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According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities"(CIMA Official Terminology). The Institute of Management Accountants (IMA)[2] recently updated its definition as follows: "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 organizations strategy". 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 (ICMA), 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 much more interested in 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, logistics, etc.
Management accounting is one of important part of accounting. To use accounting for decision making encourages its development. Management accountings main function is to collect accounting information which is useful for different managerial functions like planning, organization, coordination and control. Now, we are explaining other important functions of management accounting. 1st Planning and Forecasting Function: In 2005, Mr. A started his small business. He was well educated of management accounting tools. By effective use of management accounting, he developed his small business. Now, after 5 years, he is operating good company. Management accountings basic functions like to study ratio analysis and cash and fund flow statements can develop any small business like Mr. A. How is it possible? One Businessman can easily watch in which project he invested his cash and fund. He can see whether its ROI and ROE is better than any other investment. Second He also makes good plan to reduce his investment in that project whose return is not sufficient. 2nd Modification of Data Function: Second good function of management accounting is to modify of raw accounting data. After this, businessman bids fair to effective use these modify data in businesss management. Management accounting can be used to classify every accounting item in different views. There are so many accounting software which can be helpful to show sale or purchase or any other accounting items according to production level, area, season, country, age or quality of debtors or creditors. One Side, it will build up analytic approach of company and other side, it will be helpful to check up each and every accounting item from different angels. 3rd Interpretation Function: It is also function of management accounting to do complete interpretation of financial analysis. It cuts down work burden of manager because management accountant supports him by providing fact and interpretation of financial data after its analysis. 4th Management Control Function: Management control can be possible only with management accounting function. Management accounting uses responsibility accounting tool in which different cost, revenue and investment centers are made. Proper budget is maintained in each centre. Analysis of actual recorded performance is compared with standard performance and deviation is evaluated. This will be helpful to fix up wrong side of companys decision promptly. Thus company can do smoothly management control. 5th Communication Function: Management accounting puts together all useful accounting information with comparable past data for good communication with govt., bankers and investors.
Management Accounting is in the process of development. Hence, it suffers form all the limitations of a new discipline. Some of these limitations are: 1. Limitations of Accounting Records: Management accounting derives its information from financial accounting, cost accounting and other records. It is concerned with the rearrangement or modification of data. The correctness or other wise of the management accounting depends upon the correctness of these basic records. The limitations of these records are also the limitations of management accounting. 2. It is only a Tool: Management accounting is not an alternate or substitute for management. It is a mere tool for management. Ultimate decisions are being taken by management and not by management accounting. 3. Heavy Cost of Installation The installation of management accounting system needs a very elaborate organization. This results in heavy investment which can be afforded only by big concerns. 4. Personal Bias: The interpretation of financial information depends upon the capacity of interpreter as one has to make a personal judgment. Personal prejudices and bias affect the objectivity of decisions. 5. Psychological Resistance The installation of management accounting involves basic change in organization setup. New rules and regulations are also required to be framed which affect a number of personnel and hence there is a possibility of resistance form some or the other. 6. Evolutionary stage: Management accounting is only in a developmental stage. Its concepts and conventions are not as exact and established as that of other branches of accounting. Therefore, its results depend to a very great extent upon the intelligent interpretation of the data of managerial use. 7. Provide sonly Data: Management accounting provides data and not decisions. It only informs, not prescribes. This limitation should also be kept in mind while using the techniques of management accounting. 8. Broad-based Scope: The scope of management accounting is wide and this creates many difficulties in theimplementations process. Management requires information from both accounting as well as non-accounting sources. It leads to in exactness and subjectivity in the conclusion obtained through it