Management Accounting – Routine & Non-Routine Information Provision

In contrast with financial accounting, which is concerned with accounting reports for the external constituents of an organisation, such as banks, investors, trade unions, suppliers, customers and the government, management accounting produces the reporting for a key internal constituent, namely management. The idea is to produce and communicate information that is relevant to managerial decision-making.  Management accounting is therefore much more detailed and potentially much more varied than financial accounting because it ought to respond to specific information requests rather than follow general reporting standards that are valid for very different types of organisations. This is not to say that all management accounting reporting is ad hoc. An important distinction with respect to management accounting work is that between routine and non-routine reporting. 

Routine reports regularly cover defined aspects of organisations, such as efficiency variances of certain input factors, which allow the charting of trends over time and structured comparisons between different entities within the organisation. They can be prepared according to widely-used principles of calculation or be tailor made for the organisation. Non-routine reports analyse one-off events or decisions that can benefit from in-depth studies of their different aspects. It is often said that routine reports concern ongoing operations and non-routine reports tend to be concerned with investment decisions. Often this is the case but it is also possible that non-routine reports are prepared to address specific aspects of operations, such as the further analysis of unusual production variances. Likewise, certain kinds of investment decisions may, especially in large organizations with great investment volumes, be highly routinised.  Management accounting builds on financial accounting information because it requires measurements and records of business transactions from diverse systems such as creditors and debtors records, the payroll, the fixed asset inventory, etc.

It also builds on cost accounting, defined as the provision and communication of cost information. In addition, management accountants can create additional ‘fictitious’ or ‘notional’ accounting information, for example, by charging opportunity costs for uses of capital. Imagine, for example, two manufacturing divisions engaged in similar activities and producing similar output levels. Imagine further that one division uses twice as much working capital (debtors, inventory, cash) as the other. In terms of reported profit, based on financial accounting records, those two divisions are very similar. But the division that produces its results with less working capital achieves a preferable result because it leaves a lot of working capital unused. Thereby, it allows the organisation to expand activities with the unused working capital, thus potentially enhancing profitability. Management accountants may therefore decide to include a notional interest charge on working capital when calculating the financial contribution of the divisions. This inventiveness divisional managers to be economic with working capital by, for example, seeking to minimise inventory or asking debtors to pay earlier. The overall financing costs of the organisation would be lower as there would be lower interest payments on bank overdrafts, loans, bonds, etc.