MANGEMENT

ACCOUNTING
 ACCOUNTING

Finan • It is concerned with recording ,classifying, and summarizing in term of money transactions and events
cial which are in part at least of a financial character and interpreting the results thereof
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Man • It is designed for the management. It is concerned with presentation of accounting information in a
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manner which can assist the management in creation of policy and decision making
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• It concerned with recording, classifying, and summarizing cost for determination of costs of product or
Cost services ,planning ,controlling and reducing such cost and furnishing the information to management for
Acco decision making.
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 It helps the management to perform all its functions, including planning, organizing, staffing, direction, and control.
In other words, the field of accounting that provides economic and financial information for managers and other
internal users is called management accounting.
 Any form of accounting which enable a business to be conducted more efficiently
 M.A information can help manager identify problems, solve problems, and evaluate performance
 M.A is concerned with accounting information that is useful to management
 M.A is an integral part of management concerned with identifying, presenting and interpretation information used
for-
i. Formulating strategy
ii. Planning and controlling activities
iii. Decision making
iv. Optimizing the use of resources
v. Disclosure to employees
 CHARACTERISTICS/NATURE OF MANAGEMENT
ACCOUNTING

• Management accounting is a technique of selective nature. It does not use the whole data provided by financial
records. It selects and picks up only that information form different financial records (such as profit and loss account
or balance sheet), which are relevant and useful to the management to arrive at important decisions on different
aspects of the business
• Management accounting is concerned with the future. It collects and analyses data to plan the future. The primary
function of management is to decide bout the future course of action. Management accounting, with the help of
different techniques, formats the future course of action.
• Management Accounting makes available useful information which helps the management in planning and decision-
making. It can only provide information but cannot proscribe. It is up to management to what extent it. It can make
use of the information depending upon its efficiency and wisdom
• Management accounting studies the relation between causes and effects. Financial accounting does and analyses
the causes responsible for profits or losses. Management accounting attempts to study the cause-and-effect
relationship by analyzing the different variables affecting the profits and profitability of the business.
 OBJECTIVES OF MANAGEMENT
ACCOUNTING:
• Assistance in Planning and Formulation of Future Policies
• Helps in the Interpretation of Financial Information
• Helps in Controlling Performance
• Helps in Organizing
• Helps in the Solution of Strategic Business Problems
• Helps in Coordinating Operations
• Helps in Motivating Employees
• Communicating Up-to-date Information
• Helps in Evaluating the Efficiency and Effectiveness of Policies
• Assistance in Planning and Formulation of Future Policies: Management accounting assists
management in planning the activities of the business. Planning is deciding in advance what is to be done,
when it is to be done, how it is to be done and by whom it is to be done. It involves forecasting on the basis
of available information, setting goals, framing policies, determining the alternative courses of actions and
deciding on the programme of activities to be undertaken.
Thus, planning is making intelligent forecasting. This forecasting is based on facts.
Facts are provided by past accounts on which forecast of future transactions is made. Management
accounting helps management in its function of planning through the process of budgetary control.
• Helps in the Interpretation of Financial Information: Accounting is a technical subject and may
not be easily understandable by everyone till the user has a good knowledge of the subject. Management
may not be able to use the accounting information in its raw form due to lack of knowledge of accounting
techniques.
Management accountant presents the information in an intelligible and non-technical manner. This
will help the management in interpreting the financial data, evaluating alternative courses of action available
and guiding the management in taking decisions and having the most desired financial results
• Helps in Controlling Performance: Management accounting is a useful device of managerial control.
The whole organisation is divided into responsibility centres and each centre is put under the charge of one
responsible person. He will be associated with the planning and framing of the budgets and be required to
execute the plans and standards and deviations are analysed in order to pinpoint the responsibility. Thus,
management accountant helps in controlling the performance of the different responsibility centres and
take suitable actions in order to correct the adverse deviations by revising the budgets if need be.
Management accounting assists management in location of weak
spots and in taking corrective actions against such spots which are not in conformity with the budgeted
performance. Thus, management accounting helps management in discharging its control function successfully
through budgetary control and standard costing.

• Helps in Organizing: Thus management accountant recommends the use of budgeting, responsibility
accounting, cost control techniques and internal financial control. This all needs the intensive study of the
organisation structure. In turn, it helps to rationalise the organisation structure.
• Helps in the Solution of Strategic Business Problems: Whenever there is a question of starting a
new business, expanding or diversifying the existing business, strategic business problem has to be faced
and solved. Similarly when in a particular situation, there are different alternatives as whether labour should
be replaced by machinery or not, whether selling price should be reduced or not, whether to export the
item or not etc., a management accountant helps in solving such problems and decision-making.
He provides accounting data to a management with his recommendation as to which
alternative will be the best. For such decisions, the management accountant may take the help of marginal
costing, cost volume profit analysis, standard costing, capital budgeting etc.
Management accounting provides feedback to the management such as what business to
engage in or diversify how to run that business efficiently. This is most important contribution which the
management accountant has made

• Helps in Coordinating Operations: Management accounting helps the management in co-

coordinating the activities of the concern by getting prepared functional budgets in the first instance and
then co-coordinating the whole activities of the concern by integrating all functional budgets into one
known as master budget. Thus, management accounting is a useful tool in co­ordinating the various
operations of the business.
• Helps in Motivating Employees:The management accountant by setting goals, planning the best and
economical course of action and then measuring the performance tries his best to increase the effectiveness
of the organisation and thereby motivate the members of the organisation.

