Question

Describe the characteristics of an effective management accounting report

Answer 1

Management accounting information or report should comply with a various number ofcharacteristics including verifiability, objectivity, timeliness, comparability, reliability, understandability and relevance if it is to be useful in planning, control and decision-making.

The first characteristic of management accounting information are verifiability .Verifiability meansobservable to outsiders, in the context of a model of information. It refers to the ability ofaccountants to ensure that accounting information is what it purports to be. It also means that theselected method of measurement has been used without error or bias. The outsiders cannot seethem and so references to those variables in a contract between the two parties cannot beenforced by outside authorities. An example of verifiability is that of two accountants looking atthe same information like inventory valuation and coming to similar conclusions.

Objectivity is also one of the characteristics that useful in planning and making decision.Accountant reliance on verifiable evidence such as delivery notes, invoice, orders, physicalcounts or paper in the measurement of financial result. Objectivity makes it possible to comparefinancial statements of different firms with an assurance of reliability and uniformity. For instance,management accountant should not alter or change when provide the information to top levelmanagers so that the manager can make the accurate decision without being influenced.

Besides that, timeliness is one of the important parts for management may need to balance therelative merits of timely reporting and the provision of reliable information. More accurateinformation may take longer to produce. Therefore, to provide information on a timely basis itmay often be necessary to report before all aspects of ma transaction or other event are knownthus impairing reliability. For example, a company may test-market a potential new product in aparticular city. However, a long wait for the accurate marketing report may unduly delaymanagement’s decision to launch the new product nationally and the information will be of noavail to the decision making process. Thus, the managerial accountant’s primary role in the decision-making process which is decide what information is relevant to each decision problemand provide accurate and timely data, keeping in mind the proper balance these often-conflictingcriteria.