Accounting for decision

making and control

Introduction
Lecturer : Yusuf Husein
Mohamed

Management Accounting
Definition
Management accounting is the
process of identification,
measurement, accumulation,
analysis, preparation, interpretation
and communication of information
that assists managers in specific
decision making within the
framework of fulfilling the
organizational objectives.

Management accountants
perform three important roles
1. Problem solving uses comparative analysis for
decision making.
2. Scorekeeping entails accumulating data and
reporting resultsto all levels of management
describing how the organization is doing.
3. Attention directing helps managers focus on
opportunities and problems. Often these roles are
simultaneously performed due to the ongoing
interaction among strategic decisions, planning
decisions, and control decisions.
. It is recognized that management accounting
practices are important to the success of the
organization (Horngren, et al., 2009).

A Brief History (2 of 4)
The emergence of large and integrated
companies at the start of the 20th century
created a demand for measuring the performance
of different organizational units

DuPont and General Motors are

examples
Managers developed ways to measure the return
on investment and the performance of their units
After the late 1920s management accounting
development stalled

Accounting interest focused on

preparing financial statements to meet
new regulatory requirements

A Brief History (3 of 4)
It was only in the 1970s that interest
returned to developing more
effective management accounting
systems
American and European companies were
under intense pressure from Japanese
automobile manufacturers

During the latter part of the 20th

century there were innovations in
costing and performance
measurement systems
5

The Evolution of Management Accounting

Stage

Transformation

1990s
Transformation

1980s
Transformation

1950s

Transformation

1910s

Focus
Cost
Determination
and Financial
Control

Information
for
Management
Planning and
Control

Reduction of
Waste of
Resources in
Business
Processes

Creation of Value
through Effective
Resource Use

A Brief History (4 of 4)

The history of management accounting comprises

two characteristics:
1. Management accounting was driven by the
evolution of organizations and their strategic
imperatives

When cost control was the goal, costing systems became

more accurate
When the ability of organizations to adapt to
environmental changes became important, management
accounting systems that supported adaptability were
developed

2. Management accounting innovations have usually

been developed by managers to address their own
decision-making needs
7

MA practice helps an organization

to survive in the competitive, everchanging world, because it provides an
important competitive advantage for an
organization that guides managerial
action, motivates behaviors, supports and
creates the cultural values necessary to
achieve
an
organizations
strategic
objectives. Management accounting is
concerned primarily with the internal
needs of management

Continues
It is oriented toward evaluation of
performance
and
development
of
estimates of the future as opposed to
traditional financial accounting which
emphasizes historical data related to
such legal financial matters as ownership,
investment, credit granting, taxation,
regulation,
and
the
building
of
foundations
for
consistent
and
conservative external reporting (Parker,

Management accounting
practice
Management accounting practice helps
an organization to survive in the
competitive,
ever-changing
world,
because it provides an important
competitive
advantage
for
an
organization that guides managerial
action, motivates behaviors, supports and
creates the cultural values necessary to
achieve
an
organizations
strategic
objectives

Extending the Skills of the

Management Accountant
Strategy - Ability to think strategically
(Parker, 2002b, p. 33), (Burns and Yazdifar, 2001, p. 34), (Russell,
about long term plans taking into account Siegel and Kulesza, 1999, p. 42)
the market.
Technology - IT competence

(Parker, 2002b, p. 33), (Anastas, 2000 p. 14), (Burns and Yazdifar,

2001, p. 34), (Russell, Siegel and Kulesza, 1999, p. 40), (Montvale,
2000, p. 6)

Involvement in operations - Management (Parker, 2002b, p. 33), (Russell, Siegel and Kulesza, 1999 p. 40)
Accountants will need to have a greater
involvement in other operations in the
company, to enable them to effectively
reduce costs without any implications to
customer satisfaction.

Ability to integrate financial and nonfinancial information

(Parker, 2002b, p. 33)

Business knowledge

(Parker, 2002b, p. 33), (Russell, Siegel and Kulesza, 1999, p. 40)

Decision-making /Problem
solving

(Burns and Yazdifar, 2001, p. 34), (Parker, 2002b, p.