• Communicating Up-to-date Information: Management accounting assists management in

communicating the financial facts about the enterprise to the persons who are interested in these facts so
that they may be guided to a line of action to be pursued. Management needs information for taking
decisions and for evaluating performance of the business.
The required information can be made available to the management by means of
reports which are an integral part of the management accounting. Reports are means of communication of
facts which should be brought to the notice of various levels of management so that they may be guided for
taking suitable action for the purposes of control.

• Helps in Evaluating the Efficiency and Effectiveness of Policies: Management accounting also
lays emphasis on management audit which means evaluating the efficiency and effectiveness of
management policies. Management policies are reviewed from time to time to make an improvement in
them so that maximum efficiency may be achieved.
 SCOPE OF MANAGEMENT ACCOUNTING:
The scope of management accounting is very wide and broad-based. It includes all information which is
provided to the management for financial analysis and interpretation of the business operations.
• Financial Accounting: Financial accounting though provides historical information but is very useful for
future planning and financial forecasting. Designing of a proper financial accounting system is a must for
obtaining full control and co-ordination of operations of the business.
Financial accounting forms the basis for analysis and interpretation for furnishing meaningful
data to the management. The control aspect is based on financial data and performance evaluation, on
recorded facts and figures. So, management accounting is closely related to financial accounting in many
respects.
• Cost Accounting: It provides various techniques of costing like marginal costing, standard costing,
differential and opportunity cost analysis, etc., which play a useful role in to operation and control of the
business undertakings.
Cost accounting is the process and techniques of ascertaining cost. Planning, decision making
and control are the basic managerial functions. The cost accounting system provides the necessary tool for
carrying out such functions efficiently. The tools includes standard costing, inventory management, variable
costing etc.
• Budgeting and Forecasting: Forecasting on the various aspects of the business is necessary for
budgeting. Budgetary control controls the activities of the business through the operations of budget by
comparing the actual with the budgeted figures, finding out the deviations, analysing the deviations in
order to pinpoint the responsibility and take remedial action so that adverse things may not happen in
future. Both the techniques are necessary for management accountant.
Budgeting means expressing the plans, policies and goals of the firm for a
definite period in future. Forecasting on the other hand, is a prediction of what will happen as a result of a
given set of circumstances. Forecasting is a judgement whereas the budgeting is an organizational object.
These are useful for management accounting in planning

• Inventory Control : Inventory is necessary to control from the time it is acquire till its final disposal
as it involves large sum. For controlling inventory, management should determine different level of stock.
The inventory control technique will be helpful for taking managerial decisions.

• Cost Control Procedures: These procedures are integral part of the management accounting
process and includes inventory control, cost control, labour control, budgetary control and variance
analysis, etc.
• Reporting: The management accountant is required to submit reports to the management on the various
aspects of the undertaking. While reporting, he may use statistical tools for presentation of information as
graphs, charts, pictorial presentation, index numbers and other devices in order to make the information
more impressive and intelligent.
The interpreted information must be communicated to those who are
interested in it. The report may cover Profit and Loss Account, Cash Flow and Funds Flow statements etc.

• Internal Audit And Tax Accounting : Management accounting studies all the tax matters to assist the
management in investment decisions vis-a-vis tax planning as a resource to enjoy tax relief.

Internal audit system is necessary to judge the performance of every department.

Management is able to know deviations in performance through internal audit. It also helps management in
fixing responsibility of different individuals.
Management accounting studies all the tax matters to assist the management in
investment decisions vis-a-vis tax planning as a resource to enjoy tax relief. Management is able to know
deviations in performance through internal audit. It also helps management in fixing responsibility of different
individuals.
• Methods and Procedures: It includes in its study all those methods and procedures which help
the concern to use its resources in the most efficient and economical manner. It undertakes special cost
studies and estimations and reports on cost volume profit relationship under changing circumstances.
This includes maintenance of proper data processing and other office
management services. It may have to deal with filing, copying, duplicating, communicating and management
information system and also may have to report about the utility of different office machines.

• Statistical Method : Statistical tools not only make the information more impressive,
comprehensive and intelligible but also are highly useful for planning and forecasting.

• Interpretation Of Data : Analysis and interpretation of financial statements are important part of
management accounting. After analyzing the financial statements, the interpretation is made and the
reports drawn from this analysis are presented to the management. Interpreting the accounting data to
the authorities in the management is the principal task of management accounting.

• Tax Accounting: It is an integral part of management accounting and includes preparation of income
statement, determination of taxable income and filing up the return of income etc.
• Office Services: The management accountant may be required to maintain and control office
services in some organizations. This function includes data processing, reporting on best use of mechanical
and electronic devices, communication, etc

• Evaluating the Performance of the Management: Management accounting provides methods

and techniques for evaluating the performance of the management. It evaluates the performance of the
management in the light of the objectives of the organisation. Thus, it helps in the implementation of the
principle of management by exception.
It, therefore, can be said that management accounting services not only as a tool in the
hands of the management for evaluation; the performance of its subordinates, but also provides methods and
techniques for evaluating the performance of the management itself
 WHY IS MANAGEMENT ACCOUNTING IMPORTANT?

