The Balancing Of Management Accounting System Accounting Essay


Management Accounting supports the organisations planning and implementation of strategy. The strategic planning of an organisation specifies the direction type of businesses and markets to enter and how to compete in the market that the organisation intends to take over the long-term to meet its objectives. Strategic planning draws on a wide range of management accounting information from costing, budgeting, performance measurement systems, as well as information from analytical studies, both external and internal to the organisation (Smith, 2009). The implementation of the strategy requires management accounting link the long term plans to the budgeting system, to produce annual budgets that supports the organisation's strategies. Managers responsible for making plans, organizing resources, directing other colleagues and controlling operations. Managers overall carry out three major activities: planning, directing and controlling (Seal et al, 2009). Planning involves selecting a course of action and specifying how the action will be implemented. Directing and motivating involves preparing people to carry out plans and run routine operations. Controlling involves ensuring that the plan is actually carried out and is appropriately modified as change of time. Management accounting information plays a vital role in these basic management activities.

Lady using a tablet
Lady using a tablet


Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

Planning- the objectives of the company/business will be defined at this stage and for the objectives be achieved plans will be set. There are three levels of plans and these are set by managers according to their experience and positions in the company. The plans can either be long term (Strategic Planning) or short term (Tactical Planning).

Strategic Planning- the most experienced managers set the long term plans for the company. E.g. A football team plans to win the Champions League within the next 5 years.

Tactical Planning- the plan more the next upcoming 2 years are set by the senior managers. E.g. A football team plans to win the Premier League within the next two years.

For the achievement of the strategic and tactical plan managers will put in practise the plans above. Dealing with problems that may rise during the years, managers work together to achieve the master plan. The achievement will rise from the day-to-day work.


Planning Diagram:

Directing- There are many good plans that are never realized. To realize a plan requires the initiation and direction of numerous actions. Often, these actions must be well coordinated and timed. Resources must be ready, and authorizations need to be in place to enable persons to act according to the plan. By analogy, imagine that a composer has written a beautiful score of music. For it to come to life requires all members of the orchestra, and a conductor who can bring the orchestra into synchronization and harmony. Likewise, the managerial accountant has a major role in putting business plans into action. Information systems must be developed to allow management to orchestrate the organization. Management must know that inventory is available when needed, productive resources (man and machine) are scheduled appropriately, transportation systems will be available to deliver output, and on and on. In addition, management must be ready to demonstrate compliance with contracts and regulations. These are complex tasks. They cannot occur without strong information resources provided by management accountants.

Controlling- in carrying out the control function, managers seek to ensure that the plan is being followed. Feedback, which signals whether operations are on track, is the key to effective control. In sophisticated organizations, this feedback is provided by various detailed reports. One of these reports, which compares budgeted to actual results, is called a performance report. Performance reports suggest where operations are not proceeding as planned and where some parts of the organization may require additional attention. For example, the manager of the new Shanghai store will be given sales volume, profit, and expense targets. As the year progresses, performance reports will be constructed that compare actual sales volume, profit, and expenses to the targets. If the actual results fall below the targets, top management will be alerted that the Shanghai store requires more attention. Experienced personnel can be flown in to help the new manager, or top management may conclude that its plans need to be revised. As we shall see in later chapters, one of the central purposes of managerial accounting is to provide this kind of feedback to managers.

Lady using a tablet
Lady using a tablet


Writing Services

Lady Using Tablet

Always on Time

Marked to Standard

Order Now

Management accountants who add value for their clients by improving the quality of information for decision making, the results imply that care should be taken in the selection of background information for an initial formulation of the decision problem (Demski 1980, chapter 5). The results also confirm that care should be taken in assigning assurance personnel so that they will have the requisite experience to recognize the appropriate method of analysis as well as direct choice of relevant information.

For example we can look at How Toyota lost its way in the long run of the business (Taylor III, 2010), giving explanation from the theories we have discussed above. Toyota's solution at this point should have included new regional quality officers to give regions more autonomy and decision making with regard to recalls and other safety issues. It also could have established a new special committee for global quality, and teams to investigate quickly reports of unintended acceleration; as a result the planning has to accurate before continuing to the next phase. Management accountants can help development teams monitor and control project budgets; and measure the creation of value from R&D activities. Measures could include expected sales or market share from new products as a proportion of R&D investment; and predicted profits from R&D as an activity (Smith, 2009). The management accountant can also advise on the entire R&D portfolio, to help plan capital requirements or to help management allocate resources to ensure that those projects with the best return on investment are prioritised. Manufacturers will benefit from the management accountant modelling costs for the prototypes under development; or revisiting costs when feedback from testing becomes available. The management accountant can also provide non-financial performance measures for research and product development, measuring inputs such as staff time from various experts; processes such as time-to-market estimates and feedback from testing prototypes; and output measures. Managing suppliers is an important element of controlling production costs, and there are significant benefits to involving them and sharing data and specifications at an early stage of product development. One specific contribution that the management accountant can make to reducing costs during the product design stage is target costing. Working backwards from the required profit margin, and the price for the product determined by the market, a target cost is set within which the product must be manufactured. The management accountant can also initiate cost leadership strategies, stripping out costs from administrative, operational or productive processes whilst effectively meeting customer needs. Management accountants can break down profit and cost data to identify the contribution of each profit centre, taking account of variable and controllable costs. Management accountants can help companies analyse their value chain in order to understand better where the most value is created; and where costs arise. Using techniques such as whole of life costing, this analysis can extend beyond point of sale to the customer.


Management Accounting is strongly influenced by the internal, external environment and objectives of an organization. As a company is performing in more volatile environment, the simpler management accounting system should be and vice versa. So different sets of management accounting tools should be applied to different types of organizations and in this way the balancing of management accounting system could be implemented. Basic principles of management accounting system development is that first of all managers of a company should determine an organization type by assessing external, internal environment and the objectives of a company. Depending on that set of management accounting techniques adoptable to a particular organization should be determined and applied. The implementation of proposed management accounting tools demands to organize that on a project basis. A project team should be organized, and the approval as well as support from the top management is mandatory. Acceptance, support and involvement of all management and employees are necessary for a successful change of existing management accounting.