Management accounting is those areas of accounting concerned with financial planning, principally through the interpretation and use of financial data for important management of the business. The role of accounting is to provide relevant information, which will assist management with decision-making, planning economic performance, controlling costs and improving profitability. However, note that the information generated by the management accounting function is just one component part of the decision-making process. It is not the ‘be all and end all’; it must be used in conjunction with other data. The purpose of this essay is outline the objectives of and the main stages in, a managerial planning, decision making and control process and describe the role served by managerial accounting in this process.
The aim of management accounting is to provide management with information, which will help them to:
- Achieve their objectives/goals.
- Formulate policy.
- Monitor and assess performance.
- Appreciate the financial implications of changes in the internal and external environment in which the organization operates.
- Plan for the future.
- Make comparisons between alternative scenarios.
- Manage more efficiently the scarce resources, which are at their disposal.
- Control the day-to-day operations.
- Focus their attention on specific issues, which really need their consideration.
- Solve a variety of problems, e.g. investment decisions.
- Take account of behavioural factors.
Understanding the nature of measurement and communication, the characteristics of economics information, the theories and practices of the decision making process and the identification of accounting information users are crucial to the understanding of accounting in general.
The major users in accounting information can be divided into three groups:
- Internal managers who use the information for short run planning and controlling everyday operation.
- Internal managers who use the information for making non-routine