• Reviewing products : If you’re reviewing your current product range, management accountancy will
provide you with all the financial and business-crucial statistics to help you decide exactly which products
are profitable, which aren’t, and how to remedy that. Furthermore, it can provide you with valuable
metrics for understanding how decisions you make have affected an individual product’s profitability .

• Launching new products : If you’re looking to launch new products, management accounting is
even more important. It can support at every stage, from initial planning right through to execution, by
giving a detailed breakdown of production capabilities, as well as an accurate picture of the market as a
whole. This is crucial for working out how much you’ll charge for a new product, the quantities of
product you will make and whether or not it is worth bringing in extra staff to help deliver.
• Staffing : Staffing is another area in which management accounting can be hugely valuable. Decisions
around hiring new staff and setting wages can be a real headache. Management accountants can help you
make the right decision by letting you know exactly how much you can afford to spend on staffing, and the
returns you can expect for your investment in personnel.

• Strategic management :Based on the information presented in management accounting, the

management can make decisions about continuing a product or modifying the sale strategy. Since
management accounting is not regulated by any law, the management can decide the areas that require
more analysis, investigation and accordingly draw up strategies.

• Making a proper budget decision : Another important benefit of managerial accounting is the
ability to create an effective budget with every cent placed exactly where it should be. Analyzing former
actions, uncompleted activities, and future investments play a crucial role in determining your budget. You
have to include all aspects of your business when calculating the budget and make sure you provide each
section of your operation with sufficient funds to function exactly as you planned. As a result, you won’t
spend too much money or leave any department short of money when it’s needed the most.
 FUNCTIONS OF MANAGEMENT
ACCOUNTING

• Forecasting and Planning: One of the important functions of management accounting is to provide
necessary information and data for making short-term and long-term forecasts and planning the
operations of the business. For doing this, the management accountant uses techniques of statistics,
like probability, trend study of correlation and regression; budgeting and standard costing; capital
budgeting; marginal costing and cash funds flow statements etc. These are important tools in the hands
of management accountant for the planning of the business.

• Organising: The management accountant helps the management in organising the

human and non-human resources of the business by analysing different functions and
assigning specific responsibilities. He tries to organise the accounting and finance
function of the business on the modern lines.
• Coordinating:
The management accountant increases the efficiency of organisation and maximise its profits by providing
different tools of coordination as budgeting, financial reporting, financial analysis and interpretation etc. It
helps the management by reconciling the cost and financial accounts, by preparing budgets and setting the
standard costs and in analysing variances in costs to facilitate management by exception.

• Controlling Performance:
The management accountant helps in controlling the performance of the organisation by using standard
costing, budgetary control, accounting ratios, cash and funds flow statements, cost reduction programmes
and evaluating the capital expenditure proposals and return on investment.

• Financial Analysis and Interpretation:

The management accountant analyses the data and presents it before the management in non-technical
manner along with his comments and suggestions so that the owners and the top personnel’s in the
management may understand it and take decisions without any difficulty.
• Special Studies:
The management accountant tries to maximise the profits of the concern by conducting various cost and
economic studies on regular basis. He tries to determine the needs of long-term and short-term capital,
recommend appropriate capitalisation for the enterprise, evaluation of alternative capital expenditure
proposals and their impact on the return and profits of the concern .

• Protection of Business Assets: The management accountant will be responsible for the protection of
business assets. He is to see that sufficient funds are available for repairs, maintenance and replacement of
fixed assets so that production capacity of the enterprise may not be badly affected. He is also to see that
business assets are properly insured.

• Tax Policies: The management accountant is responsible for tax policies and procedures. He will make
available the reports required by various authorities. He will make proper provision for taxation and he is to
ensure that quarterly payments of taxes paid in advance as required by the Income Tax Act are made in
time to avoid penal interest payment on delayed payment of tax.
• Miscellaneous Functions:
Besides the above functions, the management accountant supplies useful information to different functional
authorities, provides necessary accounting information and advice for price determination and pricing
decisions and helps to make strategic decisions as seasonal or temporary suspension of production, make or
buy decisions, replacement decisions and expansion or closure of particular division or department, etc.
 TOOLS AND TECHNIQUES OF
MANAGEMENT ACCOUNTING:
• Financial Policy and Accounting: Every business concern has to plan for its sources of funds. The
fund can be raised out of different sources. Utilising a particular source depends on cost of servicing the
source, terms of repayment in case of borrowings, etc. The amount of share capital raised, the statutory
obligations for repayment are to be considered. The capital mix, i.e., the proportion of share capital and
borrowing has to be decided to have an optimum capital structure. Management accounting provides
capital budgeting techniques for financial planning.

• Analysis of Financial Statement: Analysis of financial statements is means to classify and present
the data in a manner useful to the management. The significance of information provided is explained in a
nontechnical language in the form of ratio analysis, funds flow and cash flow techniques.

• Historical Cost Accounting: Costs are recorded after being incurred for comparison with
predetermined targets to evaluate performance
• Budgetary Control: Budgets are used as a tool for planning and control. The expenditure and
revenue are predetermined. The actuals are compared with budgets to reveal deviations and individuals
responsible for the same. Corrective actions are initiated to eliminate the negative deviations in future.

