Investigating the role of modern management accounting Essay


Management Accounting trades with supplying information for internal users, chiefly the directors. Since they are the subdivision of people who directs and controls the operations of the house, the information that Management Accounting provides is really utile. Some of the basic direction activities are:

Planning: Considering assorted options and taking the best among them.

We will write a custom essay sample on
Investigating the role of modern management accounting Essay
or any similar topic only for you
Order now

Control: Ensure that the chosen program is being followed and whether there are in line with the aims of the house.

Directing and Motivating: Activities need to be monitored and employees need to be motivated and encouraged to guarantee smooth and effectual operation of the organisation ( Seal, W et al. , 2006 ) .

Emergence of Management Accounting

The construct of Management Accounting evolved during the Industrial revolution of the nineteenth century. During that period, most of the companies were controlled and owned by a few directors. Elaborate fiscal studies were non demanded as there were no external stockholders. The twentieth century saw a batch of alterations in the economic system ; companies were required to subject elaborate fiscal studies in order to fulfill the capital markets, revenue enhancement intents and creditors ( Seal, W et al. , 2006 ) . Earlier, production engineering was simple, with merchandises go throughing through a series of distinguishable stages of production. So, it was easier to place the associated stuff and labour costs, therefore direct labour was used as the footing for delegating indirect costs to merchandises ( Ashton, D et al. , 1995 ) .

Role of Modern Management Accounting

Organizations are under force per unit area to non merely do determinations on a twenty-four hours to twenty-four hours footing but besides to chalk out a program that will assist them to last and turn in the of all time altering market topographic point, sing the fact that they will be faced with unsure fortunes. The chief function of modern direction accounting is to supply the assorted degrees of direction with information that is relevant to do sound determinations and to add value to the company. It is somewhat different from traditional accounting because they provide directors with indispensable information in clip to put marks, minimise the cost, develop criterions, proctor public presentations and compute discrepancies, thereby bettering the quality of the merchandises with decreased wastage. Apart from these, Management accounting AIDSs in bettering the flexibleness and advanced capacity of the organisation, therefore doing uninterrupted alterations to better its fiscal and non fiscal public presentation to remain on path with the quickly altering economic system ( Atkinson, Anthony A et al. , 1997 ) ( Prit, 2009 ) .

Determining an organisation

Management Accounting can assist determine an organisation in the undermentioned ways:

Provides accurate and timely information to assist cut costs, step and better the productiveness.

Information on merchandise costs helps in the debut of new merchandises in the market, pricing determinations and, if required, forsaking of disused merchandises.

For big and decentralised organisations, it is indispensable to actuate employees utilizing appropriate inducements and benefits. This determination is based on the consequences provided by the direction accounting system.

Acts as a communicating tool which the upper direction uses to pass on with the center and lower direction and frailty versa. Information about the organisational ends and scheme is passed on to the operational divisions and feedback is communicated back to the upper direction ( Kaplan, Robert S. , 1987 ) .

Binds the operational and strategic ends together in order to guarantee that the public presentations of the operational divisions are aligned with the organisational ends ( Ashton, D et al. , 1995 ) .

Management Accounting shaped by organisation

An organisation can besides hold an impact on this accounting system in the undermentioned ways:

In order to successfully turn in the quickly progressing market, client satisfaction has become the premier focal point. This affects the sort of information required by the organisation and demands sophisticated signifier of direction accounting system.

Since organisations are divided into sub units, the mutuality among them would be really high. As a consequence the kineticss of the information needed has changed.

Due to increased coordination among organisations, the spread between providers and employees are acquiring narrow. This has led to alterations in the manner that organisations collect and use direction accounting information ( Atkinson, Anthony A et al. , 1997 ) .

A major computing machine revolution has brought about a important decrease in the information aggregation and processing costs and has eased the work of comptrollers ( Kaplan, Robert S. , 1987 ) .

