The changing role of the management accountant and management accounting information
In the past years, it has always been assumed that the core role of a management accountant is to monitor a company’s financial flow. That is, to do the analysis, verification, and to give reports and recordings on the company’s finances on the current basis. Accounting basically in this manner helped in the assembly, organization, and communication of the business activities for the organization to realize the targeted goals This, however, has changed considerably over the past years due to the revolution and evolvement of the business environment. With the development of modern business strategies to match the current world, management accounting has provided a platform that is more than just a financial figure to more diversified functions. In this perspective, the management accountants have been widely involved in the planning and decision making of the companies and the organizations. This is because apart from just accounting, the individual role in a significant manner divided into two distinct disciplines in the field of accounting. That is the financial accounting and managerial accounting. In modern business, management accounting provides information to managers in business settings. The information provided is the key element that is useful in control function performance and decision making. This is the distinguishing factor with cost accounting which involves the recording of the incurred cost in an organization, and financial accounts, that is involved in the preparation of financial statements for the entire organization. In planning function, the management accountant gives information that defines strategies of the company’s performance, expected risks and the possible risk management design. In strategic management, the accountant plays the role of a strategic partner. In this, the strategic layouts of the company’s plans are made. The accountant and the other managers work as partners in information sharing for plans. In performance management, the management accountant collaborates with the other management team in seeing through the organization’s actual performance. This is in the development of business practices that involve decision making. Don't use plagiarised sources.Get your custom essay just from $11/page
Planning and control budgeting
Planning and budgeting is a critical part of the business that an organization has to put into consideration to be successful. budgeting gives the organization a gateway to plan for all the finances earned and the purported expenditure. It helps create realistic steps in budget planning concerning the organization’s goals and objectives. This helps keep track of the performance and progress of the business activities. Planning, therefore, helps in giving a course chart on goals achievement. With planning, the review of existing operations is identified to improve on how the organization functions. The visions and the expected outcomes of the organization, therefore, give the platform for the development of the planning process. It is worth noting also that every organization has a goal of minimizing the use of available resources. This comes intending to obtain maximum profit. Tabling the fact that every organization, whether large or small have limited resources, efficient use of the resources is, therefore, a PowerPoint in planning and budgeting. Planning enables the management team to make effective decision making in resource allocation in reaching the objective of the organization. This means that the overall productivity of the organization is enhanced and resource wastage on projects that are likely to fail is avoided. Planning also acts as a module in the general goal setting of the organizations’ workforce and functionality. When goals are set, it gives a challenge to everybody involved in the organization to strive in giving the best of their performance. It helps enhance the aggressiveness in working towards the goals realistically. Planning gives an understanding that business satisfaction is not based on the current progress or the organization stands a chance of losing ground to external competitors. The set goals in business planning activities as a wakeup call for the management team is working towards creating a golden business organization. Planning also plays a role in handling the organizations’ uncertainty and the risks that might exist. To avoid devastating financial consequences, the organizations have to plan on the ways to deal with presenting risks to help save finances. In this perspective, it is a hinge in developing the ‘what if’ scenario to build contingency planning in dealing with them. Planning also helps in the creation of a spirit of cooperation among the team members. This enables the employees to understand their roles and responsibilities and the possible assistance in expertise in other sectors of the organization. The employees, therefore, are unlikely to give a resent in the budget targets being that they are part of their creations. Planning and budget control in a business organization involves a series of steps involved in the ultimate realization of success. The steps are key in making the process as realistic as possible. In understanding the steps, several factors have to be put into consideration in budget creation. The budget must not be complicated in any manner. It should only contain the work out of what the business is likely to earn and that which is to be spent in the budget period The first step is to make time for the budget. Time creation allows for a comprehensive budget that covers every aspect of the organizations’ objectives. This makes it easier to manage and thus very effective. The next step is to use previous budget figures as a guide. This involves the collection of the sales history and the cost if they are available. In this the likely cost likely to be incurred in the stipulated budget. As much as this important, considering the sales objective of the current budget is important. It gives the drives the second step which entails the creation of a realistic budget. The use of historical information, in this case, helps in the creation of the budget that is realistic. This gives the priorities to put into consideration. Working out the relationship that exists between sales and the variable cost and using the sales forecast in projecting the variable cost help in the creation of a realistic budget. Making sure that the budget contains enough information for easy monitoring of the business such as the starting capital with the help of accounting software is critical. The last critical step is to involve the right people. This entails involving staff with financial responsibilities in providing the figures estimated for the estimated budget to realize success. Their functions involve balancing the estimates and the created budget attain a realistic budget. Involving them also creates a better platform for commitment to making sure the budget objective is met. Well prepared budget is associated with several benefits in finance management. The first benefit is that with a laid budget, control over money is enabled. This is because there is a creation of intentional expenditure of the available money thus helps in saving and unnecessary use of funds. It helps in having control of the available money and not money having the control which may lead to unnecessary expenditure. In this perspective, the burden of adjusting to a lack of funds as in case of a missing budget plan is avoided. Through control of money, the decision of sacrificing spending in areas that have short time benefit with those of long-term benefits is enabled. Another benefit of budget planning is to help keep the focus on money goals. This helps eliminate the things that have no contribution to the targeted goals. In the case of limited resources, it is easier to achieve success in the business. Another benefit associated with budget planning and budget control is that it creates awareness of what’s going on with the money. It helps in understanding the amount of finances that are coming concerning the expenditure of the budgeted money. In this perspective, it helps in preventing outcomes that may cause the failure of the business. It gives the knowledge of what can be afforded and in clinching of the available opportunities and gives a plan on how to lower debts. Awareness also helps in the identification of what is important according to the allocated funds, the progress of the business and working towards financial goals. Planning and budget control also helps in organizing spending and savings. In categorizing the expenditure, it helps in understanding the amount each plan portion would take according to the budget. Organizing spending and savings aids in making organized f financial statements and bills. This is significant in saving time and effort in case they are not organized. Planning and budget control also help in detecting the potential money problems and make adjustments before the problem comes.it is also an important tool in determining the amount of debts. This is concerning the money that can be afforded. It shows the realistic debt load to be taken to avoid the stress of repaying the debts. Budget control also helps in the generation of extra money effectively and in the identification of undesired expenditures like the penalties involved and the accumulated interests. The extra money accumulated sum up to make a huge profit in the business.
