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Management accounting is a new branch of accounting that promotes the overall managerial performance of an organisation - Essay Example

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Management accounting is a new branch of accounting that promotes the overall managerial performance of an organisation

As scholars indicate, an organisation’s management accounting discipline can have a great influence on its other functions. Mainly, management accounting discipline defines an organisation’s managerial ethics. Hence, the concept of management accounting discipline greatly relates to the firm’s corporate governance policies. This paper will particularly discuss the evolution of management accounting discipline and its relationship with other functions in organisations. The paper will give specific focus to the ethical aspects in management accounting, performance management, balanced scorecard, activity based costing and sustainability reporting. Evolution of management accounting discipline The history of management accounting can be dated back to 19th century when the process of industrial revolution compelled firms to maintain better managerial control over their business activities. During that time, most of the firms were run by a single owner or manager using their personal assets. As there had been no external stockholders or unsecured debt, organisations never used to prepare elaborated financial reports. Therefore, the concept of management accounting was widely known by its cost accounting functions in olden days. The idea of management accounting has undergone tremendous changes over the last century. As per the Malaysian Institute of Accountants’ (2005) study, the development of this concept can be explained using four recognisable time phases2. Phase 1 - Before 1950, the major function of the management accounting was to determine the costs and to control financial operations using financial tools such as budgeting and cost accounting. Phase 2 - By 1965, the scope of management accounting expanded and hence its focus has been shifted to provision of information for managerial activities such as planning and control. For this purpose, business managers used tools such as decision analysis and responsibility accounting. Phase 3 – By 1985, management accountants extensively used techniques like process analysis and cost management in order to reduce the wastage of resources in business processes and thereby improve profitability. Phase 4 – By 1995, the management accounting branch focused more on value creation through effective use of resources. For this purpose, management accountants sought help of technologies that can identify the contributing factors to shareholder value, customer value, and organisational innovation3. The emergence of the concept strategic management accounting in late 1980s notably changed the overall outlook of the management accounting4. By the end of the 20th century, increased pressures from capital markets, creditors, and governmental regulatory bodies forced organisations to pay specific attention to managerial control. In addition, increasing business needs persuaded business houses to raise additional funds from different capital suppliers5. In order to manage fund raising activities and to identify future fund needs, business managers had to obtain audited financial statements. Likewise, firms had to communicate its financial ...Show more

Summary

Issues in Management Accounting Issues in Management Accounting Introduction Management accounting is a new branch of accounting that promotes the overall managerial performance of an organisation. Under this new accounting concept, business managers simply use accounting information to get a detailed view of the business and hence make sound business decisions…
Author : carey46
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