Management Accounting a Global phenomenon

The challenge faced by companies today is ; the alliance of local concern procedures with the planetary aims and schemes. Since the organisations are widely dispersed and decentralized, integrating of the sub units and its operations has become critical in order to vie in the planetary market. This requires direction of assorted organisational relationships, internal, external, perpendicular, hierarchal, horizontal and sidelong ties.

In the turning planetary economic system, direction accounting is required to:

Manage the flow of perpendicular and sidelong information within organisations.

Integrate and coordinate activities of units located in assorted locations ( Scapens, R et al. , 2007 ) ( Ashton, D et al. , 1995 ) .

Decrease in duties, easiness in world-wide transit and remotion of other trade barriers has increased competition as more and more companies are come ining the market, therefore, the demand for direction accounting is increasing excessively. For illustration: Since concern is spread outing widely, outsourcing has become a great trade and states like India and China are taking the manner in this country and have a competitory border over other houses ( Seal, W et al. , 2006 ) .

Impact of globalisation

Management accounting is shaped by assorted alterations in the planetary environment, such as:

Quickly altering concern clime has increased the research opportunities in the country of direction accounting.

Many of the states in the universe are re-structuring themselves. States like Taiwan, India and parts of Eastern Europe are easy traveling into big scale denationalization. This has the altered the planetary competition scene.

Determining planetary organisation

Management Accounting plays a major function in determining the planetary:

Aidss in stabilising transportation of currency and the transportation of goods and cognition between companies located in different states.

Manages the fluctuations in currency by the purchase of fiscal instruments like hereafters and options.

Enables coordination and integrating among the assorted activities of a globally spread organisation. Helps to supervise and measure the public presentation of its subordinates ( Ashton, D et al. , 1995 ) .

Helps in edifice stronger political relationships between the house and the authorities of the state where it has its operations. These ties can hold positive impact in the signifier of revenue enhancement interruptions, subsidies etc.

3 Recent developments in Management Accounting Techniques

a ) Balanced Score card

This technique consists of an incorporate set of public presentation steps that are derived from and besides helps the company ‘s scheme. It develops a scheme for the company to foster it objectives successfully ( Seal, W et al. , 2006 ) .

The features of this technique:

Helps the direction to clearly province the vision and scheme in a touchable signifier.

Helps in pass oning the aims and scheme to the employees and encourages them to put single ends and aline them to the organisational aims.

Develops measures to measure the public presentation.

Four positions of a Balanced mark card:

Financial- concerned with profitableness.

Customer- concerned with client satisfaction, keeping of old clients and geting new 1s.

Internal Business process- concerned with the internal procedures that will assist in pulling and retaining clients.

Learning and growth- concerned with the long term growing and development of the organisation.

The balanced mark card is used in both the fabrication and service sectors. An illustration of a company in a service sector that uses this technique is the National Insurance Company. It is the belongings division of one of the major US insurance companies. In the twelvemonth 1993 they launched the mark card technique with gross of $ 4 billion dollars. Unfortunately this ne’er worked for the company and ended up doing immense losingss, until a direction squad was brought in to do fixs. They moved the company from a Renaissance man scheme to a specialised one, therefore, assisting National Insurance to recover the profitable place in the economic system.

The balanced mark card technique has its advantages and disadvantages.


Helps in supplying periodic and systematic feedback.

Helps in quantifying the vision and aims of the organisation.

Helps to put single ends and aline them with the organisational aims, therefore, elating the morale of the work force.

It focuses on both, fiscal and non fiscal factors

( Kaplan, R.S & A ; Norton, D. P, 1996 ) ( “ Balanced Scorecard for Corus Group PLC ” ) .


Balanced mark card is all about developing a scheme and if the direction devises an unclear and ill-defined one, it will take to a futile and confounding score card.

Sometimes looked upon as a strictly top down attack, where the scheme is created at the top and imposed upon the employees ( “ Balanced Scorecard: A Panacea or poisoned goblet? “ ) .

The execution of this technique can be clip devouring and hard and may non include the involvements of the stockholders, providers and employees ( “ Balanced Scorecard for Corus Group PLC ” ) ( Kaplan, R.S & A ; Norton, D. P, 1996 ) .

