INTRODUCTION TO MANAGEMENT ACCOUNTING

Today management can no longer afford to wait up to the end of a year to know the
results of the day-to-day transactions. The effect of each business transaction should be made
available on a routine basis. The approach has changed the role of accounting from a mere
device of recording to a powerful tool of forecasting, budgeting, budgetary control etc. This
changing dimension of accounting has led to the development of the technique of
"Management Accounting".
The increase in size and complexity of business and the application of sophisticated
modem technology have resulted in the separation of ownership and management. The modem
managers need meaningful and timely data for their primary function-decision making. Though
the financial accounting conveys meaningful information to the outsiders, (e.g. Shareholders,
creditors etc.), it fails to communicate valuable and varied information to the management.
Financial accounting furnishes a good deal of factual information, but not of much use in the
current management perspective. Thus, accounting information should be recorded and
presented in the form of reports at such frequent intervals, as the management may want.
Meaning
Management accounting also is known as managerial accounting. Management
Accounting can be referred to as "a system of accounting for management", which provides
necessary information to the management for discharge of its functions. These functions
include planning, organizing, directing, controlling and decision making. Management
accounting assists the management to carry out these functions more efficiently in a systematic
manner.
DEFINITION
Management Accounts comprised of two words ‘Management’ and ‘Accounting’. It means the
study of the managerial aspect of accounting. The emphasis of management accounting is to
redesign accounting in such a way that it is helpful to the management in the formation of
policy, control of execution and appreciation of effectiveness. Management Accounts of recent
origin. This was first used in 1950 by a team of accountants visiting
U.S.A under the auspices of Anglo-American Council on Productivity. Some of the important
definitions of management accounting are:
The Institute of Chartered Accountants of England and Wales: "Any form of accounting
which enables a business to be conducted more efficiently can be regarded as management
accounting."
Robert N. Anthony: "Management accounting is concerned with accounting information that
is useful to management."
The Institute of Chartered Accountants of India: "Such of its techniques and procedures by
which accounting mainly seeks to aid the management collectively."
The Report of the Anglo-American Council of Productivity (1950) has also given a
definition of management accounting, which has been widely accepted. According to it,
"Management accounting is the presentation of accounting information in such a way as to
assist the management in creation of policy and the day to day operation of an undertaking".In
short, management accounting can be defined in simple words as "accounting for effective
management."
NATURE OR CHARACTERISTICS
Provides accounting information: Management accounting involves presentation of
accounting information in such a way that it is suitable to the management
Forecasting: It helps in planning for the future course of action.
Decision making: It provides necessary information to top management for taking various
decisions.
Internal accounting: It is concerned with the provision of information to the
management to make better decisions.
Quantitative and qualitative information: It deals with both quantitative as well as
qualitative information.
Techniques and concepts: It uses special techniques and concepts to make the accounting
data more useful (e.g.: Marginal Costing, Cost-Volume-Profit Analysis etc.)
Multi-disciplinary: It is a combination of several disciplines such as financial accounting,
cost accounting, operations research, statistics, economics etc.
Cause and Effect Analysis: It attempts to test the "cause" and "effect" relationship of
different variables. For e.g.: if there is a loss, the reasons for the loss are looked in to.
No fixed norms: it has any fixed set of rules and formats, like that of financial accounting.
The analysis of data depends upon the purpose and person using it.
Management-oriented: It is an accounting for the use of management.
Increase efficiency: It enables the management to select that alternative which is more
profitable. In this way, it increases the efficiency of the business.
Arts and science: It may be regarded partly as a science and partly as an Art. It is the science
of ‘Quantifying and summarizing’ and Art of ‘Interpreting’ accounting data.

