Management accounting - contemporary approach - Essay Example

The paper starts off with a brief review of literature concerning historical trends in management accounting and then develops understanding into modern issues while introducing recent systems of management accounting, discusses a breakthrough development in performance measures viz. balanced scorecard and identifies various budgetary controls and their relationship with the managerial performance. The management accounting system emerged and developed initially during the 19th century. At first it was solely used by managers for obtaining cost information such as direct labour and direct material etc used in the manufacturing process.

Further, the management accounting was developed in the same century to obtain information concerning subordinate activities and impact of specific products on company profits. It was then also utilised for estimating costs (standard cost) and comparing it with actual costs i.e., variance analysis (Johnson & Kaplan, 1987). Atkinson et al. (1997) describe management accounting as a process through which the economic transactions of an organisation are acknowledged, gauged, accounted and examined.

This process of management accounting needs to be endogenous to the organisation, which directs the flow of organisational decisions vis--vis operation and investment. Despite the criticality of management accounting in the process of managerial decision-making and performance towards the accomplishment of organisational goals, there remain substantial concerns regarding the bias and malpractice exercised on the part of managers. These concerns lead to the development of various controls enabling the organisations to oversee the conduct of managers and supervisors, and to make them accountable for their activities impacting organisational goals.

This is referred to as the management control, and Anthony and Govindarajan (1998, p17) delineate it as,"Management control is the process by which managers influence other members of the organization to implement the organization's strategies. The system used by management to control the activities of an organization is called its management control system." Hopwood (1972) previously figured out various demoralised activities on the part of the managers, such as budgetary slacks and exploitation of performance measures vitiating the role of management accounting.

Merchant (1985) describes various controls to be enforced at managerial level so as to set standards and gauge outcomes of managerial activities and decision-making. The most significant control pertinent to management is the result control, which is achieved either through some performance indicators such as profitability etc or through target identification. Holzer and Norreklit (1991) says that financial accountability control could be also exercised at the management level, where the managers could be held responsible for financial results of the company such as net income, losses etc.

In this way, decisions taken under the management accoun