MANAGEMENT ACCOUNTING

INTRODUCTION

Management accounting provides data to the management on the basis of which they
take decisions to achieve organizational goals and improve their efficiency. In this section,
we will discuss the main characteristics of management accounting.

Managerial accounting is the process of identifying, measuring, analyzing,

interpreting and communicating information for the pursuit of an organization's goals. This
branch of accounting is also known as cost accounting. The key difference between
managerial and financial accounting is managerial accounting information is aimed at helping
managers within the organization make decisions, while financial accounting is aimed at
providing information to parties outside the organization.

DEFINITION

One simple definition of management accounting is the provision of financial and

non-financial decision-making information to managers.

According to the Institute of Management Accountants (IMA) "Management

accounting is a profession that involves partnering in management decision making, devising
planning and performance management systems,and providing expertise in financial
reporting and control to assist management in the formulation and implementation of an
organization's strategy".

TOP 10 FUNCTIONS OF MANAGEMENT ACCOUNTING

The following points highlight the top ten functions of management accounting. The
functions are

1. Forecasting and Planning 2. Organising 3. Coordinating 4. Controlling Performance 5.

Financial Analysis and Interpretation 6. Communication 7. Special Studies 8. Protection of
Business Assets 9. Tax Policies.

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MANAGEMENT ACCOUNTING FUNCTIONS # 1. FORECASTING AND
PLANNING

One of the important functions of management accounting is to provide necessary

information and data for making short-term and long-term forecasts and planning the
operations of the business.

For doing this, the management accountant uses techniques of statistics, like
probability, trend study of correlation and regression; budgeting and standard costing; capital
budgeting; marginal costing and cash funds flow statements etc. These are important tools in
the hands of management accountant for the planning of the business.

MANAGEMENT ACCOUNTING FUNCTIONS # 2. ORGANISING

The management accountant helps the management in organising the human and non-
human resources of the business by analysing different functions and assigning specific
responsibilities. He tries to organise the accounting and finance function of the business on
the modern lines.

MANAGEMENT ACCOUNTING FUNCTIONS # 3. COORDINATING

The management accountant increases the efficiency of organisation and maximise its
profits by providing different tools of coordination as budgeting, financial reporting, financial
analysis and interpretation etc. It helps the management by reconciling the cost and financial
accounts, by preparing budgets and setting the standard costs and in analysing variances in
costs to facilitate management by exception.

MANAGEMENT ACCOUNTING FUNCTIONS # 4. CONTROLLING

PERFORMANCE

The management accountant helps in controlling the performance of the organisation

by using standard costing, budgetary control, accounting ratios, cash and funds flow
statements, cost reduction programmes and evaluating the capital expenditure proposals and
return on investment.

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MANAGEMENT ACCOUNTING FUNCTIONS # 5. FINANCIAL ANALYSIS AND
INTERPRETATION

The management accountant analyses the data and presents it before the management
in non-technical manner along with his comments and suggestions so that the owners and the
top personnels in the management may understand it and take decisions without any
difficulty.

MANAGEMENT ACCOUNTING FUNCTIONS # 6. COMMUNICATION

The management accountant prepares various reports to communicate the results to

the superior, to motivate the employees, to exercise effective control on their activities and to
enable the management to take sound decisions.

MANAGEMENT ACCOUNTING FUNCTIONS # 7. SPECIAL STUDIES

The management accountant tries to maximise the profits of the concern by

conducting various cost and economic studies on regular basis. He tries to determine the
needs of long-term and short-term capital, recommend appropriate capitalisation for the
enterprise, evaluation of alternative capital expenditure proposals and their impact on the
return and profits of the concern.

MANAGEMENT ACCOUNTING FUNCTIONS # 8. PROTECTION OF BUSINESS

ASSETS

The management accountant will be responsible for the protection of business assets.
He is to see that sufficient funds are available for repairs, maintenance and replacement of
fixed assets so that production capacity of the enterprise may not be badly affected.

MANAGEMENT ACCOUNTING FUNCTIONS # 9. TAX POLICIES

The management accountant is responsible for tax policies and procedures. He will
make available the reports required by various authorities. He will make proper provision for
taxation and he is to ensure that quarterly payments of taxes paid in advance as required by
the Income Tax Act are made in time to avoid penal interest payment on delayed payment of
tax.

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MANAGEMENT ACCOUNTING FUNCTIONS # 9. MISCELLANEOUS
FUNCTIONS

Besides the above functions, the management accountant supplies useful information
to different functional authorities, provides necessary accounting information and advice for
price determination and pricing decisions and helps to make strategic decisions as seasonal or
temporary suspension of production, make or buy decisions, replacement decisions and
expansion or closure of particular division or department, etc

MANAGEMENT ACCOUNTING IS ACCOUNTING FOR EFFECTIVE

MANAGEMENT

The American Institute of Certified Public Accountants (AICPA) states that

management accounting as practice extends to the following three areas

Strategic managementadvancing the role of the management accountant as a

strategic partner in the organization.
Performance managementdeveloping the practice of business decision-making and
managing the performance of the organization.
Risk managementcontributing to frameworks and practices for identifying,
measuring, managing and reporting risks to the achievement of the objectives of the
organization.

The Institute of Certified Management Accountants (CMA) .states "A management

accountant applies his or her professional knowledge and skill in the preparation and
presentation of financial and other decision oriented information in such a way as to assist
management in the formulation of policies and in the planning and control of the operation of
the undertaking". Management accountants therefore are seen as the "value-creators"
amongst the accountants. They are more concerned with forward looking and taking
decisions that will affect the future of the organization, than in the historical recording and
compliance (score keeping) aspects of the profession. Management accounting knowledge
and experience can therefore be obtained from varied fields and functions within an
organization, such as information management, treasury, efficiency auditing, marketing,
valuation, pricing and logistics.

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 In 2014 CIMA created the Global Management Accounting Principles (GMAPs). The
result of research from across 20 countries in five continents, the principles aim to guide best
practice in the discipline

CONCLUSION

The distinction between traditional and innovative accounting practices is perhaps

best illustrated with the visual timeline (see sidebar) of managerial costing approaches
presented at the Institute of Management Accountants 2011 Annual Conference. Traditional
standard costing (TSC), used in cost accounting, dates back to the 1920s and is a central
method in management accounting practiced today because it is used for financial statement
reporting for the valuation of income statement and balance sheet line items such as cost of
goods sold (COGS) and inventory valuation. Traditional standard costing must comply with
generally accepted accounting principles (GAAP US) and actually aligns itself more with
answering financial accounting requirements rather than providing solutions for management
accountants. Traditional approaches limit themselves by defining cost behavior only in terms
of production or sales volume.

REFERENCES

http//www.businessdictionary.com/definition/management-accounting.html

http//www.investopedia.com/terms/m/managerialaccounting.asp\

http://www.theglobaltutors.com/management-accounting/introduction-to-

management-accounting.aspx

http://www.yourarticlelibrary.com/accounting/management-

accounting/functions-of-management-accounting-4-functions/52467/

http://www.svtuition.org/2011/03/functions-of-management-accounting.html