IMPORTANCE or USES or NEED or ADVANTAGES

Management accounting is very beneficial and hence is being used widely now. The benefits
are as follows:
Planning and policy formulation: planning is one of the primary functions of management.
It involves forecasting on the basis of available information.
Help in the interpretation process: The main object is to present financial information. The
financial information must be presented in easily understandable manner.
Helps in decision making: Management accounting makes decision making process more
modern and scientific by providing significant information relating to various alternatives.
Controlling: The actual results are compared with pre determined objectives. The
management is able to control performance of each and every individual with the help of
management accounting devices.
Reporting: This facilitates management to take proper and timely decisions. It presents the
different alternative plans before the management in a comparative manner.
Motivating: Delegation increases the job satisfaction of employees and encourages them to
look forward. So it serves as a motivational devise.
Helps in organizing: “return on capital employed” is one of the tools if management
accounting. All these aspects are helpful in setting up effective and efficient organization.
Coordinating operations: It provides tools which are helpful in coordinating the activities of
different sections.
Helping Forecast the Future: Forecasting aids decision-making and answering questions,
such as: Should the company invest in more equipment? Should it diversify into different
markets? Should it buy another company? Management accounting helps in answering these
critical questions and forecasting the future trends in business.
Helping in Make-or-buy Decisions: Is it cheaper to procure materials or a product from a
third party or manufacture them in-house? Cost and production availability are the deciding
factors in this choice. Through management accounting, insights will be developed which
will enable decision-making at both operational and strategic levels.
Forecasting Cash Flows: Predicting cash flows and the impact of cash flow on the business
is essential. How much cost will the company incur in the future? Where will its revenues come
from and will the revenues increase or decrease in the future? Management accounting.
Involves designing of budgets and trend charts, and managers use this information to decide
how to allocate money and resources to generate the projected revenue growth.
Helping Understand Performance Variances: Business performance discrepancies are
variances between what was predicted and what is actually achieved. Management accounting
uses analytical techniques to help the management build on positive variances and manage the
negative ones.
Analyzing the Rate of Return: Before embarking on a project that requires heavy
investments, the company would need to analyze the expected rate of return (ROR) If given
two or more investment opportunities, how should the company choose the most profitable
one? In how many years would the company break even on a project? What are the cash flows
likely to be? These are all vital questions that can be answered through management
accounting.
SCOPE
Management accounting is concerned with presentation of accounting information in the most
useful way for the management. Its scope is, therefore, quite vast and includes within its
fold almost all aspects of business operations. However, the following areas can rightly be
identified as falling within the ambit of management accounting:
Financial Accounting: Management accounting is mainly concerned with the rearrangement
of the information provided by financial accounting. Hence, management cannot obtain full
control and coordination of operations without a properly designed financial accounting
system.
Cost Accounting: Standard costing, marginal costing, opportunity cost analysis, differential
costing and other cost techniques play a useful role in operation and control of the business
undertaking.
Revaluation Accounting: This is concerned with ensuring that capital is maintained intact in
real terms and profit is calculated with this fact in mind.
Budgetary Control: This includes framing of budgets, comparison of actual performance with
the budgeted performance, computation of variances, finding of their causes, etc.
Inventory Control: It includes control over inventory from the time it is acquired till its final
disposal.
Statistical Methods: Graphs, charts, pictorial presentation, index numbers and other
statistical methods make the information more impressive and intelligible.
Interim Reporting: This includes preparation of monthly, quarterly, half-yearly income
statements and the related reports, cash flow and funds flow statements, scrap reports, etc
Taxation: This includes computation of income in accordance with the tax laws, filing of
returns and making tax payments.
Office Services: This includes maintenance of proper data processing and other office
management services, reporting on best use of mechanical and electronic devices.
Internal Audit: Development of a suitable internal audit system for internal control.

TOOLS AND TECHNIQUES OF MANAGEMENT ACCOUNTING

Management accounting uses various tools and techniques to help managers to take
better decisions. All the tools or techniques may be classified into Descriptive tools, Analytical
tools, Diagnostic tools, Predictive tools and Prescriptive tools.
1. Descriptive tools: The descriptive analysis offers an answer to “What happened”.
This analysis provides a solution in a pre-determined manner. For example, reporting client
revenue for the previous year or conducting financial ratio to compare role on historic
performance using visualization and text mining tools. Following are the important descriptive
tools: -

1.1. Historical cost accounting: It means that costs are recorded after being incurred.
This is used for comparing with predetermined costs to evaluate performance. Cost
accounting presents cost data in product wise, process wise, department wise, branch wise
and the like. These cost data are compared with predetermined one. This comparison of two
costs enables the management to decide the reasons responsible for the difference between
these costs. Historical cost accounting means that the date of their emergence is divided.
Probably the importance of cost data is not so much. But the importance of historical instrumentsfor
the success of the management accounting is very high. Management accounting has
historically been very successful. Because its history is very big and in the coming years it will
be much more historically whatever it has been valued.

