Management Notes

Reference Notes for Management

Scope of Management Accounting – Introduction to Cost and Management Accounting | Management Notes

Scope of Management Accounting

In management accounting, financial accounting extends to the management of cost accounting, budgeting, and statistical data. It meets the legal and conventional requirements regarding the presentation of financial statements (profit and loss account, balance sheet and cash flow statement), but emphasizes the establishment and operation of internal controls. The scope of management accounting are asfollows:

1) Systems development, installation, and operation associated with accounting, tax accounting, and cost accounting. Management accountants have to construct and rebuild these systems to meet the changing needs of management functions.

2) Compiling and preserving vital data for management planning. In the accounts and document files of the enterprise are enormous amounts of information about the past success of the business, without which forecasts of the future are very dangerous for the business. Management accountants present past data in a way that reflects trends of events to 30 EP-CMA management. In this area, he should assess potential changes to be expected. This information contributes to the planning process. Management accountants may be asked to participate in and even supervise the planning process along with other members of the management team from time to time.

3) Providing communication methods for management plans across the organization. In this way the enterprise plans can be coordinated on the one hand, while on the other hand defining the role of individual segments in the overall plan and assisting the management in managing their activities.

4) Providing and implementing an effective feedback system. This would allow the management to perform its controlling functions more efficiently. By identifying significant deviations between actual activity and that which is expected, and by adhering to the principles of selectivity and relevance, such reports can assist in the establishment and operation of a system of ‘management by exception’. The management accountant should analyze deviations by reason and responsibility and suggest appropriate corrective measures when necessary.

5) Understanding and interpreting accounting and other data for the management in order to make it useful. The management can only perform its functions in a useful manner by performing such analyses and clarifications. In such analyses, management is assisted in identifying responsibilities and making necessary changes in the organizational structure to achieve the enterprise’s objectives more effectively.

6) Aiding management in the decision-making process by providing (a) relevant accounting and other data, and (b) analysing how alternative proposals will affect profits and the position of the enterprise. The management accountant assists the management with understanding and analyzing the problem in hand and providing the management with factual information in a clear and concise manner.

7) In order to assist in the implementation of management by objectives, providing methods and techniques for evaluating the management performance with regard to the objectives of the enterprise.

8) Enhancing, modifying, and sharpening the effectiveness of co-existing techniques of analysis. Management accountants should always seek to make existing techniques more practical. It is also necessary for him to stay on top of the developments in new techniques.

Therefore, management accounting is not only a tool in the management’s hands, but it also provides a method for judging the performance of the management. In this way, it helps the management to carry out its planning, decision-making, and control functions, while at the same time, it allows the owners and other interested parties to evaluate the management of an enterprise.

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