Management accounting can be defined as a process of providing appropriate information primarily intended to assist managers in making better decisions. In previous years, management accounting techniques like traditional budgeting, cost-volume-profit analysis, standard costing and variance analysis, were adaptable to the business environment when product varieties were few, competition was low, overhead costs were relatively low, automated processes were minimal and firms were mostly labor intensive. However, many businesses and environments began to evolve as a result of technological changes, globalization and changing customer mix. Authors identified inadequacies in these techniques, when used as tools in planning and control decisions. Awareness amongst companies on the need to achieve excellence in manufacturing/service delivery and use such an achievement as a strategy to compete effectively grew.… Read the rest
Management Accounting
Financial Accounting and Management Accounting – Similarities and Differences
Financial accounting and management accounting play an important part in accounting information system. They co-exist in enterprise production and operation of management, constituting the modern enterprise accounting system together. Much information which management accounting required is from financial accounting, while financial accounting also put the established budget, standards organizations, and such daily accounting data from management accounting as the basic premise.
Management accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be “future looking” and have forecasting value to those within the company. … Read the rest
Differences Between Value Chain Analysis and Traditional Management Accounting
The Limitations of Traditional Management Accounting
There exist five major limitation for traditional management accounting. The first one is the traditional management accounting may treat the firm as a single part. It only provided information for a single enterprise management decision and control, ignoring the external environment and other relevant information also can reflect the firm’s position in the market. Second, the traditional management accounting limited to the collection and analysis of internal financial information, the information break away from the requirements of corporate strategic management and weakened the role of management accounting. Third, the concept of traditional management accounting just focus on solving the relevant and individual internal issues.… Read the rest
What is Activity Based Costing (ABC)?
Changing external business environment has resulted in further developments in the tools and techniques used for management accounting. Traditional management accounting techniques had certain limitations associated with them, for instance, absorption costing methods have been found to be inappropriate in the modern environment. Similarly, standard costing’ suitability with respect to its general philosophy and detailed operations has come under severe criticism. It is believed that traditional management accounting performance measures can produce the wrong type of response. As a response to the limitations of traditional accounting techniques, activity based approaches has gained significant repute.
In the case of activity based approaches, the focus is on the activities that the business carries out as opposed to how the activities have traditionally been organised into separate functions.… Read the rest
Introduction to International Financial Reporting Standards (IFRS)
Background of International Financial Reporting Standards (IFRS)
Users of financial statements have always demanded transparency in financial reporting and disclosures. However, the willingness and need for better disclosure practices have intensified only in recent times. Globalization has helped Indian Companies raise funds from offshore capital markets. This has required Indian companies, desirous of raising funds, to follow the Generally Accepted Accounting Principles (GAAP) of the investing country. The different disclosure requirements for listing purposes have hindered the free flow of capital. This has also made comparison of financial statements across the globe impossible. An International body called International Organization of Securities Commissions (IOSCO), to harmonize diverse disclosure practices followed in different countries initiated a movement.… Read the rest
Cost Accounting Information System
Cost Accounting Information System (CAIS) is an accounting information system which determines the costs of products manufactured or services provided and record these costs in the accounting records. It is the key to management’s assessment of the company’s efforts to achieve profit. Since it is so important, the CAIS must be carefully designed and properly maintained.
Functions of Cost Accounting Information System (CAIS)Generally the purposes or functions of cost accounting information system fall into four categories. These include providing information for:
- External financial statements,
- Planning and controlling activities or processes,
- Short term strategic decisions and
- Long term strategic decisions.
These four functions relate to different audiences, emphasize different types of information, require different reporting intervals and involve different types of decisions.… Read the rest