1.2. Auditing: The main task of auditing is to find out the errors and deception as well
as to check and verify the property and liability. Therefore, Auditing involves financial audit,
cost audit, management audit, tax audit and internal audit. The purpose of the audit is to check
the purity of the cost articles, while the purpose of the management audit is to increase the
manager’s work efficiency.

1.3. Management Reporting: The management accountant is preparing the report on

the basis of the contents of profit and loss account and balance sheet and submits the same
before the top management. Thus prepared reports disclose the strength and weakness
indifferent areas of operating activities and financial activities. This identification is highly
useful to management for exercising control and decision-making.

2. Analytical tools: Analytical tools are used to analyze the business activities and
measure the performance of business. These tools help to analyze liquidity, solvency,
profitability, efficiency etc. of the business.

Following are the important analytical tools:-

2.1. Ratio Analysis: It is used to management in the discharge of its basic functions of
forecasting, planning, coordination, communication and control. It paves the way for effective
control of business operations by undertaking an appraisal of both the physical and monetary
targets.

2.2. Standard Costing: Standard costing is predetermined cost. It provides a yard stick
for measuring actual performance. It is used to find the reasons for the deviations if any. This
is an important technique for control costs. Based on the average efficiency of any sub-
processor process, the modification is determined beforehand. And when the work is almost
finished, the cost is measured by standard cost and actual cost, by detecting and analyzing the
reasons for these details then Corrective action will be taken. Just before starting the work, we
put an estimate of it or set the amplitude so that we can know how much quantity is to use.
Therefore, there is also a technique within the technique of management accounting; the cost
of the cost is determined by many heads of business.

2.3. Budgetary Control: Under Budgetary control techniques, future financial needs
are estimated and arranged according to an orderly basis. It is used to control the financial
performances of business concern. Business operations are directed in a desired direction.
Budgetary control is a technique for managing and accounting control. By the creating a
budget, different responsibilities are divided into different workers. In addition when real
results are known, if they are compared to the target set in the budget, and efforts are made to
keep departmental workers in line with the budget.

3. Diagnostic tools: Diagnostic tools are used to discover or determine why something
has happened. In other words, diagnostic tools give answer to “how did it happen”. Important
diagnostic tools are Fund flow analysis and Cash flow analysis.

3.1. Fund Flow Analysis: This analysis find out the movement of fund from one period
to another. Moreover, this analysis is very useful to know whether the fund is properly used or
not in a year when compared to the previous year. The working capital changes and funds from
operation are also finding out through this analysis.

3.2. Cash Flow Analysis: The movement of cash from one period to another can be
finding out through this analysis. Besides, the reasons for cash balance and changes between
two periods are also find out. It studies the cash from operation and the movement of cash in a
period.

4. Predictive tools: Predictive tools are used to predict the future. These tools give the
answer “what is likely to happen?” Important predictive tools include MIS, KPIs, simulation,
and balance scorecards, demand forecasting, statistical and graphical techniques, regression
analysis etc.

4.1. Management Information System: The free flow communication within the
organization is essential for effective functioning of business. Hence, the management can
design the system through which every employee of an organization can assess the information
and used for discharging their duties and taking quality decisions. The management
information system is meant to inform the management about the functioning of the business
or other important facts which must be taken into consideration by the management. In this
work, yet the report description diagram or graphical performance, charts, etc. are used. Thus,
within the business, there are different types of different managers and most differently we get
information. All of these are put together in a format so that they can get data from the correct
analysis.

4.2. simulation: simulation methods are widely used as powerful tools within
management accounting and management control: for example, the use of simulation for
evaluating operational and financial risks has a long tradition, simulation helps to estimate
errors incorporated in accounting numbers; and in a nutshell, what-if analyses and sensitivity
analyses are simulative approaches for figuring out the effects of changes in parameters on
relevant performance measures. Keeping this in mind, simulation could be supposed to become
even more relevant within management accounting and control since the need for tools
reasonably increases which are capable to deal with uncertainty, complexity and dynamics.

