Management accounting is an accounting branch that generates information to managers about both the internal and external environments of the business. It combines finance, management and accounting with the leading edge technique required to drive successful businesses. The management accounting role has changed from the traditional confines of controlling, business, motivation, planning and communication and now emphasis more on the internal and external environments within the business (threats, competition, opportunities and changing circumstances). The development of management accounting has increased momentum in the recent years due to the traditional accounting techniques failure to provide futuristic and non-financial measures to support decision making in the business.
The role of management accounting is becoming increasingly significant in the worldwide business environment, as the growth of information technology has provided accountants with the ability to generate both financial and non-financial information for the assisting decisions of the business. Involvement in the planning method at both operational and strategic levels, which involve the establishment of strategies and the budgets formulation and the provision of guidance for management decisions, which involve the analysis, generation, presentation and interpretation of pertinent information. Moreover, it contributes to the control and monitoring performance through the reporting provision including comparisons of real with budgeted performance, and their interpretation and analysis. Management accounting also plays a significant role in directing managers about financial implications of projects, explanation of the financial consequences of business decisions, conducting internal business audits and explaining the impact of the competitive landscape.
Management accounting also includes the preparation of reports concerning finance for non-management groups such as creditors, shareholders, tax authorities and regulatory agencies. The final role of management accounting in the business is human resources management. Management determines whether there is a retention or high turnover rate, which links back to the employees in human resources. The information offered by management accounting is useful to the management of the firm for corporate operations for the control development over the business procedure. The planning process is often sustained by the use of financial forecasts and plans over the future. The management accounting information frequently involves substantial use of judgment in the valuation of non-financial aspects of the available alternatives.
Key features of contemporary business environment
Dynamics of contemporary business conditions is characterized by permanent and numerous changes that have a great influence on activities and performance of the business. The higher level of changes in various segments of the global environment (financial, political, economic, juridical, social, demographic, technical, and other factors) and specific environment (creditors, customers, suppliers, competitors, syndicate, government, etc.) led in interactive, dynamic environment with many factors of risk. Globalization is the basic form of changes manifestation. New information technologies, changes in using new materials and energy, achievements in biogenetical and biogenetics engineering, increasing international competitors, and other factors influence the stronger flows of globalization. The traditional diversity on national, local, and regional markets has become less relevant, as the world has become a big worldwide market. Global enterprises philosophy includes flexibility, faster market reaction, and homogeneous supply.
For enterprises market position to be better in the conditions of complex and global environment they have to use information technologies and new production and create new organizational models that would enable the realization of objectives. Environments of the business, sector & Industry variations are also some of the features of a modern business environment. In addition, other features include high levels of competition, increasing costs, especially overheads, increasing demand for profitability information by product/service, customer, market segment, demands for more information to manage the costs of support departments and shift from financial measures to non-financial measures.
Changes that have occurred that MA
Management accounting change ranged from comprehensive a costing system to partial, tentative, and temporary change of a more modification type. The changes typically occurred through the introduction of new practices, replacement of existing practices and adjustment of the way existing practices were used. There are no important differences in management accounting practices among foreign and local companies, or between large, medium and small companies. It is very clear that information technology has advanced very considerably. In the past years, management accounting was concerned with ensuring that managers were given and understood financial information. At that, time computers (and especially personal computers) were only just beginning to emerge. Nevertheless, after the turn of the century, there was a computer on everyone’s desk, and it is clear that managers have considerable amounts of both financial and non-financial information available on their personal computers. At that time, the management accountants were concerned with ensuring that managers’ attention was focused particularly on the particular information, which was reflected in the agreed set of performance indicators.
Compare Kaplan and Johnson (1987) view with Scapens et al (2003) evidence
Johnson and Kaplan (1987) defined how a management accounting system has to deliver accurate information to facilitate efforts to measure, to control costs and increase productivity, and to invent improved production processes. The system of management accounting must report accurate product costs so that the introduction of new products, abandonment of obsolete products, pricing decisions, and response to rival products can be made. They also defined how the early manufacturing firms tried to improve performance via economies of scale by dropping unit cost through volume of output increase. This resulted to a concern with assessing the efficiency of the production process.
Scapens et al. (2003)’s describes the traditional role of the management accountant which was typically portrayed as that of an independent, objective monitor of the financial performance of the various sections of the business. However in recent years the management accountant has become more concerned with integrating different sources of information and explaining the interconnections between non-financial performance measures and management accounting information. They describe key tasks of management accountants include business performance evaluation, cost control and preparing/planning budget /outsourcing of financial reporting. In additional from their views is that tools used by management accountants include Budgets, variance analysis, strategic management accounting;
The management accounting role need to be concerned more with the effects of the business environment changes particularly competition in the business and need to contribute to the implementation, control and formulation of strategic decisions to create competitiveness for an organization within its business.
In the conditions of contemporary business, the aim of market-oriented enterprise is value formation and its distribution among diverse stakeholders. Developing strategic and systematic approach to performance measurement is directed towards the procedure of value creation for the enterprise and its stakeholders. The strategic approach through appropriate models includes elements of short-term and long-term business processes and the interest of all stakeholders, and business results at all organizational levels.