Limitations of Management Accounting

Despite of the fact that the management accounting is very useful for the business concern, still it has got certain limitations which are discussed below:

1. It is based on Financial Accounting: Whatever information the management according gets, They are of the financial accuracy of the management decisions is based on the correctness of these information. If financial data is not reliable then management accounting will not provide correct analysis. this effectiveness limited to the reliability of those sources.


2. Lack of knowledge: For taking a sound decision it is necessary that the management must have knowledge of various fields like accounting, statistics, economics, taxation, production, engineering and so on. But it has been observed that the person who is taking the decision may not have comprehensive knowledge of all such subjects. 


3. Lack of continuity and Co-ordination: In order to make the conclusions drawn by management accountant meaningful, they must be implemented in the organisation at various levels. But in actual practice they loose their significance because it is not feasible to implement such conclusions. 
4. Lack of objectivity: There are every possibility of personal bias and manipulations from the collection of data to the interpretation stage in financial accounting. Thus, it looses objectivity and validity.


5. Costly: The Installment of management accounting system in a concern requires large organisation and a wide net work of rules and regulations and thus requires a heavy investment. 


6. Evolutionary Stage: The management accounting is in a recent origin and still in an evolutionary stage. New theories and new techniques are being introduced every now and then. Thus, Essential to keep a continuous track for the latest theories and their application. 


7. Effect of time element: The information received in management accounting are all past and by the time the information and statistics are introduced. The situations are all changed and this condition puts the organisation in difficulties.

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Need and Importance of Management accounting

The Present complex industrial world, management accounting has become an integral part of management, Management accountant guides and advises management at every step. Management accounting not only Increase Efficiency of the management but it also increases the efficiency of the employees. The main Advantage of management accounting is given below:

1. Determine of Aim: Management accounting on the basis of the information available determines its goal and tries to find out the route through which it can reach the goal.


2.  Helps in the Preparation of Plan: Present age is the age of planning. That producer is considered as most successful producer who produces articles according to the plan and needs of the consumers. Before taking any plan the manager must study and analyze the present and future of the business.


3. Better Services to Customers: The cost control device is management accounting enables the reduction in prices of the Product. All employees in the concern are made cost Conious. The quality of the Product become good because quality standards ate pre-determined. The Customers are supplied goods and goods quality at reasonable price.


4. Easy to take judgment: Before taking any plan or to determine policy. There are several plans or policies before the management on the basis of the study he decides which plan and policy was to be adapted so that it may be more useful and helpful.


5. Measurements of performance: The techniques of budgetary control standard costing enables the measurement of performance In standard costing, standards are determined 1^st and then actual cost of compared with standard cost. It enables the management to find out deviations between standard cost and actual cost. The performance will be good it actual cost does not exceed the standard cost. Budgetary control system too helps in measuring efficiency of all employees.


6.  Its Increase Efficiency of the business:  Management accounting increases efficiency of the business concern. The targets of different departments of the enterprise are determined in advance and the achievement of these goals is taken as a tool for measuring their efficiency.


7.  Its Provide effective management control : The Tools and techniques of the management accounting are helpful to the management in planning controlling and coordinating activities of the business, the getting of standard and assessing actual performance regularly enables the management to have ‘management by exception’. Everybody assesses his own work and immediate actions are taken as a tool for measuring their efficiency.




8. Maximum profits of can be obtained: in this process every possible effort are made to control unnecessary expenses. The incapability or inefficiency is removed. New systems or techniques are found out to achieve the goal, so that there may be maximum profits out if the capital invested in the Business.


9. Safety and security from trade cycle: The Information received form the management accounting gives more or throws enough light over the past trade cycle. The management tries to ascertain the Causes of trade cycle and its affect. Thus, management accounting tries to safeguard the organization from the affect of trade cycle.

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What is the Role of management Accounting?

The main objective of the management is to manage the business in a systematic way following a plan, allocating responsibilities to implement the plan, organizing methods to execute the plan and also obtain efficiency.