• Standard Costing: Standard costing is an important technique of cost control. In Standard costing the
costs are determined in advance by systematic analysis. The actual costs are compared with standards.
The variances are analysed to find the causes and action is taken for removal of the same to increase
efficiency.
Generally, standard costing is used along with budgetary control for effective control of
operations.

• Marginal Costing: Under marginal costing, the cost of products is divided into fixed and variable
portions. While the variable costs are taken for decision making, fixed costs are treated as period costs to
be charged to costing Profit and Loss account. Marginal costing is helpful to management in taking various
important decisions etc
• Other Tools of Management Accounting are:

(a) Decision Accounting: Here alternatives are evaluated for selection in decision situation.

(b) Revaluation Accounting: This is applied in replacement of fixed assets whose prices go up from period.
The effect of inflation on the fixer assets is tackled here.

(c) Control Accounting: In control accounting, internal check, internal audit and statutory audit are used.

• Management Information System: An important function of management accounting is

reporting. This function has improved consider off with the developing of electronic data processing
systems. In the modern firms, the process of making information available for management is
integrated and computer based, known as ‘Management Information System'(MIS).
ADVANTAGES/ MERITS/ USES OF
MANAGEMENT ACCOUNTING:
Management Accounting is of immense value and utility for the management of any firm and it has
been considered as indispensable, particularly in large organisations where the task of Management is
complex.

• Increase in Efficiency: Management accounting contributes significantly towards increasing

efficiency in operations of a firm. Budgets, standards, reports etc., usually elevate the level of
performance.
• Effective Planning : Policy formulation and planning of operations become more effective through
the ‘decision data’ provided by Management Accounting.
• Performance Evaluation: Evaluating performance of employees, departments, etc., is facilitated by
Management accounting through Variance Analysis, control ratios etc.
• Profit Maximisation: Management accounting is helpful in profit planning to pursue decisions which can optimise
profits.

• Reliability: The Tools used by Management accounting usually make the data supplied to Management accurate and
reliable.

• Elimination of Wastages: Standard costs, Budgets, cost control techniques, etc., contribute towards elimination of
wastages, production of defectives etc.

• Effective Communication: Regular and systematic reporting ensures constant flow of information about operations
to various levels of Management.

• Employee Morale: Morale of employees can be created and sustained through attainable standards, practical
budgets and incentive schemes.

• Control and Co-ordination: Control on costs and coordination in the efforts of different segments of an
organisation can be achieved through performance reporting, variance analysis and follow up action etc.

The greatest benefit of Management accounting is its advisory role in making the Management to take the
best possible decisions on a day-to-day basis on routine matters and also vital policy matters.
LIMITATIONS OF MANAGEMENT
ACCOUNTING:

Like any other discipline Management Accounting has its own Limitations. Though it is considered as an
indispensable tool for Managerial decision making, its recent origin and several external factors limit its
effectiveness.

• Dependence for Basic Records: Management Accounting rarely maintains basic and primary
records of operations, expenses and revenues. It derives all of its Primary data from Financial
Accounting, cost Accounting and other relevant records. So, the accuracy .and reliability of the
conclusions derived by Management Accounting is limited to the reliability of its sources of data, so, it
suffers from several of the limitations of Finance Accounts and cost Accounts.
• Personal Bias:
Analysis and interpretation of financial information depends upon the capability of the
analyst and interpreter. Personal Judgement and usage of discretion become necessary in several areas of
Management accounting. Personal ‘Prejudices’ and ‘Bias’ of individuals can affect the objectivity and
effectiveness of the conclusions and recommendations.

• Management Accounting is only a Tool:

Management accounting cannot be considered as an alternative or substitute
to Management. Management accountant acts as an adviser and facilitator for decision making by
management. The actual decisions, their implementation and follow up action are the prerogative of the
Management.

• Management Accounting provides only Data:

The Main function of Management Accounting is to provide data in the form

of ‘Alternatives’ to the Management. It is for Management to make suitable choice among the alternatives or
even discard all of them. So, Management Accounting can ‘only Inform and not prescribe’.
• Broad Based Scope: The scope of Management accounting is very wide and broad based. It uses
information from varied disciplines like Financial Accounting, economics, Statistics, Cost Accounts, engineering
etc. It considers Monetary and Non-Monetary Transaction of the firm. Limitations of the knowledge and
experience of the Management Accountant in such diverse fields can make the data unreliable and
undependable.

• Resistance to Change: Installation of Management accounting involves basic changes in the

organisational set up and Traditional accounting practices. The personnel concerned may resist such change
unless they are taken into confidence and convinced of the need for such changes.

• Costly to Install: Installation of Management Accounting involves huge expenditure because of the
elaborate organisation needed and the large number of changes in procedures, forms and rules. So, small
firms may not be able to afford the cost. Only big organisations can afford to Maintain Management
accounting as a department or aid to management.

• Evolutionary Stage: Management accenting is of-recent-origin, as a discipline and it is still in development

stage. So, its concepts are fluid, Techniques are still evolving and analytical tools imperfect. There are several
experts who are skeptical of the utility of Management accounting because of such an important limitation.

