Question

Subject: Accounting for Management Decisions

Discuss the strategic role of non-financial information in a comprehensive management accounting and control system (i.e. basic business processes, the limitations of traditional financial control mechanisms for helping to improve such processes).  

Answer 1

• Although Finance is a backbone of every business, the boundaries of any business are now extended by the businesses beyond it for better performance and expansion of businesses.
• Some accounting professors have suggested that the Financial data have limitations to measure the per formance of companies.
• The other measures such as quality, variety, innovations, satisfaction etc though could be difficult to implement but would prove to be better for forecasting any business.
• The traditional financial systems of accounting were more emphasing on financial earnings and accounting returns rather than value drivers such as customer and employee satifcation. learning, quality, growth etc.   
• Hence, these traditional financial oriented systems were not liked by many top managers of the recent companies as they were lacking the organizational objectives and inadequate in providing performance measures for decision making.
• These inadequacies led to the innovation in the performance evaluating systems by inclusions of non-fianancial factors like accounting and valuation for intangible assets in financial and corporate accounting and preparations of Balance score card techniques, SWOT analysis techniques in managerial accounting.
• Some of the advantages of non-financial factors are:

1. Unlike traditional systems, it focuses on long term goals and achievements of the company.
2. Values customer relationships, focuses on customer satisfaction
3. Values quality than quantity
4. Shows the real and complete picture of the performance measures of company
5. Values intangible assets such as intellectual property, brand, loyalty etc.
6. Helps to track the performance of business.
7. Helps to track strength and wekness of business.
8. Provides feedback and appreciation to employees.

• The non-financial measures are also requested by management in order to link them with the strategies of the company. The vision and mission of companies are not always in monetary terms. thus, to track progress towards the vision and mission of the companies, non-financial factors are the only measures.
• In order to understand the performance of company or reason of success or failure of a product in market, company has to get towards the non-financial measures as the financial measures are not sufficient to provide reason for a particluar success or failure. It can only state the amount and statistic of financial data for that product.
• Thus, managers now tend to collect and improvise on the basis of non-financial factors than the financial ones.