1. Helps in Organizing: Organisation is related to the establishments of relationship among different individuals in the concern. It also includes the delegation of authority and fixing the responsibility. Management accounting is concerned with establishments of cost centers, preparation of budgets, Preparation of cost control accounts and fixing the responsibility for different functions. This all needs the intensive study of the organisational structure. In turn, Its helps to rationalise the organisational structure or efficient organisational frame work.


2. Motivating Employees: Management accounting helps the management in selecting the best alternatives of doing the things. targets are determined for the employees. They Feel motivated in achieving their targets and further, Incentives may be given for improving Performance. 


3. Helps in Co-Ordinations: Management accounting helps the management in co-coordinating the activities of the concerns. It Provides tools which are helpful in coordinating the activities of different departments. The work of coordination is done through the functional budgeting. Management accountant acts as a coordinator and reconciles the activities of different departments. thus, management accounting is a useful tool in coordinating the various operations of the business.


4. Helps in Controlling Performance: management accounting devices like standard costing and budgetary control are helpful in controlling in Controlling Performance. Fr the work is divided into different units and separate goals are set up for each unit and the  responsibility of a particular person is determine.the actual result are compared with corrective measures. Different departmental heads are associated with preparing budgets and setting up goals. The management accountant acts as a coordinating link between different department and he also monitor their performance to the top management.  


5. Helps in Decision making: The management if any concern has take certain important decisions. Whenever there is a question of staring a new business. expanding or diversifying the existing business, strategic business problems has to be faced and solved, similarly when in a particular situation, there are different alternatives as whether labour should be  replaced by machinery or not, whether selling price should be reduced or not, whether the export the items or not etc. the management accounting helps to solve the problem in decision making Process. 


6. Helps in Planning and Formulate the Polices:  Management accounting assists management in planning the activities of the business. Planning is deciding in advance what is to be done, how is to be done, who is to be done, where is to be done and by whom is to be done.... its involve Forecasting on the basic of Information, setting goal, Framing Polices. Thus, Management accounting help on this function of planning through provide Information.

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what is the Scope of Management Accounting?

The Scope of Management accounting is very wide and broad based. It Includes all information, which is provided to the management for financial analysis and interpretation of the business operation. The following field of activities are includes included in the scopes of this subject:

1. Financial Accounting: Financial accounting though provides historical information but is very planning and financial forecasting. It is an essential perquisite of any discussion of management accounting. Financial statements contain enough  information that is used by management for decision making. Management accounting contains only tools and techniques and its get the data for interpretation and analysis mainly firm financial accounting. Thus, without efficient financial accounting system, management accounting cannot be operative.


2. Cost accounting: cost accounting provides various techniques for determining cost of manufacturing products of cost of providing service. It uses financial data for finding out cost of various job, Product or processes. Business executives depend heavily on accounting information in general and on cost information in particular because any activity of an organisation can be described by its cost. They make use of various cost data in managing organisation effectively. Cost accounting is Considered as a backbone of management accounting as its provides the analytical tools such as Budgetary Control, , Standard Costing, Marginal Costing, Inventory costing, Operating Costing Etc., which are used by management to discharge its responsibilities effectively.


3. Financial Management: Financial management is concerned with the planning and controlling of the financial resources of the firm. It deals with the raising funds and their effective utilization. Its main aim is to use the fund in such a way that the earning of the firm is maximized. today finance has become the life blood of any business concerned.  although, financial management has emerged as a separate subject, management accounting includes and extends to the operation of financial management etc..


4. Financial Statement Analysis:  The Various parties concerned with the financial statements may need information, which can be obtained by financial statement analysis and developing certain trends and ratios. A person can gain meaningful insights and conclusions about the firm with the help of analysis and Interpretation of the information contained in financial statements. Different techniques have been developed which can be used for the proper interpretation and analysis of financial statement.