4.3. A key performance indicator (KPI): A key performance indicator (KPI) is a core
metric used by a business to monitor its progress toward achieving key goals and financial
outcomes. KPIs will vary by industry, due to differences in their operational and financial
structures. Among the more common KPIs related to finances are a firm's gross margin, net
profit, current ratio, and debt to equity ratio. KPIs related to operations are more varied. For
example, a warehouse could measure fulfillment days, while a retail store could measure
period-to-period changes in sales, a website could measure page views, a human resources
department could track gender diversity, a call center could measure employee turnover, and
a hospital could track emergency room wait times. Different functions of a business may have
different KPIs. For example, the sales manager may be most concerned with changes in the
sales backlog, while the production manager focuses on the customer order fulfillment rate,
and the customer service manager deals with the number of customer complaints settled on the
first contact, as well as the number of customers who hang up while on hold. Further, the
marketing manager may monitor the acquisition cost of each incremental customer gained.

4.4. Balance scorecards: A balanced scorecard is a strategic management performance

metric used to identify and improve various internal business functions and their resulting
external outcomes. Balanced scorecards are used to measure and provide feedback to
organizations. Data collection is crucial to providing quantitative results as managers and
executives gather and interpret the information and use it to make better decisions for the
organization. A balanced scorecard is a performance metric used to identify, improve, and
control a business's various functions and resulting outcomes. It was first introduced in 1992
by David Norton and Robert Kaplan, who took previous metric performance measures and
adapted them to include nonfinancial information. The balanced scorecard involves measuring
four main aspects of a business: learning and growth, business processes, customers, and
finance. Companies can easily identify factors hindering business performance and outline
strategic changes tracked by future scorecards.

4.5. Demand forecasting: It refers to making estimations about future customer

demand using historical data and other information. Proper demand forecasting gives
businesses valuable information about their potential in their current market and other markets,
so that managers can make informed decisions about pricing, business growth strategies, and
market potential. Without demand forecasting, businesses risk making poor decisions about
their products and target markets – and ill-informed decisions can have far-reaching negative
effects on inventory holding costs, customer satisfaction, supply chain management, and
profitability.

4.6. Statistical and graphical techniques: The management accountant uses various
statistical and graphical techniques in order to make the information more meaningful and
presentation of the same in such form so that it may help the management in decision- making.
The techniques used are Master Chart, Chart of Sales: and Earnings, Investment Chart, Linear
Programming, Statistical Quality Control, etc.

4.7. Regression analysis: Regression analysis is a method of determining the

relationship between two sets of variables when one set is dependent on the other. In business,
regression analysis can be used to calculate how effective advertising has been on sales or how
production is affected by the number of employees working in a plant. Regression analysis can
also show you if there is no relationship between variables.

SKILLS REQUIRED FOR MANAGEMENT ACCOUNTANTS

Management accounting skills have changed as per business requirements and agility. Today
there is a requirement of a Management Accountant who can derive actionable insights from
data on a real-time basis. Some of the top Management Accounting skills expected today are:

1. Predictive Skills: Artificial Intelligence and Machine Learning are some of the
catalyst that has transformed the nature of Management Accounting. In the previous years,
Management Accountants were more involved with data, presentation and analysis. However,
today the role has evolved. They are now expected to understand the business deeply and
predict the impact of various factors on the operations. Today, it makes more sense for a
Management Accountant to be futuristic in his dealings rather than just analyzingthe numbers
in hindsight.

2. Communication skills: Today Management Accountants are not just expected to

work on the data but also communicate the insights that they derive out of it to other business
leaders. They must be able to do the storytelling and build a premise for the data.
Communication is hence one of the must-have management accounting skills these days. The
findings can be communicated in the form of visualization, case studies, stories, presentations
and other mediums which are thoroughly supported by data to make it more effective.

3. Numerical skill: Numerical skill is one of the very basic skills needed for a career in
accounting. Such number crunching skills are built around basic mathematical skills wherein
you can demonstrate your ability to understand and analyze numerical information and draw
meaningful conclusions in order to arrive at the right decision. As an accountant, you will be
engaged in preparing various financial reports. You should be well versed with numbers so that
you are able to connect the figures in the income statement to that of the cash flow or to the
balance sheet.

4. Sound Technical Skills: This is an age of disruptive technologies. For a

Management Accountant to remain relevant in the organization, he must have the ability to
adapt well to changing technologies. The technical skills of a Management Accountant play
a pivotal role in deciding the quality of information presented by him. Being able to handle
automated processes, knowledge of Business Analytics, programming languages etc. are some
of the basic requirements from a tech savvy Management Accountant. These are some of the
common languages spoken in the organization and a Management Accountant should be adept
at this to related well to everyone and communicate well.

