Nature and characteristics of management accounting
Answers
Nature of Management Accounting:
Though Management Accounting is the latest branch in the accounting arena, it may be regarded partly as a Science and partly as an Art. It is the science of ‘Quantifying and summarising’ and Art of ‘Interpreting’ accounting data.
Management Accounts derives its conclusions through collection, processing and objective analysis of data Quantified in figures. Thus it depends upon “Objectivisation and Quantification of progress and problems”. From this point of view Management accounting may be regarded as a Science.
However Management Accounting also involves human judgement, impulses, whims and prejudices as evidenced in interpretation of data, deductions and conclusions drawn from analysis. ‘Subjectivity’ is inevitable in ‘deriving the meaning of data’. Deductions cannot be scientific with precision. Personal judgement of Management accountant may influence the interpretations and deductions significantly. From this point of view, Management Accounting may be regarded as an Art.
. Characteristics of Management Accounting:
The objective of Management accounting is to record, analyse and present financial data to the Management in such a way that it becomes useful and helpful in planning and running business operations systematically and effectively.
The following are the main characteristics of management accounting:
(1) Providing Financial Information:
(2) Cause and Effect Analysis:
(3) Use of Special Techniques and Concepts:
(4) Decision Making:
(5) No Fixed Conventions:
Financial accounting has various established principles and rules in preparing the financial accounts. Management accounting has no such fixed rules. The tools or techniques applied by the management accounting are same but application of these techniques various from concern to concern and situation to situation.
Interpretation of analysed data depends on the person using it. The conclusions derived from application of a technique depend on the intelligence and experience of the management account. The presentation of information depends on the requirements of the concern. Every concern has its own was of application of the techniques to suit its needs.
(6) Achievement of Objectives:
Management accounting is helpful in realising the enterprise objectives. Based on the historical information and with adjustments for predicate future changes, objectives are laid down. Actual performance is recorded. Comparison of actual with predetermined results is made. If there are deviations of actuals from the predetermined results, corrective action is taken and predicted objectives are achieved. This becomes possible with the help of management accounting techniques of standard costing and budgetary control.
(7) Improving Efficiency:
The purpose of accounting is to provide information to increase efficiency. The efficiency of departments, and divisions can be improved by fixation of targets or goals for a specific period. The actual performance is compared with that of targets. Positive deviations are reviewed. The negative deviations are probed to ascertain the causes. The ways and means to tackle the causes are analysed and targets are achieved. The process of fixing and achieving the targets leads to gradual improvement in overall efficiency.
(8) Forecasting:
Management accounting is concerned with taking decisions for future implementation. This involves prediction and forecasting of future. It is helpful in planning and laying down of objectives.
(9) Providing of Information and not Decisions:
Management accounting provides financial information and not the decisions. That is why it is said that management accounting depends on the efficiency of the management in using information and taking effective decisions.
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