Most of above limitations can be overcome with determined efforts on the part of the Management and a
skilled Management Accountant.
DISTINCTIONS OF MANAGEMENT
ACCOUNTING WITH FINANCIAL
ACCOUNTING
Financial Accounting Management Accounting

• The main aim is to provide information to • Here, the aim is different than financial
outside parties. Outside parties include accounting. Generally, management accounting
creditors, investors, customers, etc. Hence, it is information is meant for management to make
mainly aimed at assisting investors in making informed business decisions.
informed decisions
• It is a mandatory requirement for every public
• It is at the discretion of management. There is
organization by the government. Thus, they are
no mandatory requirement but still, institutes
governed by Accounting Standard Boards,
like CIMA, ICWAI, etc provide some framework
companies’ law and government
and formats
 Financial Accounting Management Accounting
1. Financial accounting statements are prepared 1. There is no standard basis for preparing
based on ‘Generally Accepted Accounting management accounting statements. Hence,
Principles (GAAP)’. This GAAP is different for they are prepared based on the requirement of
different countries with more or less same the management team.
features.
2. It has no specific time horizon but the main
2. The time horizon for financial accounting is focus is on the future.
‘past’. Generally, it is one accounting year.
3. Reports prepared under management
3. It is prepared for outside or external parties. accounting are useful to internal parties like
External parties like shareholders, suppliers, CEO, directors, promoters, and higher-level
customer, government, banks, etc. managers, etc.
4. Financial accounting reports consist of profit 4. Management accounting reports are the
and loss statements, balance sheet and cash monthly, weekly or yearly analysis of products,
flow statement. geographies, functions, etc.
5. Data of financial accounting are 100% verifiable 5. Data of management accounting is not
and precise. Hence, everything has evidence to necessarily 100% verifiable. So, the data should
support it. be relevant, timely and logical. For instance,
nobody can forecast sales perfectly.
 FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
1. Independent audit of financial accounting 1. There is no specific requirement for an
reports is mandatory in most countries. For independent audit. But, management at its
instance, in the USA, CPA conducts such audits discretion can take the initiative to conduct an
and in India, Chartered Accountants (CA) independent audit, for the sake of efficient and
conducts such audits. effective management.
2. Financial accounting statements are publicly 2. Management accounting statements are meant
published statements and are meant for the for management and confidentiality of the
public only. So, there is no question of statements is the key concern. It is because
confidentiality they contain business secrets
3. It is concerned with the whole business and it is 3. On the other hand, it is concerned with a
an end in itself. Thus, Some accounting specific area or segment for their analysis.
standards in some countries bind the Hence, segments may be a product line,
companies to do segment reporting in defined geography, manufacturing unit, etc.
formats.
4. It has a futuristic perspective.
4. It has a historical perspective.
5. Both, financial and non-financial information is
5. Information required for financial accounting utilized in the preparation of management
statements is financial in nature. accounting reports.
 ROLE OF MANAGEMENT ACCOUNTING IN
DECISION MAKING
In any company, growth and profitability are two primary goals. Every role in the company contributes to the effort to reach
these goals in some way, with some roles performing more aggressive duties than others. Accounting managers play one of
the more profit- and growth-focused roles in a company. Persons in this position, also known as managerial accountants, have
a few distinct duties to help companies make internal decisions that lead to profitability and growth.

• Analyzing Expenses and Revenue - Revenue is the money a company earns. In other words, the
business' income is its revenue. Its expenses, on the other hand, are what it pays to remain
operational. A company’s expenses can include salaries and benefits for employees, rent or mortgage
payments for its locations and the costs it incurs for the manufacture, packaging, marketing and
distribution of its product.
Profitability is a simple formula: Reduce expenses while increasing revenue.
Getting exact figures for revenue and expenses can be complicated, and working through raw financial
data to find useful figures is a time-consuming process. Calculating profitability based on these figures
requires the accounting manager to work closely with the company’s financial accounting team who
handle the company’s day-to-day finances.
Creating Budgets and Forecasting Ideas for Growth
Once a managerial accountant has workable financial data about the company’s revenue and expenses,
realistic budgets for specific projects and operations within the company can follow. These budgets are the
basis for long-term profitability and growth forecasts, often providing ideas, upper management can
implement to promote continued, sustainable growth and increased profitability. These forecasts are more
detailed than the ones produced by financial accounting, which are typically big-picture forecasts. The
forecasts a managerial accountant produces, in contrast, may be broken down by department, product line
or market segment.

Providing Financial Information to Steer Company Decisions

Accounting managers give advice to decision-makers, who then implement changes at the company with
this advice in mind. Often, accounting managers’ analyses lead to raw data and numbers. An accounting
manager has to speak two languages – accounting jargon and management dialect. In this role, the
accounting manager translates the raw data into actionable advice. Managerial accounting’s role really
comes down to helping a company’s upper management team take the company in profitable, pro-growth
directions by providing key financial insights.
• Management accounting system seeks to assign a device and this assignment is performed with permission of
management and selection of operational goals and distribution of them throughout the organization. The performance
responsibilities are assigned to people, and this process is usually referred to as planning

• Accounting system is a controlled system that can identify and correct poor performance with permission of the
management

• Ensuring sufficient wisdom and knowledge within the organization, allowing accurate comparison of the responsibilities
for determining the performance domain and obtaining the final benefits and action costs

• Management accountants are insiders who create internal analyses to guide the overall business strategy. By definition,
their job is to prepare internal financial reports, records and accounts to aid managers' decision-making process in
achieving short and long-term business goals.

