Management Accounting

Running head: MANGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Authors Note:

MANAGEMENT ACCOUNTING
1
Memorandum
To: The Manager, XYZ Accounting Firm.
From: (Name of the student)
Ref.: Evolution of a recent news article on specific management accounting problem.
On August 16, 2018 an article with the heading how to avoid software sinkhole was published in
The Wall Street Journal to evaluate the ever increasing software purchases by the companies for
management accounting and accounting as a whole. The growth in data analytics has been a
constant over the last few years with ever expanding cloud computing. As a result the software
purchasing budgets of companies have increased by multiple folds. The article discusses the lack
of knowledge and planning on the part of the business organization while acquiring software for
business. In fact businesses are often unaware about the software assets resources, licenses,
patents and other assets they control and how to make optimum use of these resources (Cloud
Computing and Its Advantages, 2016).
Deloitte has recently performed a software assessment of 25 companies around the globe and
have found out that many companies are unaware of different software assets they have in their
controls. In fact lack of management of software assets in these organization have contributed to
the ever increasing spending on software acquisition without much benefit. As high as 25% of
the annual maintenance spending can be saved if the software assets are properly managed by
business organizations. Substantial amount of cash can be saved by business organizations with
proper management of software assets (Hard choices for software spending (investment in
enterprise software by cash-strapped US manufacturing companies), 2011).

MANAGEMENT ACCOUNTING
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One of the biggest reasons for the inability of business organizations to make effective use of
software is due to the inherent difficulty in tracking the software. The very nature of software is
such that it is difficult to track the software within business organizations. The tangible assets
such as plant, equipment, machinery and other such assets are quite easy to account and physical
counts can be maintained easily. However, the existence of software is virtual and hence, it is
relatively difficult to account for these. It is extremely difficult to quantify technology across
enterprise due to the inherent limitation of the asset (Anon, 2019).
The lack of communication is one of the issues identified for the inability of the business
organizations to correctly account for the software. Generally an organization has number of
different departments which in most of the cases operate independently. The lack of
communication between these departments within an organization resulting in company buying
redundant and unnecessary software. Integration of company’s existing software structure is key
to the successful management of software assets within an organization thus, efforts shall be
made in buying software and other assets to integrate the existing software structure within an
organization (Mackie and Oss, 2011).
Companies are now moving towards signing software-as-a-service. This is further complicating
the software structure with unnecessary agreements being created as a result of signing software-
as-a-service. As a result the companies ending up spending unnecessarily huge amount of funds
on acquiring software which are not contributing the successful development of software
structures within the companies. According to Erwin Yuen, the managing director of Deloitte
Touch & LLP companies often end up using merely 40% of the resources it brought as far as
software is concerned. Thus, wasting huge amount of money on unnecessary software that are
often not even used.