ACC203 Managerial Accounting

Introduction

Management accounting provides a wide range of opportunities for organizations to compete within the market to be in a position to give best quality services and products at affordable amount to the clients (Oyerogba 2015). Organizations utilize management accounting in assessing their main operations. These include breakeven analysis, variance analysis and budgeting. In fact, management accounting practice assists organizations in planning, controlling and directing operating costs and accomplishing profitability. Kamal (2015) argued that management accounting practices are usually important in the success of a given firm. It is the application of suitable concepts and approaches in processing projected and historical economic information of an organization to help the management in setting up the plan for reasonable goals and in making of some rational decisions with the view of accomplishing such goals (Gichaaga 2014). Besides, management accounting practices assists organizations to survive the competitive environment, since it offers significant competitive advantage for the firms which provide guideline to the managerial actions, supports, motivates behaviours as well as create cultural values crucial in accomplishing the firm’s strategic goals. In other words, management accounting practices offer relevant information from the environment to the management in facilitating the decision-making process (Oyerogba 2015). Management accounting practices comprises of preparation of the financial reports for the non-management bodies such as creditors, tax authorities, shareholders and regulatory agencies (Ahmad & Mohamed Zabri 2015). The general aim of this report is to assess some of the aspects that contributed to development of the management accounting practices. The report also evaluates the usefulness of the balance scorecard.

Factors resulting in development of the management accounting practice

Development of the management accounting practices has been attributed to a number of factors. These factors can be grouped into either external or internal.

External Factors

A company cannot decide to reflect objectives and motivations. It has to comply with constraints imposed or set by its relationship with a specific environment. Therefore, unpredictability of environment is one of the external factors that might have contributed to development of the management accounting practices. Basically, environmental uncertainty is the chief contingent aspects assessed for its impacts on design of the management accounting practices. According to Kamal (2015), whenever perceived environmental uncertainty is a bit low, the management of a given firm is able to make accurate projections. Nonetheless, organizations with high level of the environmental uncertainties tend to adopt a more stylish management accounting practices compared to those organizations that have relatively low environmental uncertainties (Oyerogba, 2015). In this case, firms operating in high environmental uncertainty tend to integrate management accounting practices in their operations making environmental uncertainty the key external factor that contributed to development of the management accounting practices (Ahmad & Mohamed Zabri, 2015). The second factor is market competition.

The increased intensity in competition within the market led to development of management accounting practices with the aim of providing timely, relevant and accurate information on a broader range of the issues within the market including productivity, customer service, quality and customer satisfaction (Gichaaga, 2014). In essence, with market competition, accountants decided to develop the management accounting practices which was focused on organization’s value-additional activities relative to the competitors. Basically, with these development organizations facing intense market competition was to integrate management accounting practices to deal with such challenges.

Internal Factors

Some of the internal factors that contributed to development of the management accounting practices include organization structure, pursued strategy as well as the size.  Organization structure has been one of the most important aspects that have received high level of attention (Quesado, Aibar Guzmán & Lima Rodrigues, 2018). Based on the fact that there were different organizational structure with the most dominant being decentralized structure, accountants developed management accounting practices. This was aimed at dealing with some of the management issues that might arise from this structure of organization.

Size is another factor that attributed to development of the management accounting practices (Oyerogba, 2015). In this context, large organizations were in need of more complex accounting information systems which were also sophisticated. Therefore, with such facts, large organizations decided to develop management accounting practices to enable them in running their operations.  In a study by Tanyi (2011) size of the organization was found to have contributed to development and adoption of the management accounting practices. This was based on the fact that bigger companies had more resources compared to the minor ones and count therefore affords adoption of the more refined management accounting practices. Therefore, as business size increases, management accounting practices might be projected to be of more importance.

Strategy is also considered as another aspect that contributed to development of the management accounting practices (Wiersma, 2009). This is based on the fact that the organizations with more sophisticated strategy of operations required more sophisticated management accounting practices which were considered to have positive impact on the organizations’ performance despite their strategy. In essence, management accounting practices was developed to support strategic priorities of specific firms with the aim of improving their performance in turn (Ahmad & Mohamed Zabri, 2015).

