Management Accounting - Essay Example

Management Accounting Introduction Management accounting is a branch of accounting which mainly deals with various managerial aspects. This is primarily handled by the managers within the organization, and it is an essential component in taking appropriate decisions. The concept of management accounting comes under the Management accountant who is responsible for the preparation of financial statements, and management accounting report for appropriate decision making. Management accounting determines the success or failure of an organization. Moreover, it is very essential in the appropriate decision making. The main aim of a management accounting report is to provide logical information about the business and the functioning of it in all the levels of an organization. "The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals." (Managerial accounting. 2007).Due to the changes that have been taking place in the accounting field, it is necessary to take appropriate measures to improve the managerial accounting techniques and procedures. Obtaining adequate information required for the organization is the main driving force for change. In order to gain the organizational goals, it is necessary to implement the relevant managerial accounting policies effectively. Increased competition requires adequate changes in the management techniques. Earlier, management accounting was mainly concerned with the determination of cost, control of finance, and the like. It was also used in order to minimize the wastage of resources. In addition to this, the management accountant is also responsible for the preparation of accounting statements effectively. Reinvention of Management Accountant However, in the recent times, the role of management accountant has increased tremendously due to the changes in the scenario of accounting. As far as an organization is considered, management accountant is responsible for the adequate managerial decision making for the future running of the business entity. Management accountant is one who needs to possess a thorough knowledge of all the relevant aspects of the enterprise. The concept of accounting point to the fact that management and financial accounting are not at all similar. "Financial accounting is something performed to agreed standards and principles (GAAP) designed to fairly and accurately report the true worth of a business to its owners and its true profits to the tax collector. Management accounting, on the other hand, is a mechanism for using a financial metric (dollars) as a normalizing mechanism for making decision about (often vastly) different choices and alternatives." (Anderson 2005). In order to mitigate the existing difficulties associated with the concept of managerial accounting and its principles and policies, it is necessary to undertake effective implementation strategy and the reinvention of management accountants. The organizational customs and its environmental factors are also effecting this reinvention to certain extend. Management accounting principles and its applications are fundamental for the preparation of financial statements and report to the entity so as to take appropriate future decisions. Management accounting highly concentrates on taking the most relevant decision required within the organization, and it is necessary to obtain the proper information about the entity to facilitate decision making, and such information should be more accurate in nature. As Professor Lee D Parker suggests, reinventing the management accountant is a fundamental concept to improve the efficiency of the subject of management accounting. For this, more talented and eligible personalities are required for the organization for controlling the area of accounts and finance. As a result of this, it is very clear from the fact that the management accountant, their role, duties, and responsibilities are widely increasing day by day, due to the technological innovations made by the business entity. Accounting is an activity that deals with the application of theoretical knowledge in the practical field and this requires wide knowledge and skill. Generally, the management accountant deals with the relevant technical issues for taking sufficient decisions. In order to take appropriate decisions it is necessary to consider the fund flow analysis and cash flow analysis, cash budget, capital budgeting, ratio analysis etc. are relevant. Generally Accepted Accounting Principles (GAAP) deals with various accounting principles and guidelines to undertake the implementation of accounting practices. To undertake the reinvention of management accountant, it is necessary to adopt recent changes in to the current management accounting movement. Therefore, major factors responsible for the changes in the management accounting are- Changes take place in the economy. Awareness about global competition. Emergence of recent innovative measures and technology. In addition to this, a management accountant is also responsible for introducing various measures or techniques like ABC (Activity Based Costing), Just in time inventory measures etc. The tasks being performed by the management accountant should be based on certain ethical principles and corporate responsibilities. Consequently, the accountant should perform his task with certain qualities like skill, confidentiality, truthfulness and independence in nature. "The management accountant supplies performance reports which compare actual performance with the planned performance and which therefore highlight those activities which are not conforming to plan." (Transport Financial Analysis). Management accounting aims to develop certain trends in the organization with a view to bring more advanced results. Moreover, it is necessary for an accountant to stress more on the uses of financial measurements and other statements to make effective decisions. It is necessary to evaluate the major organizational changes to improve the workings of an entity. As a result of this, it is possible to improve the technical feasibility and financial viability of an entity as a whole. The ultimate aim of management accounting is to emphasis on future, because the decision making process of managers rely on forecasting and prediction. Hence, the major characteristics or the nature of the subject management accounting is based on the following concepts, such as- Prediction about the future working conditions about the business entity. Management accountant should obtain relevant and adequate information about the changing scenario of the business entity. Undertake various managerial tools and techniques for improving the overall financial performance of the business enterprise, such as budget costing, marginal costing, standard costing, cash flow and fund flow statement etc. Therefore, it is crucial to consider the changes in the organization effectively so as to make the prominent decision that may affect the performance of the entity in future. Implementation of strategic management accounting tools is also effective for this. "The role of the management accountant becomes very much integrated with the value-creating business functions. The finance people become important members of the value stream teams. The accounting, control, and performance measurement information is designed to support and enhance the continuous improvement process. The management accountant becomes a change-agent within a world-class organization." (Maskell & Baggaley 2001). Hence, the management accounting and accountants aim at maintaining the organizational development through continuous improvement measures and techniques. Conclusion Today, accounting may be regarded as language of business that provides adequate communications to almost all people who have an interest in the organization. Management can obtain complete information about the business operations and exercise maximum control over the effective usage of accounting data. With the rapid growth in the size of the business units, the role of management becomes more complex in nature. So, recently by reinventing the role of management accountant, he has to undergone several functions and responsibilities like analytical and advisory functions and administrative and procedural functions. Therefore, major analytical functions of an accountant should include, planning and control of operations, measurement of overall performance, undertake the reporting procedures, evaluation of external factors, and protection of assets. Likely, major administrative and procedural functions of an accountant are installation of an adequate accounting system, arranging audit, introduction of budgeting systems, making the decision relating to capital expenditure, management of cash, preparation of financial statements, observance of government orders, inventory management, and collection of major data relating to business. So, it is very clear from the fact that the concept of management accounting is an art of both management and accounting in an equal manner. In addition to processing the historical data, the accountant provides various information relating to the future operations of a business unit. Bibliography Anderson, David J. 2005, 'Management Vs Financial accounting', AM Blog Entry, AGILE Management.Net, [online] Available at: http://www.agilemanagement.net/Articles/Weblog/Managementvs.FinancialAcc.html Maskell, Brian H. & Baggaley, Bruce L. 2001, 'Future of management accounting in the 21st century', Journal of cost management, The value creating management accountant, BMA Inc. [online] Available at: http://www.maskell.com/FutureofMgmtAcctg.htm NetTOM, Transport Financial Analysis, Session 5. Financial and Management Accounting, The role of management accountant, Assistance in controlling, Available at: http://cbdd.wsu.edu/kewlcontent/cdoutput/TOM505/page11.htm The free dictionary 2007, Managerial accounting, Available at: http://financialdictionary.thefreedictionary.com/Managerial+Accounting Read More