Criticisms of traditional incremental budgeting
Traditional budgeting involves the budget preparation method in which the previous budget information provides the baseline for the current undertakings. Adjustments are made in the previous year’s budget expenditure following the presenting inflation rates, the customer demands, and the current market situation. Even though traditional budgeting has been the major form of budgeting tool in most companies, it has been accompanied by some criticisms. The issue of version control and constant errors provide the basis of the critics. Even though it has got some advantages too, it is an inflexible budgeting method compared to other modern forms of budgetary methods. The issue of whether to maintain and improve the budget model or to have it completely scrapped has presented a bone of contention to various organizations. For effective budgeting, the system should be scrapped completely or development of other budgeting alternatives with Improved replication of the traditional budget be made for a better budget. The method is ineffective in management practices and can fail in certain circumstances. The method results in unnecessary expenditure of capital, effort, and time wastage. The traditional budgeting is rigid and does not match the changing world of business. It is carried out without proper consideration of the merits and potential outcomes that lie ahead. In this case, it creates a barrier in counter-reactions in the dynamic world of business. Being that it is carried out after every year, it cannot, therefore, keep the pace in the changing systems. In running diverse enterprises and business, objectives and goal setting with the budget are quite technical since it is complex to use effectively. It, therefore, results in depletion of the organizations’ morale in achieving the objective with its nature of complexity. It is also worth noting that the method relies merely on probability. In this case, it gives a situation of uncertainty in the economy. This means the system relies on chances that might give real problems in case things don’t turn out as expected. This is in consideration of the current internet advancements and the rise in the cases of terrorism that pose a threat to the economies. The method is also a stumbling block for carrying out innovations that are necessary due to its inflexible nature to economic evolution. In this, it results in the retardation of corporate culture trust and empowerment. This means that it cannot keep with the most influential factor of business involving innovations. This renders the method less useful in management practices. The other factor that hinders innovation with this kind of budget is that it only has a focus on cost control. This prevents the effective pursuit of innovation by the organization. It gives a sense of constraint on budget and therefore creates tension between budget control and the possible innovation. The model has also issues in time wastage. In this perspective, for instance, the budget process can take as long as more than six months before the actual commencement of the budgeting period. It also takes an estimation of five months of the management executives’ time and as thirty percent of financial management time working on the budget. The time wastage in this process could of great significance in the overall productivity of the corporations. This is a time wastage giving the fact the budget system lacks strategies and the contradictory nature that it displays. The other shortcoming associated with the method is that it is costly. The method always has an emphasis on reducing cost ignoring the important aspect of value creation with little consideration that it a cost. For example, in a study conducted in this kind of budget, a low-level billion-dollar company uses two thousand five hundred individuals to days per every earned billion dollars to create the traditional budget. It also comes that the income is spent on work that relies on probability. This renders it ineffective and very costly. The traditional budgeting method also causes behaviors in the people that in greater dimension dysfunctional to the company. This results in the hiccups that may develop in the company. This comes about because the method works in a combination of the budget and the rewards. It results in relentless efforts by the management team is working towards their objectives even if it results in the company’s financial constraints. For instance, the management team can put considerable effort into those activities that result in individual bonuses These dysfunctional habits associated with the budget is a huge setback in the business progress.
Although most people advocate for the complete scrapping of the traditional budgeting method, its modification to provide an improved budget model can also work. This is because of its authentic nature as one of the native methods of budgeting. The traditional budgeting can be improved to give replicas which are more efficient. They include the beyond budget method and the rolling forecast method. The improved methods provide an agile way of keeping up with the current world. The pros in the methods is that they manage to match the resources against the overall objectives of the organization. With this, the managers can maintain all the departments at a working pace with the organizations’ objectives. Another factor to consider is that the budget informs centers involved in budgeting accordingly for the company’s motives and plans. This is because at the end of it all they hold the accountability of the outcomes of every department. In another way, it helps give a clear indication of the organizations’ expectations. This gives the employees a sense of motivation in working towards the goals. Though this only applies to the employees without malicious intentions of self-benefit at the end. Making replicas of traditional budgeting is very difficult since it involves complex restructuring that is hectic to implement. It is therefore advisable to scrap it off rather than make an improvement of it.