Usefulness of Balance Scorecard

Balance scorecard is usually the set of the non-financial and financial measures on the organization’s success factors. This shows the essence of organization’s value-creating undertakings. While originally balance scorecard was adopted by relatively huge firms, it is applicable to firms of any size. The increasing number of the small firms are embracing balanced scorecard technique and accomplishing outcomes (Gichaaga 2014). Balanced scorecard assists organizations overcome the three fundamental challenges; rise of the intangible assets, performance measurement and implementing strategy.

Balance Scorecard is useful in that it provides better strategic planning to both small and large firms (Ahmad & Mohamed Zabri, 2015). In essence, balance scorecard offer influential outline for communicating and building strategy.  The balance scorecard is usually visualised in the Strategy Maps that forces organizations’ management to contemplate on the cause-and-effect associations. This process of generating Strategy Map guarantees that harmony is reached over a set of the unified premeditated goals (Tanyi, 2011). This implies that both the financial performance fallouts and key enablers of the future enactment are usually acknowledged in creating comprehensive view of this policy. Further, balance scorecard is useful in that it enhance improve strategy communication within an organization. Basically, balance scorecard facilitates understanding of communication and assists in engaging employees and the external shareholders in reviewing and delivery of the strategy. In other word, having one-page view of the strategy permits firms to easily communicate the strategies externally and internally. The plan facilitates understanding of the set strategy within an organization and assists in engaging the parties concerned (Ahmad & Mohamed Zabri, 2015).

Further, balance scorecard is useful since it help the firms map their initiatives and projects to different strategic goals that in turns make sure that the initiatives and projects are tightly focuses on delivering some of the most strategic goals (Quesado, Aibar Guzmán & Lima Rodrigues, 2018). Additionally, balance scorecard is useful since it helps different firms design chief performance meters for their numerous tactical intents. This makes sure that organizations are determining what is of greater importance to them. In fact, study shows that organizations with balance scorecard report high quality management data and has better decision-making process. Balance scorecard is also useful as it help in improving performance reporting (Oyerogba, 2015). The BSC could be utilized in guiding design of the performance reports and the dashboards. This makes sure that organization’s management reporting focuses more on the most significant strategic issues and assists organizations monitor execution of the plan. Moreover, balance scorecard enables organizations to better align the organizational structure with their strategic goals (Wiersma, 2009). To executive the plan well, companies require confirming that all their support functions and units are functioning toward similar objectives. Therefore, cascading balanced scorecard to these units would assist accomplish this and link the strategies to the operations. Finally, balanced scorecard is crucial in that it assist organizations align their processes like risk management, analytics and budgeting with strategic priorities.

References

Ahmad, K. & Mohamed Zabri, S. (2015). Factors explaining the use of management accounting practices in Malaysian medium-sized firms. Journal of Small Business and Enterprise Development, 22(4), 762-781.

Gichaaga, P., M. (2014). Effects of management accounting practices on financial performance of manufacturing companies in Kenya. Research project for the master of science in finance degree.

Kamal, S. (2015). Historical Evolution of Management Accounting,’ The Cost and Management, 43(4), 12-19.

Oyerogba, E., O. (2015) Management Accounting Practices in the Developing Economies: The Case of Nigeria Listed Companies. The Journal of Accounting and Management, 5(2).

Quesado, P., R., Aibar Guzmán, B., & Lima Rodrigues, L. (2018). Advantages and contributions in the balanced scorecard implementation. Intangible Capital, 14(1), 186-201.

Tanyi, E. (2011). Factors influencing the use of Balanced Scorecards (Available on Internet) (Master's thesis, Svenska handelshögskolan).

Wiersma, E. (2009). For which purposes do managers use Balanced Scorecards?: An empirical study. Management accounting research, 20(4), 239-251.