5. Interpretation of data: The Work of Interpretation of financial data is done by the management accountant. He Interprets various financial statements to the management. This statements may be studied in comparison to statements of earlier periods or in comparison with the statements of similar other concerns. The significance of these reports is explained to the management in a simple language. If the statement are not properly interpreted then wrong conclusions may be drawn. So, Interpretation is Important as compiling of financial statements.


6. Management Reporting: Clear Informative, Timely reports are essential management tools in reaching decisions that make the best use of firm's resources. Thus, one of the basic responsibility of management accounting is to keep the management well informed about the operations of the business. the reports are presented in the form of graphs, diagrams, index numbers or other statistical techniques so as to make them easily understandable. The management accountant send interim reports may be monthly, quarterly, half yearly, these report are cover profits or order in hand, etc these reports are helpful in giving a constant review of the working of the business.


7. Quantitative Techniques: Modern managers believe that the financial and economic data available for managerial decisions can be more useful when analyzed with more sophisticated analysis and evaluation techniques. This Techniques such a time series, regression analysis and sampling techniques are commonly used for this purpose, Further, managers also use techniques such a linear programming, game theory, Queuing theory etc in their decision making Process.


8. Inflation Accounting: Inflation accounting attempts to identify certain characteristics of accounting that tend the reporting of financial results during the period of rapidly changing prices. It devices and implements appropriate methods to analysis and interpret the Inflation on the Financial Information.  

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Classification of Information in MIS

The Information can be Classified in a number of ways provide a better understanding. John Deaden of Harvard University classifies Information in the following Manner:

• Action Information: The information which induces action is called an action information. For Example:- when the attendance of the student for a particular subject suddenly falls down 40% calls for immediate action.

• Non-Action Information: Non-Action Information which is communicates only the status of a situation is a no action information. for Example:- While watching the live cricket match you understand that India's Current Run rate is 4 per over whereas its required run rate is 7 Per over.you have this information but this is non-action information.

• Recurring Information: The Information that is generated at regular information. For Example:-The monthly Sales reports, Account statements.

• Non-Recurring Information: Non Repetitive in nature. For Example: The financial analysis or the report on the market research. 

• Internal Information: The information is generated through the internal sources of the organisation.

• External Information: The Information is Generated through the External sources of the organisation.

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Characteristics and Nature of Management Accounting

It is matter of fact that management accounting is the backbone for every organization. Because it assists the management of organization through providing the relevant and accurate information at the right time for taking rational decisions to short out the business problems. Thus, it is clear that a management accounting should possess these essential characteristics:-

• Helpful in Decision Making:- It is an important feature of management accounting. In fact, it helps the management of organization by providing relevant and accurate information from various sources (like financial and cost accounting) in order to make sound decisions to remove business problems.

• Provides Data, Not the Decision:- It only provides required data and information to the management, not the decision. It is up to the management that how they utilize the available data and information to resolving the business problems through taking effective decisions.

• Selective in Nature:- It is also a potent characteristic of this accounting system. Here selective means, in management accounting a management accountant is only collect those data and information from a variety of alternatives which may create more benefits and easiness to the management in decision making. Hence, it is selective in nature. 

• Assist in Achieving Objectives:- Management Accounting is always assist organization in achieving its predetermined goals. Because it provides detailed information in regarding the weakness and the strength of organization in the form of report, on the basis of that any organization can eliminate recognized weakness (business problems) and may achieve its goal easily.

• Related to Future:- Management Accounting is an accounting system which is directly related to future course of events. It means by preparing this account any organization can forecast its future on the basis available information in relating the past events (Historical data).

• Increase in Efficiency:- It also plays an essential role in increasing efficiency of organization. As we know that in this competitive business age it is difficult for every organization to carry out its entity for ever. Hence to survive for long run it is important for organization to increase its efficiency by finding the errors and removing it through management accounting techniques (standard costing, budgetary control, control accounting), 

• Use of Special Techniques:- Management Accounting uses special tools or techniques (like standard costing, budgetary control, control accounting, marginal costing etc) for composing the accounting information and data more accurate and relevant. So that management can easily make their decisions. The type of technique to be applied will be determined according to the situation and necessity.

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