Management Accounting Has Been One of the Core Themes Driving Modern Organisations - Case Study Example

Management Accounting Has Been One of the Core Themes Driving Modern Organisations Name Institution ABSTRACT (SUMMARY) Purpose-The main purpose of this research was to explore the necessity of innovation and its importance from the management accounting perspective. In particular, this research determines whether management accounting is the reason for the prosperity of most modern organisations. Methodological approach- Both primary and secondary data was used in this study. Findings- Management accounting is among the key aspects of any commercial organisation Management Accounting Over the years, successful businesses have discovered the need to adopt an innovating culture. From tiny businesses to large, nationwide ones, innovation is the hallmark of success and prosperity. The most successful businesses have realized the challenges and risks existing in the market place. To meet these challenges and successfully operate, they have learned that they must be at the vanguard of innovation. Successful ideas are incorporated into the company’s business operations while those which do not work are modified or discarded altogether. By a process of continually generating new ideas, and testing them in the laboratory of the market, businesses learn what works and what does not meet the business’ purpose. Management accounting is a profession which fuses managerial skills with the financial expertise so as to bring competence in the organisation and also enable the organisation attain its objectives. In other words, management accounting involves partnering of managerial decision making, planning, and injecting expertise in the financial reporting and control so as to enable the organisation’s management to formulate strategies which help it to attain its goals. Innovations are fundamental in any organisation, and they are the ones which help the organisation to climb towards its goals. This research explores the role of management accounting in various commercial organisations (Axelsson, Laage-Hellman & Nilsson, 2002). The research was carried out in various organisations to see whether they are exercising managerial accounting, and the reasons of their decisions. The research identifies whether management accounting is the reason for the prosperity of most modern organisations. The research was done randomly in major organisations in Australia. The total number of organisations was ten, all from different business channels (Chenhall & Langfield-Smith, 1998). Process of data collection The researcher used various procedures to collect data about his topic of concern. The first method was administering questionnaires to managers of the various organisations he visited. The other procedure used in data collection was interviewing the personnel in various organisations. These procedures enabled the researcher to get first hand information from organisations. He preferred these methods because secondary information sources are sometimes biased and corrupted hence not giving information which can be fully relied on. The other process he used to collect data was through observation. This procedure was important in comparing organisations which embraced management accounting, and the ones which did not take management accounting seriously. This was important in noting the differences between the two classes of organisations (Chenhall & Langfield-Smith, 1998). Findings The people the researcher got involved with gave him various factors that result in the growth of business organisations, including: reviewing the business, strategic plan often, and satisfying the consumer who is the pivot of any organisation among other factors. There was a factor which was common to all the organisations, and that is management accounting. The key reason for starting any organisation is to make profits, and this cannot be attained if the finance department in any organization is neglected. The researcher found out that most organisations have partnered organisation’s accounting and the management so as to maintain the books of the organisation, and to frequently check on the proceeding of the accounts. This enables the management to come up with the strategies which will enable it to improve their revenue. As discussed earlier, management accounting is the process which management accounts are formulated so as to equip the managers with the statistical and statistical knowledge which enables their decision making in the organisation. Management accounts provide the managers with the necessary information regarding money. This includes money coming into the organisation, debts, credit, available monetary resources, and remaining raw materials. This information enlightens the managers on the trend of the organisation. Management accounting extends to three main areas; strategic management, risk management, and performance management. Strategic management is concerned with advancing management accounting as a strategic partner in the organisation. Risk management is concerned with identifying and managing the risks encountered by the organisation so as to achieve its goals. Performance management is concerned with developing the practice of decision making and also managing the performance of the organisation (Chenhall & Langfield-Smith, 1998). Management accounting is one of the key factors to the development of an organisation. For example, a business can be having a high production of its product, but they could be incurring losses because the organisation is not taking into concern their financial standings. This is because the organisation could be getting a lot of debts so as to get the finances to increase their production, but they could be forgetting on increasing their marketing so as to increase profits (Norreklit, 2000). This problem is because they are not fusing their accounting with the management. This problem can be resolved by the management getting involved in the accounting process. This can help the management to come up with strategies which can help the organisation to attain their goals which are mostly to incur profits. Many people may confuse management accounting to financial accounting, but they have a big difference. The first difference is that management accounting is concerned with the future rather than the history as it is the case in financial accounting. The other difference is that financial accounting is usually shown to everybody in the organisation, but management accounting is confidential to the management body so as to come up with strategies which can enable in decision making. Competition in the market and advancement in the manufacturing context has facilitated the initiation of different managerial accounting techniques. There are various techniques which have been innovated in the past few years. They include; operational control systems (OCS), balanced scorecards (BS), target costing (TC), and activity based costing (ABC). Notions are also critical in management accounting, and they are the innovations which characterise management accounting (Scapens, 1990). Management accounting change is nowadays used to refer to the roles