B ) Just in clip

This direction technique was first developed in Japan by Taiichi Ohno in the seventiess. Toyota Motors Corporation was the first one to follow Just in Time technique as portion of its production system. In this technique natural stuffs go into production every bit shortly as they are received, the manufactured parts are completed merely in clip to travel into the piecing procedure and they are shipped to the clients every bit shortly as they are completed. The chief characteristics are, stuffs would be purchased merely for the twenty-four hours to twenty-four hours demand and there would be no goods in procedure at the terminal of the twenty-four hours as they are all delivered to the clients instantly ( Seal, W et al. , 2006 ) .

The Just in Time technique is most normally used by the fabrication and selling sectors. An illustration of a fabrication house utilizing this technique: In the twelvemonth 1992, the gross revenues of one of the taking auto makers, Porsche declined to less than 15,000 and had a loss of about $ 133 million. The timely assignment of two Nipponese experts identified the job as uneconomical stock list in the shelves. A quality control plan was introduced to cut down the figure of faulty parts. Ever since, their net incomes have jumped to about $ 55 million and immense gross revenues of approximately 34,000.

It would be appropriate to advert about a service sector utilizing the Just in Time technique. McDonald ‘s adopted this technique to vie with their rival Burger King and Wendy ‘s. They had to carefully analyze the system and pass about $ 25,000 in each of its mercantile establishments. This was implemented to guarantee that the clients would be served with the freshest nutrient within 90 seconds of ordination and besides to cut stock costs, which would finally take to staff nest eggs ( Garrison and Noreen, 2003 ) .

The benefits and disadvantages of Just in Time technique are:


Decrease in warehousing and telling cost.

Can do usage of the excess floor infinite which would otherwise be occupied by stock list, therefore, avoiding any planned enlargement that could ensue in excess disbursal ( Kaplan, Robert S. , 1987 ) .

Throughput clip is reduced ; as a consequence, the companies can give quicker responses to clients.

The rates of faulty units are reduced, hence, less wastage and cost effectual production.


If any parts are found faulty, the whole production procedure would be held up.

Companies are to the full dependent on their providers, since they have to be able to supply defect free goods.

Execution can be somewhat hard as the workers required to run under this system needs to be multi skilled and flexible ( Garrison and Noreen, 2003 ) .

Activity Based Costing

Towards the terminal of 1980, Activity Based Costing became a popular signifier of bing among the organisations. This provides directors with cost information to do strategic determinations.

Under this system, overhead cost pools are allocated to the merchandises and other bing objects utilizing a step of activity. The indirect costs are besides allocated to different cost pools, based on the activity. The costs are all attached to each merchandise on the footing of the cost drivers associated ( Garrison and Noreen, 2003 ) ( Ashton, D et al. , 1995 ) .

A big figure of organisations have adopted Activity Based Costing. One illustration of a company in the service sector, in a underdeveloped state, that is successfully utilizing this technique is Tata Consultancy Services ; one of India ‘s largest confer withing organisation. They used this method to place issues in their package concern. With the aid of Activity Based Costing, Tata Consultancy was able to happen out that the quality confidence, proving and rectification costs were holding a negative impact on their profitableness. This costing technique provided the needed cost information to assist the directors set appropriate precedences and supervise the sensing costs ( Garrison and Noreen, 2003 ) .

Activity Based Costing has its ain advantages and disadvantages.


Simple to run and can be easy understood.

Focus is chiefly on what causes the costs to increase.

Absorption rates are closely linked to causes of operating expenses.


Execution and care is expensive.

The alterations may non be accepted easy by the employees, they may defy.

Directors sometimes insist on including nutriment costs and idle capacity costs, this may ensue in exaggerated costs.

Activity Based bing studies does non conform to the Generally Accepted Accounting Principles. This may necessitate the companies to hold two cost systems which can be an expensive matter ( Garrison and Noreen, 2003 ) .


Hi there, would you like to get such a paper? How about receiving a customized one? Check it out