33), (Anastas, 2000, p. 14)

Analysis and Interpretation

(Parker, 2002b, p. 33), (Russell, Siegel and Kulesza,

1999, p. 40)
(Russell. Siegel and Kulesza. 1999, p. 40)

Advisor
Communications - speaking,
listening, sending, receiving

(Parker, 2002b, p. 33), (Anastas, 2000, p. 14), (Burns

and Yazdifar, 2001, p. 34), (Russell, Siegel and
Kulesza, 1999, p. 40)

Leadership and Management

skills

(Busco, Riccaboni and Scapens, 2001, p. 30), (Parker,

2002b, p. 33), (McNair, 2000, p. 31), (Russell. Siegel
and Kulesza, 1999, p. 40)

Team player Although being a (Anastas, 2000, p. 15), (Burns and Yazdifar, 2001, p.
team player is necessary, it is also 35)
highlighted by some researchers
the need to be a leader.
Proactive

(McNair, 2000, p. 31), (Russell. Siegel and Kulesza,

Extending the Role of the Management Accountant

Strategic management

Risk management
Change management

(McNair, 2000, p. 32), (Russell. Siegel

and Kulesza, 1999, p. 42,), (Burns and
Yazdifar, 2001, p. 35), (May, 2001, p.
37), (Parker, 2002b, p. 33)
(Parker, 2002b, p. 33), (May,2002b, p.
28)
(Burns and Yazdifar, 2001, p. 35),
(Parker, 2002b, p. 33), (Anastas, 1997)

Environmental management (Parker, 2002b, p. 33), (McNair, 2000, p.

32)
Information
(Parker, 2002b, p. 33), (Anastas, 1997),
management/Knowledge
management

Types of Decisions
The decisions, managers are concerned
with, can be categorized as
Planning decisions
Control decisions

Planning Decisions
Planning Decisions are concerned
with the establishment of goals for
the organization and the choosing of
plans to accomplish these goals
Management accounting information
is needed to take Planning decisions

Control Decisions
Control decisions result from implementing
the plans and monitoring the actual results
to see if goals are being achieved
If goals are not being achieved, either
corrective steps must be taken resulting in
goal achievement or goals themselves
have to be revised to attainable levels
Cost accounting data are needed for
taking Control decisions

Management Accounting Framework

Data accumulation is done through Financial
Accounting and Cost Accounting systems.
Financial records are maintained through financial
accounting system and cost records are
maintained through cost accounting systems
In Management Accounting system, data support
is taken from financial accounting and cost
accounting and also data accumulation is carried
out from external sources. Accumulated data are
reclassified as per the requirements of the
management decision making process.
Information is built up and then communicated to
assist the decision making process

Contents of Management
Accounting
Management process is a series of activities
involved in planning, implementation and control.
Each phase of management process requires
decision making
Management Accounting supports managerial
decision making providing the required information
Information generated in management accounting
process includes- Financial Statement Analysis
- Cash flow information
- Cost information
- Budgets and Standards

Scope of Management
Account
Cost Accounting
Tools and technique of
management control
Statistical and quantitative
techniques

Functions of management account

Furnishing relevant and vital data

Compilation of data in suitable form
Analysis and interpretation
Planning
Decision making

Nature
1. No Fixed Norms Followed
In financial accounting, we follow different norms and rules for
creating ledgers and other account books. But there is no need to
follow fixed norms in management accounting. Management
accounting tool may be different from one organization to other
organization. Using of different tools of management accounting is
fully dependent on the persons who are using it. So, business policy
of each organization affects rules and regulation of applying
management accounting.
2. Increase in Efficiency
It is the nature of management accounting that it is used for
increasing in the efficiency of organization. It scans the points of
inefficiency through analysis of accounting information. By taking
action for improving, organization can increase the efficiency.

3. Supplies Information not Decisions

Management accountant supplies accounting facts and
information and also provides interpretation, but decision making
is fully dependent on higher authorities.

4. Concerned with Forecasting

It is the temperament of management accounting that it is fully
concerned with forecasting. In management accounting, historical
accounting information is analyzed through common size financial
statement, ratio analysis, fund flow analysis and accounting data
tendency for knowing the probability of next fact. So, all these
things are especially useful for forecasting.
These forecasting may be related with following things
a) sales forecasting
b) production forecasting
c) earning forecasting
d) cost forecasting

Advantages
i) It helps in having complete record of business transactions.

ii) It gives information about the profit or loss made by the business at the
close of a year and its financial conditions. The basic function of
accounting is to supply meaningful information about the financial
activities of the business to the owners and the managers.
iii) It provides useful information form making economic decisions,
iv) It facilitates comparative study of current years profit, sales, expenses
etc., with those of the previous years.
v) It supplies information useful in judging the managements ability to utilise
enterprise resources effectively in achieving primary enterprise goals.
vi) It provides users with factual and interpretive information about
transactions and other events which are useful for predicting, comparing
and evaluation the enterprises earning power.

Discussion
discussed why management
accounting practices may be unalike
when comparing one organization to
the other