5. People Management skills: Management Accountants do not work in isolation.

They interact with teams across organizations and spearhead their own teams. Concrete
information base forms the foundation of a Management Accountant’s core job. These are
information that comes outside the purview of data collected officially. A Management
Accountant often receives such soft information from reliable team members and he must
motivate these team members to continuously look for such information beyond the usual
sources. The more such information, a Management Accountant can lay his hands on, the better
placed he is to analyse the past, predict the future course and provide more ideas.
6. Time Management skill: The skill for time management goes hand-in-hand with the
organizational requirements. A seasoned professional will manage the workload effectively by re-
prioritizing competing tasks and juggling between myriad responsibilities to ensure timely completion
of everything. So, to be a successful accountant you have to emulate the above-mentioned qualities
immaculately, which will not only impress your manager, colleagues, and clients but also put you on a
fast track to an exciting career prospect.

7. Organizational Skill: Accountants are required to manage various responsibilities,

which results in a lot of activities to be accommodated in a tight schedule. As such, in order to become
a good accountant, you should be able to track all these responsibilities efficiently. Such responsibilities
can include portfolio management, transaction handling and meeting important deadlines. By
discharging all these duties to the best of your ability you will be able to demonstrate competence to
your colleagues and show them how well organized and reliable you are.

8. Management accounting skills: Unlike a Financial Accountant who is just restricted

to work on financial reports and audit them, a Management Accountant has a much more strategic role
to play. He is equally involved in the decision making process as much as with the core accounting
process.
9. Analytical skill: “Analytical skill is the ability to visualize, articulate, and solve both
complex and uncomplicated problems and concepts and make decisions that are sensible and based on
available information.” As an accountant, you must be comfortable analyzing a wide range of
financial data. Know how to review common accounting reports to identify trends or point out
anomalies. Focus on your ability to perform budgeting work or make future projections.
10. Other skills: apart from the above skills, management accountants require some
other skills such as Conceptual skills, Human skills, Diagnostic skill etc. Conceptual skills allow a
manager to visualize the entire organization and work with ideas and the relationships between abstract
concepts. Conceptual skill is the ability to coordinate and integrates all of an organization’s interests
and activities. Human skills, also called human relation skills, require communication and attention to
relationships with others. Diagnostic skill refers to the ability to visualize the best response to a
situation.
In a nutshell, A Management Accountant skills should not only restrict oneself to analysis,but also
be proactive in contributing to the bottom line of the business. Earlier, the Management Accountant
used to be confined only to their respective departments. However, today they are found to be more
involved with other business units and departments. They offer guidance to other non-finance
professionals and help them to see things in the perspective of financial gains and optimal costing. This
way they can also change the thought process of the other professionals and mould it to become more
business oriented. Management Accountants are expected to be flexible enough to fit into multiple
roles. This can be the role of a Financial Analyst, Data Analyst, as well as a Business Manager who
understands the commercial viability of the projects. Today, it is the need of the hour that a management
accountant is able to churn multiple ideas, build hypothesis and test the business case, forms strategies
and advices the management to take corrective actions on a real-time basis.
 STRATEGIC ROLE OF MANAGEMENT ACCOUNTANT

The role of the management accountant is to perform a series of tasks to ensure their company's
financial security, handling essentially all financial matters and thus helping to drive the business's
overall management and strategy. Management accountants are key figures in determining the status
and success of a company. For management accounting must help accomplish the three strategic
objectives of quality, cost, and time to have strategic significance by providing information that, first,
links the strategic objectives of an organization. Strategic Management Accounting especially is used
to check up on competition and one requires being vigilant and up-to-date when it comes to leadership
in brand market. Traditional management accounting fell short in the subject of the fact that it fails to
assess the relative cost positions of competitors; concentrates on the manufacturing and neglects the
high cost post-conversion activities, it ignores the impact of other activities; over-reliance on existing
accounting systems. Adding the strategic viewpoint to traditional management accounting required the
role of accounting to extend in two directions. First, using strategic cost analysis, cost be incorporated
and aligned into strategy. Secondly, to make certain the cost structure of competitors and keep an eye
on changes that occurs over a period of time. Thus one could arrive at the cost of value-added functions
given to customers as well as the cost of a certain product feature provided by a company’s product.

