Elements and characteristics of strategic management accounting are those features that makes strategic management accounting uniquely different from other forms of accounting (managerial accounting and financial accounting).
Before proceeding with the discussion of the elements of strategic management accounting, it will be helpful if a working knowledge of what a strategic management accounting is. Hence, an attempt will be made to profer solution to the question ‘what is strategic management accounting?’
WHAT IS STRATEGIC MANAGEMENT ACCOUNTING?
Strategic management accounting has over the years been many things to many people. There is a school of thought that sees strategic management as somewhat a public relation tools used by managers to relate with the outside world while on the other hand, this is another school of thought that believes strategic management to be an internal information processing tool used by management to make strategic managerial plans, decisions and traditional planning.
Some even see strategic management accounting as a contingent process that is a function of prevailing circumstances. In as much as there are merits in all views (both from the professional accountancy bodies and professional accountants), the grail which is hard to identify lays somewhere at the middle of the two spectrum.
This is to say that strategic management accounting is a hybrid of both internal communication and external communication process. It serves dual purpose of meeting both the needs of the internal users and the external users.
OFFICIAL DEFINITION OF STRATEGIC MANAGEMENT ACCOUNTING
According to CIMA official terminology, strategic management accounting is a form of management accounting in which emphasis is placed on information which relates to factors that are external to the firm, as well as non-financial information and internally generated information.
FEATURES | QUALITIES | CHARACTERISTICS | ELEMENTS OF STRATEGIC MANAGEMENT ACCOUNTING
In as much as there is no generally accepted conclusion as to what exactly constitute strategic management accounting, there are certain pertains contained in existing literatures on strategic management accounting. Those things that most literatures have in common are listed below and can be said to be the; features, qualities, characteristics and elements that must not be missing in any process for it to be referred to as a strategic management accounting process.
- FOCUS ON BOTH INTERNAL AND EXTERNAL INFORMATION GATHERING: Gathering information that is external to our company with the aim of helping us analyse the activities of our competitors more efficiently. This view is held by Simmonds who happen to be the pioneering writer on strategic managerial accounting issues. He is of the opinion that an outward looking perspective should be the basis of information gathering function of management accounting as it helps evaluate a company’s position relative to other competitors in the industry. A manager looks up to the accountant to provide meaning and relevant information not only on internal products and services, but, also about the activities of competing businesses. A company that wants to get a competitive price advantage over its competitors relies on the management accounting information system to assess the cost structure of her competitors which will then be related to the company’s own target price.
- INTEGRATED WITH AN ORGANIZATIONS STRATEGY: Strategy is what every business rely on for longer term survival and success. For a strategic management accounting to make sense and live up to what is expected of it by the users of accounting information, it must integrate the two silos into a single functional process of information manipulation. The whole essence of having a strategy is to enable managers achieve corporate objectives. This makes it imperative for any decision supporting tool to have same as its goal.
- IT MUST BE LINKED TO VALUE ADDING PROCESSES: Through the use of value-chain analysis, competitive information is gained and utilized. Those activities that create values are identified and analysed and worked upon so as to reduce costs and also enhance the value placed on products and services of a firm by the market.
FUNDAMENTALS OF STRATEGIC MANAGEMENT ACCOUNTING
In the pre 1980 eras, management accounting control system practice tend to overly focus on financial factors as a measure of performance of a responsible manager. This practice attracted too many criticism and condemnation from all stakeholders. The period of 1980s and 1990s saw the gradual shift of emphasis from pure financial key performance indicators (KPIs) to non financial KPIs. At the helm of affairs is the balanced score card (BSC).
WHAT IS A BALANCED SCORE CARD (BSC)?
BSC is a management control framework that integrates both financial and non financial measures into the performance measurement system with the aim of; clarifying, communicating and managing strategy implementation. The concept of BSC was devised and made popular by Kaplan and Norton in 1992. BSC creates strategic focus by translating the vision and strategy of a company into operational objectives and performance measures through its four perspectives of:
- Financial perspective
- Customer perspective
- Internal business perspective
- Learning and growth perspective
These four perspectives of a BSC are all linked to the company’s strategy with each perspective comprising of not more than five measures so as not to encourage information overload that will make the whole system too cumbersome. Each perspective is made up of:
The intention of this article is not to delve into detailed discussion of BSC but, to point out the important role that BSC is playing in strategic management accounting. At the very basic, a strategic management accounting must fully integrate BSC and other innovations in management accounting like; ABC, and target costing.
soundss well to me
Elijah Kasema says
Where can I find the author/person/people who wrote this?
Would like to reference it in an assignment.
Thanks for spending some time on this site. The author of this is Chinweike Okwuduche. Check out the about page of this site for more information. Alternatively, you can simply use the site name and the url.