Management accounting is the internal professional accounting with the process of budgeting and forecasting, monitoring, implementing, reporting, analysis and interpretation of information inside organizations.
After doing research in academic literature, there are a large number of roles can be identified for management accounting. In this essay, I will introduce many different roles of management accounting and then further information will be simply discussed and given. Budgetary control will be considered. Following that, stakeholders will be defined and divided into five major groups which are owners, customers, employees, suppliers and the community. These will be explained in further by proposing a fundamental example of strategy planning. The five groups of stakeholders are going to split into two groups which are the environment-defining stakeholders and the process-defining stakeholders. The requirements of each of the stakeholders will be discussed. Lastly, implications for the five groups of stakeholders from the roles of management accounting will be discussed if they are available.
Get your grade
or your money back
using our Essay Writing Service!
Management accounting is usually used to deal with the internal affairs of a company. According to the literature, there are many different roles identified for management accounting. In the general idea, the role of management accounting is to prepare and provide accounting information in order to assist the decisions and problem-solving activities of operators and managers.
First of all, the very basic role of it in public sector organizations is to provide managers the accounting information which is needed to carry out the plan and control, the information may be involved in activities such as manufacturing, construction, retailing and transportation. Management accounting system determines costs with marginal costing and standard costing techniques which plays important roles in decision making and control. The managerial planning and control cycle is important in particular as they have to be able to react rapidly to changes in market forces as it is a necessary requirement for such organizations. Management accounting can help not only in the price determination of charge, but also help in putting the issues surrounding charging for services into perspective.
There are some more supplementary roles of management accounting which is also significant as they have to facilitate the flow of relevant accounting information for shareholders to make their investment decision with certain rational allocation of resources. They help shaping the decision making process, promote organizational efficiency and the maintenance of organizational control and the information needed at the control stage is to measure how effective it was in the use of resources, suggest an incentive for the elaboration of accounting knowledge and practice in specific directions, provide a normative construction for accounting thought, facilitate corporate accountability and advance rational decision making such as to decide which activities to attempt and the resources that will be required, improve management budgeting, planning and reporting to coordinate organizational activities in which the plans and budgets are not just for the short-run, but for every year into the future, introduce production and inventory control policy, measure the performance of the organizations and to cope with different information and reports, and design internal informative accounting system.
The control stages of the management planning and control cycle begin with the budget, the followings are also included, controlling, measuring, reporting, analyzing and feedback. These can be called as budgetary control. A crucial role of management accounting is to introduce and to hold a substantial system of budgetary control. Cost allocation is in need as to contrive sufficient costing systems. It is often suggested that the evaluation of managerial performance could be largely improved if more services were sold rather than provided at no charge.
Stakeholder is defined to be the one who has a share or an interest receiver in an enterprise. There are five major groups of stakeholders in an organization; they are customers, employees, suppliers, owners and shareholders, and the community. Strategy planning is one of the responsibilities for management accounting. Firstly, we need to have a fundamental conception of the role of strategic planning, which is needed to define the relationship that the organization will develop with each of its stakeholder. The starting point is to identify the expectations of the owners, and then will follow up by choosing an appropriate strategy to achieve their expectations. For example, from the context of Management Accounting(Atkinson, 1997), planners choose a competitive strategy based on continuous product innovation. To do this, the organization must have highly trained and innovative employees, flexible manufacturing and logistical systems, and suppliers who can adapt quickly to changing product requirements. To be acceptable to owners, the plan must provide expectations of a reasonable return on their investment. This plan must also meet the community's expectations with respect to meeting laws and social conventions. In this case, stakeholders - owners, employees, suppliers and community, are getting involved.
Always on Time
Marked to Standard
Further speaking, the five groups of stakeholders can be split into two groups, which are the environment-defining group and the process-defining group. The former group of stakeholders has the role of defining the organization's external environment, which actually includes owners, customers and the community. The latter group of stakeholders comprises of employees and suppliers, work in internal environment, where is to design, produce and deliver the organization's goods and services to its customers.