The strategic role of management accountant may be understood from the following points:
1. Strategic planning: Strategic planning is the logical process used to arrive at a vision
for the future. This vision is then broken down into a series of manageable steps that can be followed
in order to achieve the desired corporate direction. These action items are widely disseminated through
the organization, so that employees are consistently engaged in activities that will force the
organization in the direction of achieving the plan. The basic steps followed in strategic planning are
as follows:

1. Assess the current environment and the company's capabilities.

2. Formulate strategy.
3. Translate the overall strategy into an operational plan.
4. Continually refine the plan through an ongoing feedback process.

Strategic planning is typically directed at where an organization should be a number of years from now.
This longer duration differs from the tactical orientation followed by most organizations, which are
more concerned with simply following the direction indicated by the annual budget. The ideal strategic
plan is intended to bring a business into a competitive stance that cannot be easily attacked by
competitors, and which allows it to generate above- average profitability for an extended period of
time. The plan should also anticipate how long this enhanced competitive position will last, so that it
can be adjusted to shift the business into an ongoing series of competitively robust positions.

Strategic planning is the primary responsibility of the senior management team. More junior staff may
contribute ideas to the process, but senior managers are expected to formulate the plan and ensure that
it is implemented. These managers must also maintain a high level of awareness regarding changes in
the competitive landscape, so that they can adjust the strategic plan on an ongoing basis to ensure that
the organization's expected future position aligns with the current and expected competitive landscape.

2. Setting profitability goals: Management accountants help management to set goals

for the company, department or project in question. Goal setting often involves making changes to
ensure profitability and motivate employees towards these goals. A business profitability goal
determines the amount of revenue you need to generate from your business to meet your expenses and
turn a profit. If you plan to run your business successfully, you need clear, specific goals in place. It's
not enough to say that you want to make a lot of money. That isn't really a goal, since it's not specific
and it doesn't include a series of steps to make it a reality. Instead, you need to decide how much profit
you want your business to generate over the year. This could be a set dollar amount or a percentage
increase over the previous year's sales. If this figure isn't a specific amount, you won't know whether
you have reached your goal or not. Set a specific goal for income and profit for your business. If you
determine that you want to increase your profit by 10 percent over the previous year's figures, then you
also need to determine how much more you need to collect in revenue to reach that goal. Part of reaching
your business profitability goal is keeping track of your expenses. When you put forth additional effort
to increase revenue, your business expenses might go up. This could include things like adding new
products to your line or hiring more sales people to increase sales. The markup you charge customers
for your products may need to be adjusted to generate more profit.

3. Creating acquisition strategy: The management accountant plays a vital role in the
acquisition process from the strategic planning phase where objectives are defined to the integration of
the infrastructure of the two organizations after the merger is complete. As companies continue to
compete and attempt to gain an economic advantage, mergers and acquisitions will provide a vehicle
for the management accountant to display his or her skills and values. A strategically sound investment
is the result of a venture in which input is provided by numerous individuals within the company,
including the management accountant. More important, however, is the recognition that the
implementation of ethical principles and an appreciation of the effects on the various constituents in a
merger will aid in restoring the corporate merger as a viable and ethical option in the future growth of
the economy. The approach of many businesses in considering Mergers and Acquisitions will be a
more strategic and reasoned procedure with special consideration of the ethical consequences on the
many parties affected. The management accountant is in a position to contribute his expertise in the
analysis of acquisition strategy. The need to determine whether acquisition or internal growth is more
efficient in reaching long term goals requires accounting expertise and studied analysis of each
company's situation. In certain instances, synergies may be obtained or developed which may result in
creating an even more advantageous position for the acquiring company. The management accountant
should be poised to provide insight into the determination of an appropriate strategy during the various
stages of analysis from the defining of objectives to the integration of the companies, if a merger is
consummated.

