Nature and Scope of Management Accounting

Nature of management accounting. The essential characteristics of management accounting are as follows.

• It is an aid to management, not a substitute for it. It provides information and analysis; it does not itself take decisions, which remain the responsibility of management.
• It is selective in nature. It does not record every transaction; it selects and presents only the information relevant to the particular problem or decision.
• It is concerned with the future. While it uses past data, its focus is on planning and forecasting the future, so it is largely forward-looking.
• It has no fixed rules or format. Unlike financial accounting, it follows no statutory format and no rigid principles; the form of its reports is decided by usefulness alone.
• It is wide in scope. It draws on financial accounting, cost accounting, statistics, economics and management theory, so it is really a blend of several disciplines.
• It supplies information, not decisions. Its role ends with placing analysed information before management; how that information is used is for management to decide.
• Its results are not verifiable with certainty. Because it deals largely with estimates and forecasts of the future, its conclusions cannot be verified in the way financial-account figures can.

Scope of management accounting. Management accounting is very wide in scope. It includes, and draws upon, the following areas:

1. Financial accounting — the basic records and final accounts, from which much of the raw data is drawn.
2. Cost accounting — cost ascertainment, cost control and cost-based decision techniques such as marginal costing and standard costing.
3. Budgeting and budgetary control — the preparation of budgets and the control of operations by comparing actual results with them.
4. Financial statement analysis — the analysis and interpretation of financial statements using ratios, comparative statements, common-size statements, trend analysis and cash-flow/fund-flow statements.
5. Statistical and graphical techniques — the use of statistics, charts, graphs and index numbers to present and analyse information.
6. Interpretation and reporting — the communication of interpreted information to management through reports and statements. …