Question

Question 1: An overview of management accounting (20 marks in total)

1a. Describe and explain the differences between management accounting and financial accounting.

1b. Describe and explain the major functions of management accounting and give examples.

1c. Using your textbook and other relevant references, explain how concepts such as panopticism, control, and discipline may be relevant to management accounting, give examples.

Answer 1

(1a.)

Basis of difference	Management accounting	Financial accounting
1. Meaning	Management accounting refers to the branch of accounting which is related with the collection & management of accounting information useful for managerial decisions.	Financial accounting refers to the branch of accounting which is related with the preparation of financial statement. This financial statements are useful for various stakeholders of the business entity.
2. Compulsory or optional	Management accounting is seconadary in use that is why it is not compulsory for an organization.	Financial accounting is primary for a business entity that is why it is compulsory.
3. Inluded information	Management accounting includes financial and non-financial information as well.	Financial accounting only includes financial information (monetary).
4. Time	Management is not bounded with any time limit. A company can use it any time.	Financial statements are prepared at the end of accounting period. That is why a proper time limit is given for financial statements.
5. Users	Management accounting is only useful for internal users such as managers.	Financial accounting have broad coverage. This is useful for internal and external users as well.
6. Auditing	Auditing is not related with management accounting.	Financial statements are audited that is why auditing is closely connected with financial accounting.
7. Required format	There is no proper format given for management accounting. A company can use any format as a company want.	There are proper formats given for financial statements such as; for balance sheet, income statement, cash flow statement etc.
8. Governing standards	There are no proper standards for management accounting.	There are certain accounting standards for financial accounting. Apart from this GAAPs are also useful for financial accounting.

(1b.)

Followings are the main functions of management accounting;

1. Forecasting and planning is the main function of management accounting which is concerned with various business forecasts and various business plans.

2. Organising of human and non-human factors so that organization goals can be achieved, is also a main function of management accounting.

3. Making co-ordination between various divisions and departments also a function of management accounting.

4. Timely monitoring and controlling of performance of the business is also a main function of management accounting. So that deviations can be modified in real time framework.

5. Making business analysis and interpretations also a function of management accounting. Under this function management makes various types of business analysis & interpretations which are very helpful in business environment.

6. Timely communication of relevant business decisions to the internal users of management accounting is a function of management accounting.

7. Making various business decisions is a key function of management accounting such as; make or buy, merger & acquisition, takeover, shut-down and continue etc.

(1c).

Panopticism, control, and discipline theory is very relevant for management accounting. This theory developed by French philosopher Michel Foucault.

As we know that in modern time, many humans are employed in the organization which are very important element for achieving goals of the organization, thus management and controlling of behaviour of these employees are very essential for the organization.

As per Panopticism, control, and discipline theory we can manage, control and maximize the productivity of the employees in the oragnization.

As per Panopticism, followings three steps are followed;

1. Create a circular worksforce;

For proper implementation of this theory it is essential to form a circular worksforce so that proper controlling and discipline can be made in time limit.

2. Separate workers;

Separation of work is essential in every organization. Without separation of work we can not accomplish our goals.

3. Make visible actions;

Actions are necessary to achieving goals for the organization, thus proper visible actions are required for making proper controlling and discipline in the organization.