4. Supporting risk management and control: management accountants play a critical

role in collaborative decision making, execution, and accountability processes in which solid risk
management and internal control are fully integrated. But in some organizations, risk management and
internal control (RM/IC) activities have deviated from their original purpose: to support management
accountants and their business partners in setting and achieving their organization’s objectives. Instead,
they have almost become objectives in their own right rather than serving as useful support tools. In
addition, management accountants are often distracted by typical RM/IC compliance requirements that
have little direct relation to their everyday work. Good risk management is good management
accounting, not compliance, because risk affects our jobs and the achievement of our organizational
objectives.
5. Helping in continuous improvement: Managerial accounting provides companies
with quantitative and qualitative information on operational and financial performance. While financial
accounting focuses on the external use of this information by creditors and others to assess performance
and make decisions, managerial accounting is used internally by owners, managers and employees. A
company’s managerial accounting system encompasses the processes companies install to control and
plan operations and support effective decision- making. Continuous improvement is the constant
measurement and effort to improve the effectiveness of processes and systems and the quality of goods
and services. Companies do this through continuous tweaking or through major improvements.
Continuous improvement involves simplifying where possible, eliminating waste -- wasted time,
wasted effort, wasted materials -- and increasing productivity. A key way that managerial accounting
systems contribute to continuous improvement in an organization is through the development and
integration of cost management systems. Instead of budgeting and controlling solely at the department
or functional level, companies do so at the activity level, such as inventory purchasing or the billing
and payment receipt process. Companies measure the costs of inputs and reduce or eliminate those costs
that add little to no value. They also measure and evaluate the effectiveness of all of their major
activities, introducing new activities that enhance performance where possible.

FUNCTIONS OF A MANAGEMENT ACCOUNTANT

The management accountant plays a vital role in the decision-making process of the
organization. He is variously known as Controller of Finance, Financial Controller, Financial Advisor
or Chief Accounts Officer, etc. He is responsible for the installation, development and efficient
functioning of the management accounting system. He plays an important role in gathering, compiling,
reporting and interpreting internal accounting information. He designs the framework of the financial
and cost control reports in order to satisfy the information needs of different levels of management. He
computes the variances by comparing the actual performance with standards or budget estimates and
interprets the results of operations to all levels of management and to the owners of the business. The
management accountant occupies a pivotal position in the organization. He performs staff function and
also has line of authority over the accountants and other employees in his office. He educates the
executives on the need for controlling information and on the ways of using it. He sifts the relevant
information from the irrelevant and reports the same in an intelligible form to the management and
sometimes to interested external parties. However, his job is limited to provision of required
information in a comprehensive as well as reliable form to the management for decision-making
purposes. But the actual decision-making responsibility lies with the management.

The functions of management accountant depend upon his status in the organization, experience
and capacity of the management accountant. On this basis, the functions of management accountant are
briefly explained below.

1. Planning of Accounting Function: An accounting system is maintained in an

organization which should cover standards of costs, sales forecast, production planning, profit
planning, allocation of resources, capital budgeting and short term and long term financial planning.
Moreover, he has to prepare the necessary procedures to implement the plan effectively.
2. Controlling: The management accountant has to measure the actual performance and
compare with standard. Based on this comparison, he has to find the differences and interpret the
results of operation and submit the same to all levels of management. This is done through appropriate
accounting reports for controlling.
3. Reporting: The top management requests the management accountant to prepare the
report for the root causes for an unfavorable event or operations. In this report, the accountant can pin
point real reasons and the persons who are responsible.

4. Coordinating: He consults all levels of management for framing a policy or an action

program. Such type of consultation brings co-ordination between the accounts department and top
management.
5. Interpreting: The accounting information is modified and presented before the
management with interpretation. The interpretation is made in different phases. If so, real reasons for
the operating results can be understood by the management.
6. Evaluation: He has to evaluate the effectiveness of policies, organization structure
and procedures adopted for attaining the objectives. For which, he has to consult the same with
functional managers and top executives.
7. Advising: He has to advise the management in order to improve the performance of
operations.
8. Administration of Tax: A business organization is liable to pay value added tax,
income tax and other taxes to the local government, state government and central government. In this
aspect, the management accountant is expected to pay the taxes and maintain the accounting records as
the case may be.
9. Government Reporting: He will have to supervise all the statements and returns
which are to be submitted to the government periodically within due date.
10. Appraisal of External Effects: There may be changes in the state and central
government policy. Sometimes, there may be amendments in the existing laws. These policy changes
and amendments have an impact on the attainment of business objectives. The extent of impact has to
be assessed by the management accountant.
11. Economic Appraisal: The economic condition of the nation is periodically
published by the central government. Now, the management accountant is to make economic appraisal
and find the influence of economic condition over the business activities. In this aspect, he can prepare
a report and submit before top management along with his/her comments.
12. Protection of Assets: This function is performed through maintenance of separate
fixed assets register for each type of fixed assets. Moreover, he can frame the rules and regulation for
using each type of fixed assets. He can take insurance coverage to all types of fixed assets.