Management Accounting: Types, Objectives, and Stakeholders
Introduction to Management Accounting
Accounting aims to disclose financial and economic activity and its consequences to third parties.
Financial Accounting
Financial Accounting: Records, classifies, analyzes, and summarizes financial transactions between a company and the outside world. It periodically reports on the company’s assets and results, adhering to generally accepted principles. It uses standardized, objective, and easily interpretable language. It is primarily historical, ensuring greater objectivity.
Management Accounting
Management Accounting: Addresses the need for internal management information. Its objective is to develop relevant information for decision-making, including future estimates based on present control and past reviews.
Cost Accounting
Cost Accounting: Focuses on costing products and business centers.
Accounting Management
Accounting Management: Identifies, measures, values, records, verifies, and analyzes economic and financial information for business management. It helps organizations plan, decide, manage, and monitor resource use and income generation.
Accounting Directive
Accounting Directive: Integrates strategic business environment issues into cost and financial accounting. It processes, interprets, and communicates relevant information for strategic decisions, aiming to enhance production capacity.
Cost Data
Cost Data: Used for preparing financial statements, valuing inventories, and determining the cost of goods sold. It also supports planning and activity control. Standardized information is provided to external users and for internal decisions.
Causes of Financial Accounting Limitations
Causes of Failure of Financial Accounting:
- Expense classification by nature does not relate to product costs, departments, units, or processes.
- Information is often collected late, at the end of the year or interim periods.
- It does not support trade policies due to a lack of elements for determining product or service prices.
- It does not provide operational information for comparing data with other firms.
The Balance Sheet informs about a company’s assets, rights, and obligations at a specific date. The Profit and Loss account does not break down results by products, services, or activities, nor does it detail expenditure-revenue for each. It only reports the total expenditure, income, and overall outcome for the year.
Neither the Profit and Loss Account nor the Balance Sheet provide sufficient data for decision-making. Financial accounting information is insufficient for efficient management. Management accounting focuses on internal analysis and aims to develop relevant information for decision-making.
Stakeholders and Objectives
Stakeholders:
- Financial: Management team, Financial Management, Enterprise Committee, Banks, Employees.
- Management: Responsible for managing all internal levels.
Aims:
- Financial: Formalize legal and binding company documents.
- Management: Taking responsibility and decision-making.
How it works:
- Financial: Registers and classifies reports.
- Management: Analyzes and studies information.
Characteristics of Information:
- Financial: Formal, rigorous precision.
- Management: Limited formalism, relative accuracy, adaptability, speed.
Times:
- Finance: Past, present.
- Management: Present and Future.
Field:
- Finance: Entire company or group.
- Management: Divisions or sub-groups.
Criteria:
- Financial: Objective, verifiable.
- Management: Relevant, useful.
Currency Unit:
- Finance: Standard currency.
- Management: Standard currency and other units of measure.
Management Accounting Objectives
Management Accounting Objectives:
- Generate information for financial accounting valuation of stocks and outcome measures.
- Provide useful, relevant, and timely information for decision-making.
- Set information for business planning and business processes.