Management Accounting

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MODULE 1

Management Accounting

Module 1
Management Accounting

Objectives

Aim

To provide an understanding of the nature of management accounting and its role in the process of managing and controlling the enterprise.

Key Concepts

▪ Management accounting

▪ Management control

▪ Decision making

Learning Outcomes

By the end of this section you should be able to understand:

▪ The purpose of management accounting

▪ The concepts and processes of control.

The Role of Management Accounting

Most enterprises face a process of constant change in their environment. Change is also a continuous process within the enterprise. To survive the enterprise must be able to face up to and manage these changes. The ability to manage change is a critical success factor for all enterprises.

Management accounting is concerned with the process of change management by:

▪ The analysis of past decisions.

▪ The provision of information which explains current trends.

▪ The provision of information for decision making.

▪ The provision of information for planning and control.

Traditionally management accounting provided cost information to management for the control and decision making process. The concern of the management accountant today is much wider and includes the provision of both financial information and non-financial information.

Management accounting is concerned with the process of management. By considering the process of management it is possible to establish a framework for management accounting.

A framework for Management Accounting

Management is a social process entailing responsibility for the effective and economic planning and regulation of the enterprise in fulfillment of a given purpose or objective. (T Lucey, Management Information Systems)

Consider now how the following terms from the definition relate to the management accounting system:

Social process – management accounting is concerned with the control of people and therefore when designing and using management accounting systems we must be aware of their impact on the individual.

Responsibility and Effectiveness – managers are given responsibility and authority for the effective use of resources. The management accounting system is concerned with measuring how well a manager has exercised his authority and responsibility when using resources.

Topical Quote

If you can’t measure it how can you manage it?

Economic planning – a plan is a course of action designed to ensure that the enterprise achieves a pre-determined objective. The process of planning will be considered in more detail at a later stage.

Regulation – involves the process of controlling the enterprise. Management must control the enterprise so that it achieves its objectives. The process of control will be considered in more detail at a later stage.

Objectives – what are the objectives of the enterprise? If the managers of the enterprise are to be rational decision-makers they must be aware of the enterprise’s objectives and support them!

The Process of Management

Having considered this formal definition of management and how it relates to management accounting let us now look at the process of management in more detail.

Activity 1.15 minutes

|List, in general terms, what you believe are the main functions of management. | | | | | | | |...
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