• Identifying key performance metrics for all the departments.

• Collecting the data and Comparing and reporting the current performance as compared to the expectations.

• Using various advanced tools and techniques such as Key Performance Indicators (KPI), Balanced Scorecard, Scenario
Planning, Management Information System (MIS) etc.

• Analyzing the reasons for deviations and suggesting corrective measures.

 KEY RESPONSIBILITIES OF MANAGEMENT
ACCOUNTANT

• Preparing the monthly management accounts, budgets and forecasts to aid business planning
• Informing key strategic decisions and formulating business strategies to generate shareholder value
• Advising on the financial implications of business decisions
• Developing and managing financial systems & policies, and identifying opportunities for improvement
• Controlling and forecasting income and expenditure, and ensuring expenditure is in line with the budget
• Recommending strategies to reduce costs
• Analysing and managing risk
• Negotiating and obtaining finance for major projects
• Offering professional input on financial matters and advising on ways of improving business performance
• Effectively communicating financial data to non-financial managers
Why are they important?
The analysis of business performance and key financial data provided by management accountants is highly valued for the
important role it plays in informing senior management

Where financial accountants may focus on preparing reports based on past performance, management accountants
prepare, develop and analyse current financial information and non-financial data with the objective of allowing informed
decision-making. This can be to help management make decisions in the present or using budgeting and forecasting to
support project assessment and long-term strategy aimed at securing stability, growth and profitability

Skills needed for this role

Management accountants must have excellent numerical and analytical skills, along with strong attention to detail. Critical
and strategic thinking skills are key and these professionals should be highly organised in their approach. A solid
commercial awareness is required, as is the ability to liaise and influence at a senior level
 ROLE OF MANAGEMENT ACCOUNTANT

Management Accountant, otherwise called Controller, is considered to be a part of the management team
since he has the responsibility for collecting vital information, both from within and outside the company.
The functions of management accountant are:

• To establish, coordinate and administer, as an integral part of management, an adequate plan for the
control of operations. Such a plan would provide, to the extent required in the business cost standards,
expense budgets, sales forecasts, profit planning, and programme for capital investment and financing,
together with necessary procedures to effectuate the plan.
• To compare performance with operating plan and standards and to report and interpret the results of
operation to all levels of management, and to the owners of the business. This function includes the
formulation and administration of accounting policy and the compilations of statistical records and special
reposts as required.
• To consult with all segments of management responsible for policy or action conserving any phase of the
operations of business as it relates to the attainment of objective, and the effectiveness of policies,
organization strictures, procedures.

• To administer tax policies and procedures.

• To supervise and coordinate preparation of reports to Government agencies.

• The assured fiscal protection for the assets of the business through adequate internal; control and proper
insurance coverage.

• To continuously appraise economic and social forces and government influences, and interpret their
effect upon business.

• Stewardship Accounting: Management accountant designs the frame-work of cost and financial accounts
and prepares reports for routine financial and operational decision-making.

• Long-term and Short-Term Planning: Management accountant plays an important role in forecasting
future business and economic events for making future plans i.e., long-term plans, strategic management
accounting, formulating corporate strategy, market study etc.
• Developing Management Information System (MIS):
The routine reports as well as reports for long-term decision-making are forwarded to managerial
personnel at all levels to take corrective action at the right time. The management accountant also uses these reports
for taking important decisions.

• Maintaining Optimum Capital Structure:

Management accountant has a major role to play in raising of funds and their application. He has
to decide about maintaining a proper mix between debt and equity. Raising of funds through debt is cheaper because of
tax benefits.
However, it is risky as because interest on debt has to be paid whether the firm earns
adequate profits or not. Management accountant has, therefore, to maintain an optimum capital structure and give due
consideration to various cost of capital theories, leverage and possibility of trading on equity.

• Participating in Management Process:

The management accountant occupies a pivotal position in the organisation.
He performs a staff function and also has line authority over the accountant and other employees in his office. He
educates executives on the need for control information and on the ways of using it. He shifts relevant information from
the irrelevant and reports the same in a clear form to the management and sometime to interested external parties.
• Control:
The management accountant analyses accounts and prepares reports e.g., standard costs, budgets,
variance analysis and interpretation, cash and fund flow analysis, management of liquidity, performance evaluation and
responsibility ac­counting etc. for control.

• Decision-Making:
Management accountant provides necessary information to management in taking short-term
decision e.g., optimum product mix, make-or-buy, lease or buy, pricing of product, discontinuing a product etc. and long-
term decisions e.g., capital budgeting, investment appraisal, project financing etc.
 DUTIES AND RESPONSIBILITIES OF
MANAGEMENT ACCOUNTANT

• The primary duty of Management Accountant is to help management in taking correct policy-
decisions and improving the efficiency of operations. He performs a staff function and also has line
authority over the accountants. If management accountant feels that a decision likely to be taken
by the management based on the information tendered by him shall be detrimental to the
interest of the concern, he should point out this fact to the concerned management, of course,
with tact, patience, firmness and politeness. On the other hand, if the decision taken happens to
be wrong one on account t of inaccuracy, biased and fabricated data furnished by the
management accountant, he shall be held responsible for wrong decision taken by the
management. Following are the duties of Management Accountant or controller:
• The installation and interpretation of all accounting records of the corporative.

