In today’s market, organizations manage to prosper and remain in the competitive environments of business through constant innovations. Management accounting has contributed a great deal in these innovations towards the organizations’ success.
What is more, Steve Jobs once said that innovation distinguishes a leader and a follower. Additionally, change in today’s organization is inevitable and according to many it occurs sooner than ever before. There are many different definitions given to management accounting but what they all have in common are the two elements: process and purpose. The process of management accounting is to analyze, measure and report economic information and the purpose of that is to help the users of those information make better decisions. In the process of measuring and reporting financial and nonfinancial information needed by managers to make decisions, management accountants play a leading role in the acceleration of the innovation process. The accountant’s effort should be linked with the ultimate activity aimed towards the achievement of organizations’ goals and objectives.
It is openly believed that managerial accounting is an essential part of organizations prosperity and effectiveness in the marketplace. In this perspective, the responsibility rested on their positions would finally contribute towards the rapid achievement of organization’s goals. The question which rises at this point is whether we, as managers, need to be wary of the innovations proposed by management accountants.
What is more, Puxty referred to conventional management accounting as the traditional paradigm that has philosophical roots, while Bromwich pointed out that adding the strategic perspective to traditional management accounting required the role of accounting to extend in two directions. Firstly cost needs to be combined with strategy and secondly we need to be aware of changes over time and our competitors.
In today’s corporations, the roles and actions of management accountants are sensitive, because they have multiple relationships to the organization. Firstly, they act as strategic partners and providers of decisions based financially as well as operation information. Secondly, they are charged with the responsibility of managing the business team besides having to respond relationships and responsibilities to the corporation’s finance organization. Thus, the activities undertaken by management accountants include: forecasting and planning, variance analysis and renewing and monitoring costs inherent in the business.
The actions stated above are the ones that present dual accountability is more relevant to the business management team as opposed to corporate finance department, because it is responsible for development of new product costing, operations research, sales management score carding and client profitability analysis.
Accordingly, the finance department will however benefit in preparation of financial reports, reconciling the data to source systems and risk as well as regulatory reporting because it is charged with gathering financial information from all sectors of the organization. It is consequently, widely believed that financial accounting is a spring board to management accounting since most corporations are moving from emphasizing financial accounting, which is skewed towards compliance to embracing management accounting, which is more concerned with value creation and driving success in the business.
In addition, management accountants use available information to make decisions geared at delivering positive results within the organization irrespective of the set standards because the application to the discipline varies from one company to another.
Furthermore, flexibility in management accounting enables the management accountants to gain knowledge and experience from various fields as well as functions within an organization like information management, efficiency auditing, marketing, valuation, pricing and logistics.
Even though innovations usually are either administrative or technical, management accounting can provide innovations that are purely radical and administrative. Likewise, the implementation of managerial accounting innovation does not benefit the business directly, but rather indirectly through the organization’s behavioral change. Clearly, the impact of improved management accounting information results in the long run after it has been put into use.
Innovation, nevertheless is a crucial component of an organization’s business strategy, so a successful organizational plan around innovation requires a strong grip of the innovation process. Innovation is a generation and mobilization of an idea, experimentation, commercialization, diffusion and implementation.
What is more, traditional management accounting practices have been under substantial criticism for their lack of efficiency and capability in the coping with the requirements of a changing environment over the past two decades. Moreover, previous systems failed to keep up with the increasing demands imposed on them by technological change in manufacturing environments.
Additionally, the previous accounting system had many limitations on how the measurement of residual value or even the rate of investment. This happened because both ROI and RV concentrate on the maximization of profit, not cash; and profit can be altered in the long term. Profit, can be manipulated by manager’s choice over accounting policies they use. Furthermore, when it’s time to change a worn out plant and equipment, ROI could be higher however earnings will remain modest.
What is more, the information available from management accounting provides a platform for managers to conduct an overview of the entire internal structure in order to facilitate the control functions within an organization. Management accounting is responsible for providing a scorecard by which an organization’s overall performance is seen by outsiders. The managers use the same information to prepare various reports like reports on how the business units are performing against actual plans and targets.
On the other hand, there are other analytical reports drawn to investigate existing problems like declines in organization’s profitability. Other reports used by managers to analyze a developing business situation. Management accounting is a critical component in any company’s management system, a better understanding of the same or failure is likely to greatly affect the operation as well as the efficiency within the company.
Strategic management accounting has been used to describe the process of provision and analysis of management accounting data about a business and its competitors for the use of developing and monitoring business strategy.
However, a performance measurement system enables a business to plan, measure and control its performance according to a pre-defined strategy. In short in enables a business to achieve desired results and to create shareholder value. The major innovations in performance systems used today are: economic value added, balance score card, activity based costing and strategy plan.
Nonetheless, it is significant to keep in mind that there are no sweeping rules for identifying the profitability of an organization. Every business has to sort it out on its own. The management accountant can only advise managers regarding how to organize their business into making a profit. Their main job is to make sure that managers get all the accounting information they need. Managerial accounting is just a function that presents the numbers, nothing more, nothing less, and the numbers speak for themselves. Management accountants only try to interpret what the numbers demonstrate. Internal accounting reports simply provide essential information for controlling current profit, performance and plan for future profit performance. So management accountants are the ones who help managers in their decision making, control and planning for the future of the business.
Management accounting information is the core of any management system if not well handled and analyzed it may lead to making wrong or even harmful decisions which may affect the company’s operation. It is therefore, important that before engaging in any management accounting planning or control, both the accountants as well as the managers, should understand that accounting information and numbers are affected by the modern business environments which are typically dynamic, unstable and complex. Accounting systems therefore, should be designed in a way that will enable them to withstand such environmental conditions.
At the end of the day, wary or not by innovations proposed my management accountants, numbers are numbers and they speak louder than any words or proposed ideas. They speak the truth.