision making (Atkinson, Kaplan, Matsumura & Young, 2008). First the management accountants must outline the basic goals assumptions or objectives. For instance the goal could be to maximize the net income or increase sales or earnings from the shares. Accounting management is not aimed at an outcome but whatever the goal may be there should be a satisfactory profit. Secondly the management accountants must outline the role of management. This is because the performance of every organisation is based on the the skills and the qualities of management. The businesses are not solely dependent on forces of the market but through the decisions made by the management, they can control such scenarios within limits.So as to attain desirable outcome the top authority adopts particular planning, procedures and regulationmeasures such as business budgeting, incremental analysis, inventory models, cost volume profits among others. The third assumption that management accountants make in decision making is the decision making assumption. Decision making is a very important managerial function. The decisions can be said to be planned and well considered, short term and long term. A properjudgmentcreationneedsappropriateevidence as well as distinctive data scrutiny (Atkinson, Kaplan, Matsumura & Young, 2008). The fourth assumption is the accounting department assumption. This is the department that is the mainbasis of material that is essential in decision creation. The department account is supposed to offermaterial to all management ranks. By understanding the devise processes in decision making the management accountants are able to contemplate the divisionskilledin providing statistics that could be useful in making decisions in promotion, manufacture and finance. Finally, the management accountants should be able to distinguish the nature of accounting information. In order to create good investigation of statistics, it is important to distinguish between permanent costs and adjustable costs as well as other type of expenses which are lesssignificantto record acommercialdealing. Other information that should be provided in decision making is such as estimates, future data and forecasts (Atkinson, Kaplan, Matsumura & Young, 2008). By outlining properly the assumptions in decision making processes the management accountants are able to place the organisation on a competitive position in the industry (Steve, 2005). Basically decision making in management accounting is simply choosing a course of action from all the alternatives but in case of no alternative, there is no decision required. Ahypothesiscan be made that the paramountchoice is the one and only which includesmaximumincome or the slightest cost. The administration accountants are able to determine the best possible alternative (Steve, 2005). In decision making the management accountants are able determine the best alternative through various steps. Initially they are able to recognise the severalchanges given the type of choice. Secondly, they are able to obtain the appropriate data that is necessary to evaluate the given alternative. Thirdly, the management accountants analyse as well as define the concerns of every substitute. They choose the substitute that appearsto realise the anticipated objective. Finally they are able to put in place the chosen substitute and at the properstage they assess the consequences of the choices made in contradiction to the other desired results or standards(Mazumder, 2007). The idea of making a choice is a compound undertaking that involves large volume of administrationcollected works, but by understanding the various explanation in decision making processes the management accountants are able to help businessmen make the right decisions. Thesedecisions are strategic or tactical and short term and long term (Forsaith, Tilt &Lobo, 2009). According to Forsaith, Tilt and Lobo (2009), usually it’s very important to differentiateamidplanned and calculatedchoices. Plannedchoices are of high quality and reflect the objectives of the organisation and they are grounded on personaldiscernment of the administrationwhich is usually in line with the objectives. The calculatedchoices are measureable and the outcome isstraight from the plannedchoices (Forsaith, Tilt & Lobo, 2009). On the other hand management accountants play an important role in making short run and long run decisions. The decision on choice of a long term or short term decision is based on the management choice of profitability objective. For instance, when thegoal is aimed at increasingtransactions, at that timefunding a new plant is not an instant requirement (Forsaith, Tilt & Lobo, 2009). Costof implementingManagement Accounting Training as a management accountant is a wide discipline that combines both accounting and business. This in turn helps to develop accountants who can add more inputs in decision making (Jackson, May & Whitney, 1995). Nowadays employers are not interested with accountants who have practicalabilities to yieldfinancial statement, but rather, those who can relateproficiency in finance to sustain the business as well as add to governance and decision making (CIMA, 2008).In the recent past the development business intelligence has played an important role decision making. The management accountants have realised that makingadministrationmaterial is an expensive and functioningfigures requires severalcertified accountants with fiscalskills who can be in professionalduties. Business intelligence on the other hand could assist to relief accountants from the sequence of reporting and offer the choices required in company (CIMA, 2008). In developing the business intelligence (BI), management accountants should be engaged due to role they play. The management accountants will help to realise the potential in making the case for business for investing in business intelligence. They will also play an important role in the business intelligence projects as well as ensuring the quality of data (Institute of Management Accountants, 2008).It has been the task of management accountant to provide information for decision making, but through business intelligence technology management accountants will have a boast in the future. Administration accountants are therefore at a better positionto ensure that the programmeddelivery of facts gives the finestoutcomes to the company (Collins, 2011). According to CIMA (2008), management accountants should take the lead in the business intelligence. Research shows that when certified public accountants are consulted in enactment of enterprise resource planning, it results tobetterachievement (Eierle&Schutze, 2013).Finally; management accountantsemploy traditional measures,which have been tested and found to be appropriate in making the right choices on income. Although most of the practicesseem to be simple, they have confirmed to be of greater worth. These techniques are based on mathematical techniques and can be regarded as mathematical decision making models (CIMA, 2008). Conclusion In conclusion, there are many potential benefits for the management accountants especially when they understand the various processes in decision making. According to (CIMA, 2008), business intelligence has enabled complex analysis, mining of data and predictive models. Amazon, Capital One and Marriott are among the identified companies leading in application of business intelligence (CIMA, 2008). The primary role of management is to make decisions such as marketing, production and financial decisions. Every item inmonetaryreports is the outcome of a choice and in every choice there is a managing accountingtool that could be employed to markthe right choice. In this regard the managing accounting tools are only to be used if the accountants are effective in offering the required material by everyspecific tool. On the other hand business intelligence is but a technology enabler. Management accountants will have a very crucial role to play if business intelligence has to be effective and of any significance. These necessary changes will require to be properly employed. Management accountants should therefore be the champions in business intelligence. Although it may be threatening the old-fashionedaccountants’duties in production of fiscal and management material, it will result to some of them becoming experts in using business intelligence. The future of those accountants may be in finance and not in accounts. References Atkinson A, Kaplan R, Matsumura E, Young S,(2008), Management accounting: Information for decision making and strategy execution with my accounting lab CIMA (2008), Improving decision making in organisation; unlocking business intelligence 26 ChapterStreet London SW1PNP United Kingdom Collier P, (2003), Accounting for managers: interpreting accounting information for decision making Collins E, (2011) Associate professor, Waikoti Management School, University of Waikoti; Sustainability and the role of the management accountant,26 Chapter Street London SW1PNP United Kingdom Eierle B, Schutze W, (2013), the role of management as a user of accounting information: implications for standards settings; journal of accounting and management information systems Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 12(2), pages 155-189, June. Forsaith D, Tilt C, Lobo M, X, (2009), The future of management accounting: A south Australia perspective Institute of Management Accountants, (2008), Practice of managementaccounting, published by Institute of Management Accountants 10 Paragon Drive Montvale, NJ07645 Jackson S,E, May K, E,(1995) whitney K, Understanding the dynamics of diversity in decision making teams Kirili M, Gumus H, (2011), The implementation of strategic management accounting based on value chain analysis: value chain accounting. International journalof social sciences and humanity studies vol.3, No1, 2011 ISSN: 1309-8063 Mazumder B, C, (2007), Application of management accounting techniques in decision making in the manufacturing business firms. The cost and management Vol. 35, No.1 Steve F.C, (2005), Division of commerce, Community College of City University, Implementation of strategic management accounting The University of New South Wales School of Accounting (2005), Value based management in a global economy Read More