If have ever asked the question ‘what is management accounting?’ you will understand that the generic answer that you will get is tilted towards giving you just definition. Most articles that have attempted to discuss what a management accounting is often ending up supply another definition to the already saturated definitional dictionary of managerial accounting. A recent research conducted by a global professional accountancy body shows that people retain more when an explanation is given as against when technical words are put together in a structured manner all in the name of definition of terms.
In this article, a discussion-al approach will be adopted whereby a simple working definition that is broad enough to bring out the meaning of management accounting will be provided.
EXPLANATION | MEANING | DEFINITION OF MANAGEMENT ACCOUNTING
The reality of business demands that managers constantly make managerial decision that involves both day-to-day business activities, planning and strategic management. You will agree with me that those decisions are not and cannot be made out of the blue. For any decision making process not to be intuitive in nature, that process of decision making must be based on a sound and rigorously tested; reliable information.
That information for decision making in accounting context comes from the managerial accounting information system. Part of the functions of management accounting is to provide concise and relevant economic information that assists managers in succeeding in business. Unlike financial accounting that is a stewardship accounting, management accounting as the name implies is a ‘now form of accounting with the future in mind’.
While the traditional management accounting system focuses on generating and filtering internal information, strategic management accounting pay attention to information that is external to the business and then integrate same in a manner that will not lead to suboptimal decision.
Haven drawn the picture of what management accounting does in your mind, this is now the right time to pull all together in a way of definition.
Management accounting is defined as the process of information gathering and processing done by a qualified accountantwith the aim of supplying quality information to managers for sound and economically viable decision. For this process to be worth anything, it must be done within a budget and in a timely manner.
SCOPE OF MANAGEMENT ACCOUNTING
The advancement in information technology and the ever growing appetite of information consumers in this information age has broadened the scope of management accounting to include things that were not included in the discipline some ten years ago.
In a nutshell, management accounting is all about better management of companies. This includes; better marketing strategies, better feasibility studies, better pricing of products and services through adequate cost management strategy, having motivated workers, better risk management, leveraging on opportunities, protection of company assets and investments through fraud prevention function of mgt accounting, coping well with technological changes, managing environmental changes, proactively dealing with political disturbances and compliant with the relevant laws.
It is evident from the above paragraph that management accounting has moved from a mere information gathering and processing system to an all encompassing business solution box. This is to say that the importance of accounting is weighing more on the management accounting now than ever. The goal post in management was moved when accounting information system redefined the role of accountants in an organization.
FEATURES OF A MANAGEMENT ACCOUNTING SYSTEM
For a system to be classified as a management accounting information system, it must have some vital features that distinguish it from other forms of information system. Those features are:
- Inbuilt cost minimisation information processing capacity
- Ability to gather wide range of information
- Speedy information processing capacity
- Whistle blowing capacity
- Compliant with relevant laws
- Futuristic in nature
- Not to be used as a justification tool
MANAGEMENT ACCOUNTING PHILOSOPHIES
Over the years, many management accounting thinking and philosophies have sprung up. The whole idea is to make the information generated through AIS more useful in achieving the organizational goal of a company. For example, Total Quality Management (TQM), Kaizen, Just-in-Time (JIT) and Activity Based Management (ABM) are all closely aligned with the objective of management accounting. Recently, the idea of (BSC) as an encompassing management control system that takes into cognisance the effects of non financial variables in performance measurement. Some areas in management accounting that has attracted much attention both in academics and practice in recent time are:
At the beginning of this simple article that attempts to provide an answer to what is management accounting?, we promised not to make it so cumbersome for you and that exactly we have done. We started by explaining what management accounting is in everyday language and then provide a discussion to make sure that appreciable insights into what managerial accounting is; are obtained.