Management Accounting

• Management involves the strategic allocation of resources to achieve organizational goals.
• It consists of planning, leading, organizing, and controlling.
• Management accounting focuses on planning and controlling functions.

Planning

• It involves setting goals, predicting future conditions, evaluating strategies, and selecting the optimal strategy.

Controlling

• Involves ensuring operations align with plans, monitoring performance against standards, and taking corrective actions when needed.

Financial Accounting vs. Management Accounting

• Accounting is divided into financial and managerial accounting based on report orientation.

Financial Accounting

• Financial accounting reports are made mostly for external users like investors and creditors.
• Although mainly for external users, managers can also utilize the information.

Management Accounting

• Managerial accounting reports are designed for internal users, particularly managers.
• It involves using techniques and concepts to analyze data and assist management in planning and decision-making.

Preparation

• Financial accounting reports are mandatory and prepared according to external requirements.
• Management accounting is optional, with reports prepared based on management needs and cost-benefit analysis.

Use of Projected Data

• Financial accounting relies on historical data.
• Management accounting incorporates current data, estimates, and future projections.

Purpose

• Financial accounting produces financial statements as its primary goal.
• Management accounting aims to facilitate planning and controlling activities.

Scope

• Management accounting goes beyond traditional accounting, incorporating concepts from economics, operations research, and statistics.

Cost Accounting

• Cost accounting is the process of determining costs for products or activities.
• Cost accounting data is used in internal and external reports.

Place of Management Accounting

• Management accounting focuses on internal reporting but also considers non-accounting information and judgment.

Use of Non-Accounting Information

• Managers use all available information, both accounting and non-accounting, to make informed decisions.

Need for Judgement

• Management accounting reports provide insights, but judgment is necessary for actual decision-making.

Management Consultancy

• Organizations aim to achieve goals by establishing systems and procedures to optimize resource utilization.

Management Consultancy

• Companies hire consultants to review systems and procedures when they lack internal capabilities.
• A management consultant, qualified by education and experience, advises businesses professionally.
• Consultants are objective and impartial, but in-house consultants may lack objectivity.
• Any professional with competence can be a management consultant, with no strict licensing or regulation.

Reasons for Hiring Consultants

• Businesses hire consultants to:
  • Define and solve problems
  • Provide specialized skills
  • Offer confidential services
  • Train personnel
  • Provide temporary staffing
  • Improve communication
  • Offer an independent opinion

Management Consulting Engagement

• The engagement involves gathering and analyzing information.

Information Gathering

• It includes determining the needed information, locating sources, and recording data.

Information Analysis

• It is a structured process that involves classifying information, identifying relationships, identifying key variables, discovering opportunities, developing solutions, and recommending actions.

Use of Work Papers

• They document the engagement, support positions, provide a historical record, and serve as research material.

Interim Communications

• Ongoing communication with the client is essential.
• It involves discussing progress, findings, and the next steps.

Presenting the Report

• The report presents findings, analyses, conclusions, and recommendations.
• Presentation can be oral or written.

Implementation of Recommendations

• If the engagement includes implementation, the consultant should assist without compromising independence.