Scope of management accounting

The scope of management accounting includes: Formation, installation and operation of accounting, tax accounting and information systems. Management accountant has to construct and re-construct these systems to meet the changing needs of management functions; The compilation and preservation of vital data for management planning. The management accountant presents the past data in such a way as to reflect the trends of events to the management; Providing means of communicating management plans to the various levels of organization. This, on the one hand, ensures the coordination of various segments of the enterprise plans and on the other hand defines the role of individual segments in the whole plan and assists the management in directing their activities; Providing and installing an effective system of feedback reports. This would enable the management in its controlling function. By pinpointing the significant deviations between actual expected activities and by adhering to the principles of selectivity and relevance, such reports help in the installation and operation of the system of “management by exception”. Analyzing and interpreting accounting and other data to make, understandable and usable to the management. It is only through such analysis and clarification that the management is enabled to place the various data and figures in proper perspective in the performance of its functions. Such analysis assists management in the location of responsibilities and to effect necessary changes in the organizational set up in order to achieve the objectives of the enterprises in a more efficient manner. Assisting the management in decision making by (a) providing relevant accounting and other data and (b) analyzing the effect of alternative proposals on the profits and position of the enterprise; Providing methods and techniques for evaluating performance of the management in the light of the objectives of the enterprise, thus assisting in the implementation of the principle: “Management by objectives”. Improving, modifying and sharpening the effectiveness of the existing techniques of analysis. The management accountant would always think of increasing the practicability of existing techniques. He should be on the look-out of the development of new techniques as well.

In the hands of management, management accounting serves not only as a tool; however, it also provides for a technique evaluating the performance of the management itself. It operates as a double edged sword assisting the management in proper performance of its functions in planning, decision making and control, and at the same time, enabling the owners and other interested parties to evaluate and appraise the management of the enterprise.