Question

QUESTION 1

The Management Accountant plays an important role in the modern business environment and his/her activities may be categorized as providing information under the key headings of planning, control and decision making. You have just been appointed to a new role as Management Accountant in Akwaba Ltd, a large engineering company producing a wide range of parts for the automobile industry. This new role has been created following a majority decision of the Board of Directors based on the advice of the company’s auditors. However, the Managing Director comes from a marketing background and does not understand why the company needs another accountant as there is already a Financial Accountant employed on a full time basis. She voted against the creation of the new position and considers the cost of your remuneration to be an unwelcome burden which will only serve to reduce the company’s reported profits. According to her the equation Y= a – bx which management accountant always uses are not relevant in modern day business environment.

You are aware of the strong opinion of the Managing Director and as your first task, you decide to attempt to convince her of the importance of Management Accounting in the modern business environment and also suggest some ways that you can ensure your future role in Akwaba Ltd is financially viable.

Required:

In a Memorandum to the Managing Director, discuss clearly five (5) differences between Financial Accounting and Management Accounting under any FIVE different headings.

[25 MARKS]

Answer 1

BASIS	FINANCIAL ACCOUNTING	MANAGEMENT ACCOUNTING
Objective	Gives periodical reports to owners, creditors and government etc	It assists in internal management
Nature	Concerned with historical costs	concerned with future plans and policies
Users	External users: stockholders, creditors	Internal users: managers, employees
Format	Format should follow accounting standards and company law	Management decides on the information they require and the way of presenting it
Subject matter	It deals with the company's position as a whole. Financial atatements like P&L and balance sheet are prepared at the end of the accounting period which is 12 months.	It directs attention to various decisions, departments, products etc. about the performance or profitability of each decision. It provides a detailed analytical data for the purpose of daily decision making.

For increased business efficiency, better decision making and improved planning and control an organisation should hire a management acccountant.