the modern management accountant is supposed to play because most organisations have given him the role to be the management advisor on decision making, as well as being responsible for accounts and management techniques. Innovations formulated by these accountants are said to be mostly administrative in nature, but at times they can be technical because the innovation of one can lead to the implementation of another innovation. It is found out that most managers believe that management accounting is closely related cost control procedures. This is because the management is fused with the accounts which are concerned with the price control which is managed for the organisation to achieve its maximum profits (Gordon, & Narayanan, 1984). For example, an organisation could have acquired profits in the previous financial year, but the production cost could have increased in the current financial year. The organisation will have to adjust the cost of their products so as to cover the increased production costs. This gives us evidence that management accounting can be used to control costs. This is because the accounting ‘part’ calculates the costs of production, and balances the revenue getting in the organisation and the revenue getting out of the organisation. With the managerial mandate, they estimate the cost of the goods so that they can get profits and at the same time not to suppress the consumers. The traditional way of accounting was whereby the accountants would examine the budget of a certain financial year, real expenditure on the purchase of raw materials and labor, and then balance the two. Many organisations still use the variance analysis technique, but they partner it with modern innovations like cycle cost analysis (CCA) (Chenhall & Langfield-Smith, 1998). The work done by a modern accountant is important to the growth of the organisation because they have a close connection to the decisions made by the organisation. First of all, the accountants provide the organisational managers with the operational and financial information so as to help in the decision making. This responsibility makes them to be strategic partners of the organization because they help in strategic planning. For example, a software company may want to come up with strategies which will help their organisation to reduce the expenses, and to increase the sales. These strategies can only be arrived at if they are given the records on the sales of the company, and the records can only come from the accountant. The accountant also has to explain the reason for the record results, that is, whether the expenditure was excessive or the sales were limited. This information enlightens the organisation managers to formulate strategies which can help the organisation to receive huge profits (Scapens, 1990). The other importance is that accountants have the duty of planning and managing the overheads of a commercial organisation as well as carrying out variance analysis of the establishment. These responsibilities are the reason why modern accountants are given the tasks of both financial and business team departments. Management accountants use the information and resources available in the organisation to come up with decisions which can help the organisation to experience an upward profit trend. This is because they have access to the financial report and functioning of the organisation. Commercial organisations are always aimed at increasing their profits, so the accountants can easily come up with those decisions, thus, helping the organisation management team in decision making (Hopwood & Miller, 1994). Management and leadership have also become a major concern to the modern accountants because they are coming up with innovations which are aimed at sustaining the competitive environment of commercial organisations. The modern management accountants are not only concerned by the financials of the organisation, they are also concerned by the human resource, risks which the company might be experiencing, and also organisational transformation, hence changing their (accountants) roles. The role of management accountants has been to provide fiscal and non fiscal information to the organisation’s management team, hence helping in decision making. All the actions of the accountants have been directed to helping the organisation to achieve its goals. Therefore, the actions of the management accountants are geared to helping the organisation to achieve its aspired goals (Burns & Scapens, 2000). These arguments prove to us that management accounting is the key thing to the upward trend of any organisation. This is because it holds the most important areas in the organisation’s decision making and cost control. This department also takes control of the human resources in the organisation hence being the ‘giant’ department in the organisation (Kaplan, 1992). Recommendations The researcher recommend all commercial organisations to embrace management accounting because it is the one concerned with the improvement in the sales and other goals of the organisation. Most commercial organisations have already embraced it, but there are still few companies which are exercising the traditional innovation methods where the accounting department was only concerned with the financial aspects, and decision making processes left for the organisation management. Using this, organisations will be able to account for the proceeding of their sales and net profits, and also be able to make decisions more easily that before when they were exercising traditional methods (Johnson, 1991). Conclusion In conclusion, this research proves to us that management accounting innovation has been one of the core themes driving modern organisations. The biggest problem is that not many of the organisations that have embraced the roles of the management accountants (Otley, 1999). They try to ignore the fact that most of the decisions needed by the management can be generated by the accountants. For example, we saw the management accountants helping our software company in coming up with decisions which can help them to increase the sales and reduce the expenditure which they had experienced in the previous financial year. All the reasons for involving the accountants in decision making have been discussed in our research essay, and so the managers should look at involving the management accountants as their strategic partners in decision making (Kaplan & Atkinson, 1998). References Axelsson, B., Laage-Hellman, J., & Nilsson, U. (2002). Modern management accounting for modern purchasing. European Journal of Purchasing & Supply Management, 8(1), 53-62. Burns, J., & Scapens, R. W. (2000). Conceptualizing management accounting change: an institutional framework. Management accounting research, 11(1), 3-25. Chenhall, R. H., & Langfield-Smith, K. (1998). Adoption and benefits of management accounting practices: an Australian study. Management accounting research, 9(1), 1-19. Chenhall, R. H., & Langfield-Smith, K. (1998). The relationship between strategic priorities, management techniques and management accounting: an empirical investigation using a systems approach. 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