• The preparation and interpretation of the financial statements and reports of the corporation.

• Continuous audit of all accounts and records of the corporation wherever located.

• The compilation of costs of distribution.

• The compilation of production costs.

• The taking and costing of all physical inventories.

• The preparation and filing of tax returns and to the supervision of all matters relating to taxes.

• The preparation and interpretation of all statistical records and reports of the corporation.

• The preparation as budget director, in conjunction with other officers and department heads, of an
annual budget covering all activities of the corporation of submission to the Board of Directors prior to
the beginning of the fiscal year. The authority of the Controller, with respect to the veto of commitments
of expenditures not authorized by the budget shall, from time to time, be fixed by the board of Directors.
• The ascertainment currently that the properties of the corporation are properly and adequately insured.

• The initiation, preparation and issuance of standard practices relating to all accounting, matters and procedures and the
co-ordination of system throughout the corporation including clerical and office methods, records, reports and
procedures.

• The maintenance of adequate records of authorized appropriations and the determination that all sums expended
pursuant there into are properly accounted for.

• The maintenance of adequate records of all contracts and leases.

• The approval for payment(and / or countersigning ) of all cheques, promissory notes and other negotiable instruments
of the corporation which have been signed by the treasurer or such other officers as shall have been authorized by the
by-laws of the corporation or form time to time designated by the Board of Directors.

• The examination of all warrants for the withdrawal of securities from the vaults of the corporation and the
determination that such withdrawals are made in conformity with the by-laws and /or regulations established from
time by the Board of Directors.

• The preparation or approval of the regulations or standard practices, required to assure compliance with orders of
regulations issued by duly constituted governmental agencies.
 REPORTING TO MANAGEMENT

• The purpose of reporting is to provide the information needed by the concerned party.
• The value of information is determined by how the information meets the needs of the users.
• This information creates an atmosphere for internal decision makers.
• The communication of the information between two or more parties through reports is known as reporting.
• Report is the essence of the management information system.
• Report is a statement containing facts and if they contain accounting information and data they are called
accounting reports.
• So, report may be known as process of providing accounting information to those who needs to make decisions.
• Report may be for the past, present and for the future developments.
 CONCEPT OF MANAGEMENT REPORTING

• Reporting can be defined as communication of statements with related information between the two
parties.
• The process of providing information to the management is known as management reporting. These
reports are provided to the various levels of management on regular basis to keep the management
abreast about the effectiveness of their respective responsibility
• Reporting is an important function of the management accountant as the efficient and smooth working of
the business depends upon the good reporting.
• The effectiveness of reporting to management to a large extent depends upon the form and timing of its
presentation.
• The process of reporting to management is concerned with proper selection of financial and operating
data, arranging information in a proper form, analysing and interpreting the data and then reporting it to
the management through an appropriate method.
 OBJECTIVES OF REPORTING

Accounting reports consist of financial statistics. Management cannot analyse all significant facts regarding its
business especially in case of large scale production where the business operations are more complex in
nature. Accounting reports helps to get full information about the its entire operative activity of the firm

• Providing accounting information: Accounting reports consist of financial statistics. Management may not analyse all
significant facts regarding its business operations especially in case of large scale production where the business
operations are more complex in nature. Accounting reports help to get full information about its entire operative activity
of the firm. Thus important objective of the reporting is to provide accounting information to operating and top level
management in accurate form in understandable brief manner.
• To take right decision: To help the management in taking the right decisions with suitable statements
provided by the management accountant.

• Acceptability of the decision by all: Reporting leads to motivate people, increases efficiency and
boosting the morale of the people engaged in the various aspects of the work of the enterprise.

• Maximizing the profits: To achieve this ultimate goal of any business reporting at the right time, at
right place to the right person in right manner becomes an essential feature.

• For better control: Abnormal events can be checked in time by obtaining the necessary information in
respect of each operating activity. Control through reports become effective as compared to personal
investigations.
 REPORTING NEEDS AT DIFFERENT
MANAGERIAL LEVELS

Reporting is the lifeline of the organization. It helps in planning and control and works as a media of
communication and stimulates corrective action. Accounting system becomes useless, if the business has
no system of reporting because all decisions are normally based on reporting system.
Need of reporting differs at different management levels. This also
differs to the user community also. There are three levels of management and the reports can be classified
according to the needs as follows:

1) Top-Level Management Reports

2) Middle Level Management Reports
3) Lower Level Management Reports
 1) Top Management Reports

At this level reports are concerned with the following matters:

• For determining the aims of the enterprise;
• For formulation of policies and plans;
• For delegation of responsibility in successful manner to executives for the best utilization of resources; and
• For formulating special significant plans.

It can be assumed that top brass of the business only needs reports for cost and operational control. The report
submitted to the level should be brief or we can call it a summarized statement, which provides an overall view
on the subject. Previously these reports used to be submitted within the time framework. The time framework
may be monthly, quarterly or yearly. With the use of information technology and the real time accounting, the
whole time framework has been changed and now these can be made available online.

