Limitations of Management Accounting
As a relatively new discipline, management accounting has some limitations that limit its effectiveness. They are as follows:
- Limitations of basic records
- Persistent efforts
- Management accounting is only a tool
- Wide scope
- Top-heavy structure
- Opposition to change
- Evolutionary stage
- Limitations of basic records:
Among other sources of information, financial accounting, cost accounting, and other records are used in management accounting. Therefore, the strength and weakness of management accounting depend on the quality of these basic records. Therefore, their limitations are also the limitations of management accounting.
- Persistent efforts:
The conclusions drawn by the management accountant are not automatically implemented. All levels of management must be convinced. Essentially, he must be an effective salesman when it comes to marketing his ideas.
- Management accounting is only a tool:
It is impossible to replace management with management accounting. A management accountant serves as a consultant to the management. Decisions regarding the implementation of his advice are made by the management. Management accountants are always tempted to make decisions based on intuition rather than following the advice of the accountants.
- Wide scope:
The scope of management accounting is very broad and encompasses many disciplines. Financial as well as non-financial factors are considered. The conclusions derived from all of this are inexact and subject to subjectivity.
- Top-heavy structure:
Due to a complex organization and numerous rules and regulations, the installation of a management accounting system involves heavy costs. This makes it only suitable for large companies.
- Opposition to change:
It is essential to break away from traditional accounting practices in management accounting. Generally, it involves rearranging personnel and activities, which is not popular with those affected.
- Evolutionary stage:
We are still in the early stages of management accounting. As such, it faces the same challenges as a new discipline, such as the fluidity of concepts, raw techniques, and imperfect analytical tools. This raises questions about management accounting’s very utility.