Analysis of Management Accounting: Principles, Functions, and Systems

This essay provides an overview of management accounting, defining it as a process for analyzing business operations and costs to aid managerial decision-making. It outlines the definitions provided by Alleyne and Weeks-Marshal, AICPA, and ICMA, highlighting the three areas of performance, strategic, and risk management. The essay details four core principles: communication, relevance, value, and trust, explaining how each contributes to effective management accounting. It also discusses six main functions: planning, organizing, staffing, directing, controlling, and coordinating, emphasizing their roles in achieving business goals. Furthermore, the essay examines essential requirements of management accounting systems, including management style and information characteristics, and delves into specific systems like cost accounting, inventory management, job costing, and price optimization, outlining their respective requirements. Desklib offers more solved assignments and study resources for students.

Management accounting
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Introduction
Management accounting that is also known as the
cost accounting or managerial accounting is
considered as the procedure to analyse the business
operations and costs. It is carried out for preparing
internal records, accounts and financial reports for
assisting the managers in the process of decision
making to achieve the business goals.

Definition
As per the definition given by Alleyne and Weeks –
Marshal (2011), management accounting is the
practice that considers the business methods for
supporting the management accounting procedure
and infrastructure of the organisation. The practice is
associated with financial accounting, tax accounting,
internal auditing and management accounting
(Erepository.uonbi.ac.ke 2019).

As per the definition given by AICPA (The American
Institute of Certified Public Accountants), management
accounting is the practice that is extended to 3 areas
as follows –
Performance management
Strategic management
Risk management (AICPA, 2019).

As per the definition given by ICMA (Institute of Certified
Management Accountants) management accounting
involves application of skill and professional knowledge of
the management accountant in preparing and presenting
the financial as well as other information associated with
decision to assist the management in formulation of the
policies and in controlling and planning the operation of
business (Icma.org 2019).

4 principles of management accounting
Communication -
Communication delivers the insight that is crucial and
influential. The management accounting starts and
finishes with the conversations.
It enhances the decision making process through
communication of the insightful information at all the
stages of decision making process.
Sound communication of the crucial information
assists the management to cut the issues and improving
the integral thinking (Chenhall and Moers 2015).

Relevance –
Information is valuable and relevant for all.
The process of management accounting searches for
resources best available for the information that is
pertinent to decision taken and the people who made
the decision along with the method employed for
decision making.

Value –
Impact on the value is evaluated.
The principle of management accounting associates
the strategy of organization with the business model
and requires clear understanding of large macro-
economic environment.
It further includes analysis of the information in
addition to evaluation of opportunities, focusing on
risks, costs, analysis of value-generation paths and
opportunities for value generation potential.

Trust –
Stewardship forms trust.
Scrutiny as well as accountability makes the process
of decision making more objective.
Balancing of the short-term business interest against
the long term value for the shareholders improves the
trust and credibility.
The professional from management accounting are
expected to be accountable, mindful and ethical for
creating organizational values, social responsibilities
and requirements of the governance (Maas,
Schaltegger and Crutzen 2016).

six main functions of management accounting
Planning – Planning is deciding in advance regarding
when, how and what to be performed. It includes
developing future action for business as a whole as well
as for different department within the business.
Organizing – It is the 2nd management function after
planning. It involves breaking the plan into different
activities, grouping the activities and assigning resources
to those activities.

Staffing – Through function of staffing different
positions in organization structure are established.
Hence, the staffing process delivers the organization
with competent, qualified and adequate personnel at all
the levels of business (Christ and Burritt 2015).
Directing – Apart from organizing, planning and
staffing, it is crucial to set the tasks for each employee.
Management has properly established and well-
coordinated plans that enable the personnel to
accomplish their tasks through integrating their
personal efforts with objectives and interest of the
organization (Wouters et al. 2018).

Controlling – Controlling the management of tasks
involves requires activities to comply with the plans. It
involves measuring the accomplishments against the
standards pre-determined and recording the deviations,
if any. It further involves evaluation and investigating for
the reasons of deviations.
Coordinating – It involves harmonization of work
efforts and relations at all the levels to attain the
common purposes of business. It is unifying and
attaining the harmony among the individual efforts to
achieve business goals.