Reports to top level management consist of the following:

a) Reports to the Board of Directors
b) Reports to the Chief Finance Officer
c) Reports to the Chief Production officer, and
d) Reports to the Chief Executive Marketing and Sales
a) Reports to the Board of Directors :
Generally, following reports are to be submitted to the Board of Directors and the Chief Executive Officer
(C.E.O.):

i) Different budgets,
ii) Machine utilization statement
iii) Work force utilization statement
iv) Cost analysis statement
v) Fund flow statement
vi) Cash flow statement, and
vii) Balance sheet and income statement

b) Reports to the Chief Finance Officer :

Following reports are to be submitted to the Chief Finance Officer (C.F.O.) :

i) Cash flow statement,

ii) Funds flow statement,
iii) Abstract of receipts and payments and
iv) Report regarding any special problem such as make or buy,
replacement of old assets or any other.
c) Reports to the Chief Production Officer:

Following reports are to be submitted to the Chief Production Officer (C.P.O.) :

i) Cost analysis statement

ii) Machine utilization report
iii) Work force utilization statement
iv) Materials statement,
v) Production statement showing budgeted and actual with variance and
vi) Overheads cost statement

d) Report to the Chief Executive Marketing and Sales :

Following reports are to be submitted to the Chief Executive Marketing and Sales:
i ) Sales summary
ii) Reports on credit collection
iii) Reports of orders received and executed and outstanding orders
iv) Report on stock of finished goods
 Middle Level Management Reports

The middle level management consists of the heads of various departments. The reports at this level should
show the efficiency and cost data relating to different departments. At this level execution of plans formulated
by the top management is worked out and all the managers in each department are concerned with this.

It is also the function of middle level management to coordinate different activities of different departments.
The reports at middle level management consists of the following:

a) Report to the General Manager :

The following Reports are to be submitted to the General Manager :

i) Administration budget,
ii) Cash and capital budget,
iii) Salaries statement of staff and
iv) Research and development budget
b) Report to the Finance Manager :

The reports to be submitted to the Finance Manager are:

i) Funds flow statement
ii) Cash flow statement
iii) Cash and bank reports
iv) Debtor’s collection period reports
v) Average payment period reports

c) Reports to the Purchase Manager :

The following reports are to be submitted to the Purchase Manager:

i) Stock level of raw material,
ii) Use of raw material,
iii) Raw material budget and actual purchases, and
iv) Budgeted cost and actual cost of purchases
d) Reports to the Works Manager :
The reports submitted to the Works Manager are:

i) Production cost report

ii) Raw material budget and actual consumption
iii) Production budget and actual production
iv) Idle time report
v) Idle capacity report

e) Reports to the Sales and Marketing Managers :

The following reports are to be submitted to the Sales and Marketing Manager:
i) Report of budgeted and actual sales,
ii) Report of orders booked and executed,
iii) Statement of sales ,
iv) Finished goods stock position and
v) Position of collections and debtors.

With modernization and adoption of computers in the business house, the reporting period has been reduced
tremendously and the data are ready at hand and these can be used to prepare reports instantly. Middle level
management is connected on line with the computers within the organization, so preparation of reports has
become easy
 3) Lower Level Management Reports

At this level foremen and supervisors are concerned at the floor and they prepare their reports physically
without any expert opinion. They are concerned with the daily work and they infuse a certain amount of
competitive spirit among the workers by comparing the output per man per hour in a similar job. These
reports include the following factors:

i) Workers efficiency report,

ii) Daily production report,
iii) Workers utilization report and
iv) Scrap report
v) Over-time report
vi) Material spoilage report
vii) Accident report etc.
 ESSENTIALS OF SUCCESSFUL REPORTING
• Business report is a media of communication that contains factual, correct and clear information and it
should be able to add to the knowledge of the recipient. It should be easy to understand the problem of
the event reported to him. Accounting reports become ideal if they follow the following guidelines:

1) Content and the shape : While making a draft of the report the following head should be kept in mind:

1.1 Suitable title : Title should be short and suitable to the content.
1.2 Time : It should give time and the person for whom it is prepared.
1.3 Facts : Report should contain facts and not the opinions.
1.4 Totals : Where statistics are required, only relevant data should be provided
and details may be given in appendix.
1.5 Objectives : Contents should serve the purpose for which it is prepared.
1.6 Synchronize : The contents should be in logical sequence.
2) Precise : Report should not be lengthy. It should be precise, specific and concise. It should not contain irrelevant
matter. If details are necessary then they should be included in appendix.

3) Accuracy : The information provided in the reports should be accurate.

4) Comparable : It should be prepared in such a manner that comparison with past and predetermined standards can be
made.

5) Simple : Report should be simple and should not contain any ambiguity.

6) Timeliness : Reports should be prepared and presented in time, so that decisions can be taken promptly and further
deviations checked.

7) Consistency : For comparison consistency is necessary. Uniform system of collection, classification and presentation of
the information should be followed.

8) Attractiveness : The report should be eye-catching in the sense that it does not go unheeded by the users.

9) Jargon : All technical jargon should be avoided as for possible since the reader may not understand these and,
therefore, may become hostile to even the spirit of the report.
10) Highlighting Deviations : Report should highlight the variations and trouble spots which are significant to the
organisation.

11) Assumptions : Assumptions used in the preparation of reports should be stated neatly, precisely and separately.

12) Effective Communication : Report that communicates effectively to all levels of management stimulates action and
influence decisions. Detailed planning, codification and timely processing of data are the essential requisites for effective
reporting.

13) Figures and data : These should be presented is a tabular form preferably in annexure at the end of the report.