For the environment-defining stakeholders, owners provide primary source of capital and expect a return on their investment corresponding to their investment risk. Therefore they have the right to designate the primary objectives of an organization. In general, the objective determined by owners is to increase their wealth as well as profit by using less capital and resources.
Customers play a crucial role in the secondary objectives of an organization. The organization needs to meet the requirements of customers in order to achieve their primary objectives from their owners. In this case, customer requirements relate to the cost, quality and service of the product. Once the above requirements have been improved, the organization must review the costs and benefits.
The third one is the community. The role of the community allows the organization to operate. There are two requirements levy on the organization, the first one is that the community's law regulates the interaction between the organization and its stakeholders, such as employment laws and environment protection laws. The second one is that community provides social leadership in the community, for instance, some community relief programs is come off and organizations undertake and participate in those activities facilitate a favorable corporate image, maybe, in order to increase sales or few difficulties related to their operations.
For the process-defining stakeholders, employees is specify to be a crucial role as they operate the organization on behalf of the owners of the organization and they are also responsible for planning, implementing, and accomplishing the decision proposed to achieve the objectives of the owners. Employee expectations are about the types of jobs, wages and practices in work force, organizations must provide to tempt and keep the employee they look for.
The second one is the suppliers who provide the organization with goods and services it needs to design, make, sell, deliver, and retain the products of the company. Besides, creditors, who provide short term operating fund to the organizations, are one of the significant group of suppliers. Suppliers have the more or less the same primary objectives as the organizations since they reckon on the increase of property. Suppliers provide a fixed profit to share between its partners and the organization which does the strong bargaining will receive the biggest profits.
Stakeholders are implicated by the roles of management accounting. In management accounting, the accounting information is given to the shareholders for them to make decisions on their investments, which can be implied for owners as they need to decide what the primary objectives are in an organization.
For the implications of employees, there are different kinds of roles. Firstly, accounting information is provided to carry out plans and controls when employees are responsible for planning and implementing. Secondly, to shape the decision making process and to promote organizational efficiency and the maintenance of organizational control, employees have to be capable of designing, planning, implementing, monitoring, and executing the decisions by their knowledge, skills and effort to the organization. On the other hand, for organizational performance measurement, employees are implicated in developing performance measures for decentralized organizational units to promote organizational performance that is consistent with business unit strategy and facilitates coordination with other business units.
In the operational control, suppliers provide information about the level of expertise, the quality of the products, timeliness and delivery of the product or service to customers when it is talking about the efficiency of task performance. This information would be useful to the management to assess inventory levels, turnover and stocks, as well as to manage checkout and stocking labor staffing levels and efficiency.
For the product and customer costing, suppliers can measure the costs of resources used to produce a product or service and assess the cost and profitability of all categories. The profitability of the organization's products and services by linking resources generated to the costs of resources required for their design, production, sales, delivery and service are implicated in customers.
This Essay is
a Student's Work
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.Examples of our work
For the implication of the community, the management accounting in an organization often participates in different forms of activities, such as innovations and leadership in human resources practices and policy and leadership in environment protection activities; announces a positive shock to the community and thus there will be a favorable corporate image which is likely to lead to benefits to the organization.
To conclude, there are many important roles identified for management accounting. They are mostly about planning, controlling and decision making. The five groups of stakeholders can be implicated by the roles of management accounting in which owners is the only one usually for the decision making on the investment while employees apparently take the most significant roles on behalf of the organization as it has such a large number of implications.
- ATKINSON, A., BANKER, R., KAPLAN, R. and YOUNG, S. (1997) Management Accounting. 2nd ed., London: Prentice Hall
- JONES, R. and PENDLEBURY, M. (1988) Public Sector Accounting. 2nd ed., London: Pitman
- BURCHELL, S., CLUBB, C., HOPWOOD, A. and HUGHES, J. (1980) The roles of accounting in organization and society. Accounting, Organizations and Society. Vol. 5, No. 1, pp. 5-27.