Question

Discussion on how the ‘comparable’ and ‘comprehensible’ characteristics benefit the management accountant.

Detailed and clear discussion on how the ‘comparable’ and ‘comprehensible’ characteristics benefit the management accountant

Answer 1

Solution

To an organization, management accounting can be of importance in the following manner:

a. Budgeting, planning and forecasting the future periods.

b. Calculating the profitability of products, services and operations.

c. Measuring organisational, and departmental performance.

d. Comparing results and performance within and between organisations or within industries.

e. Assisting in the process of increasing effectiveness and efficiency.

f. Assessing the performance of past and future capital investments.

g. Advising on decisions about product mix, markets to be served and selling prices.

h. Advising on decisions on whether to outsource products, components, activities and services or build it.

i. Advising on decisions involving the investment of scarce resources to put to its best possible use.

j. Assisting in the making strategic decisions.

Characteristics of management accounting information are as follows:

a. Caters to accounting information: Managerial needs are fulfilled by the way information is presented with the help of management accounting. The accounting data collected by accounting department is used for reviewing various policy decisions.

b. Cause and effect analysis. Management accounting goes a step further and discusses the cause and effect relationship. The reasons for the losses are investigated and the factors directly influencing the profitability are also studied. Profits are compared to sales, different expenditures, current assets, interest payables, share capital, etc

c. Techniques and Concepts: To make accounting data more useful, management accounting uses special tenchinques and methods according to the demand of accounting. The techniques used include financial planning and analyses, standard costing, budgetary control, marginal costing, control accounting, etc.

d. Critical decision making: Management accounting supplies necessary information to the management which may be useful for its strategic decisions, financial decisions and also, operational decisions. The historical data is studied to see its possible impact on future decisions.

e. Achieving of objectives. Management accounting helps in formatting plans and setting up objectives. Comparing actual performance with targeted figures gives an idea to the management about the performance of various departments. When there are deviations, corrective measures can be taken at once with the help of budgetary control and standard costing.

f. No fixed norms. No specific rules are followed in management accounting as that of financial accounting. Even though the techniques and methods are same but the way they're used might differ from one organization to another. How the results are derived depends upon the management accountant. The presentation however, differs as per the use by management.

g. Caters to forecasting. Management accounting is concerned with the future performance. It helps the management in planning and forecasting. The historical information is used to plan future actions. The information is supplied with the object to guide management in future decisions.

h. Source of Information: Management accounting is concerned with rearrangement or modification of data. The correctness or otherwise of the management accounting depends upon the correctness of basic records where this information is collected from, i.e., Financial accounting, cost accounting. The limitations of these records are also the limitations of management accounting

i. Consists of both financial and non-financial information – Management accountants deal in information and not just data, therefore, must have the requisite skills to produce useful, meaningful, relevant information. Management accountants helps add value to data, processing it into useful information to be used by management and different divisions of businesses.

j. Organisational control and effectiveness – Management accounting have the ability to put perspecitve into the implications of workings and decisions for the whole organisation and helps understand how the various parts of the organisation are interrelated.

Importance of manegement accounting in being comparable as well as comprehnsive to business and among different segments of business is as follows:

Comparability and comprehsibility: Management accounting helps in comparing the different segments of business to each other, different businesses in the same industry, present performance with past performance, even helps in comparing present performance with the standards set with the help of management accounting.

It's comprehensive nature assists management accountant interpret to further help decision makers and top management in comparisons as well as in setting clear objective or amend the present ones in order to achieve realistic goals.

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