Management Accounting as a Part of Strategic Process - Essay Example

Management Accounting Management accounting can be referred as a part of accounting system which assists the management in regular operations of the organisation, in policy formulation and also in decision making through providing sufficient information. CIMA London defines management accounting as “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” (CIMA Official Terminology, n.d.). Management accounting provides both, financial and non-financial information, to the management. It has a much broader perspective and is not just concerned with providing numerical data to the management. Unlike financial accounting, management accounting recognises data not only from past records but also from present tendencies and future prospects. It is futuristic in nature. As management accounting also deals with the analysis, interpretation and communication of data in addition to identification and measurement of those, it can be said that it is a tool for the management for the decision making process and is much broader concept than to provide mere numerical data to the management.. The tools and techniques used for the purpose of management accounting includes marginal costing, standard costing, budgetary control, etc. Management Accounting as a part of Strategic Process Strategy is the process deployed by an organisation to accomplish its mission and long term objectives. As management accounting facilitates the top management with preparation, analysis, interpretation and communication of financial and non-financial information, the essence of management accounting is implicit with the strategic process in an organisation. Management accounting provides the top management with the required (interpreted) information at the right time which inturn aids the management in decision making process. So, it can be said that management accounting and the strategic process goes hand in hand in an organisation. Quality, Cost and Time are the three important aspects of any strategy. Management accounting information assists the top management to achieve the quality goals. It also helps the management to achieve the objective of cost management as management accounting also involves costing methods. In addition to quality and cost, management accounting also provides timely information to the decision-makers (Bell J., Ansari S., Klammer T., Lawrence C., n.d.) . Therefore, it can be inferred that management accounting is a part and parcel of strategic process of an organisation. Changing Role of Management Accountants As it is often said that change is the only constant term in this world, the concept of management accounting and the roles of management accountant are also subject to it. With the change in the way of business being conducted especially because of massive technological innovations, today management accountant has a much bigger role to play in an organisation. From the obligation of the accounting duties, his responsibilities are more of managerial in nature. Apart from the technical expertise, management accountant of today must also possess the technological knowledge. The management accountant has to play the integrating role in the business. In the competitive scenario of today, he cannot expect his role to be over by just preparing the report, rather he has to try and interpret the key areas to the management and be a partner to the decision making process. The management accountant has to keep his eyes wide open and analyse the future with the tools of the subject and add value to the organisation. Evolving Management Accounting It has been observed that with changing times the way of looking at the concepts and conventions of management accountancy have experienced a major change. This fact can be well established with the examples of few cost determination measures like that of activity based costing (popularly known as ABC costing) or target costing. ABC Costing - Activity Based Costing refers to the system of costing on the basis of activity performed. At the outset, the costs are identified for the entire activity. After the identification, the cost of each activity is assigned to the products to the extent of their usage of the particular activity. In the way, we can split the cost of the entire unit into number of activities. ABC costing is a proven method of costing which has helped various organisations to redefine their business. All sorts of redundant expenditures can be identified and checked. The modern approach to ABC costing is that of time-driven ABC costing. According to this concept, management accountants takes the estimation of the demand of resources imposed by transaction, product or customer instead of assigning activity based resource cost (Kaplan R.S., Anderson S.R., January 2005). This new approach of ABC costing helps the manager to interpret the data in terms of time of demand and supply. It is believed to be a major break-through as traditional method of ABC costing was not working for the larger corporations, to the extent it was expected. Target Costing – Target costing is a relatively newer concept in the arena of the costing techniques. Traditional ways of costing was intended only to finding of costs. But with the advent of the cost-cutting measures, target-costing has evolved as a major costing methodology. The business firms, having desired to have a particular sales price and margin of profitability, fixes the maximum amount which it can afford to be the cost of the product for its entire life-cycle i.e. from research to after-sales service including designing, production, marketing and promotional methods among other. This method of target costing has essentially helped business concerns to reduce their cost. Target costing has also led to other conceptual developments like that of target pricing which enables the firm to declare their prices long before the launch of the product. From the above discussions of modern costing methods with respect to management accountancy, it can be inferred that the contemporary thinkers believe it to be part of a strategic process for any business organisation. Today, ABC costing has the consideration of time, demand and supply of resources which has its roots to the formulation of strategies. Also target costing assists the management to have target pricing for its future product which would inturn help them to develop apt marketing strategies. References Bell J., Ansari S., Klammer T., Lawrence C., No Date, Strategy and Management Accounting, Cengage Learning, [Online], Available: http://college.cengage.com/accounting/ansari/management/1e/students/modules/mod11.pdf, [May 9, 2009] CIMA Official Terminology, No Date, Financial and Management Accounting, Washington State University, [Online], Available: http://cbdd.wsu.edu/kewlcontent/cdoutput/TOM505/page11.htm, [May 9, 2009] Kaplan R.S., Anderson S.R., January 2005, Rethinking Activity-Based Costing, Harvard Business School, [Online], Available: http://hbswk.hbs.edu/item/4587.html, [May 9, 2009] Bibliography Boynes T., Edwards J.R., British Cost and Management Accounting Theory and Practice, c.1850-c.1950; Resolved and Unresolved Issues, Cardiff Business School, University of Wales – Cardiff, [Online], Available: http://coursesa.matrix.msu.edu/~business/bhcweb/publications/BEHprint/v026n2/p0452-p0462.pdf, [May 9, 2009] Target Costing, No Date, Faculty Directory, McDonough School of Business, Georgetown University, [Online], Available: http://faculty.msb.edu/homak/homahelpsite/webhelp/Target_Costing.htm, [May 9, 2009] Read More