Q."Management accounting is a tool in the hands of management, not a substitute for management." Explain.

This statement points to the true relationship between management accounting and management: it serves management, but never takes management's place.

The statement highlights the exact place of management accounting in a business.

Management accounting supplies information, not decisions. Its whole work is to collect, analyse, interpret and present accounting and other information — budgets, cost statements, performance reports, analyses of alternatives. But it stops at presenting this information. It lays the facts and the analysis before management; it does not itself choose a course of action.

The decision, and the responsibility, remain with management. It is the managers who must weigh the information, exercise judgement, take the decision and answer for its results. Two managers given the very same management-accounting report may reach different decisions, because judgement, experience and the wider circumstances of the business all come into play — and these belong to management, not to the accounting system.

Its usefulness depends on how it is used. However good the reports, they are of value only if management understands them and acts on them wisely. Poorly used, even excellent information leads to poor decisions; so the tool is only as good as the hand that wields it.

It also deals with estimates. Because it works largely with forecasts and estimates of an uncertain future, its figures need to be applied with judgement — a further reason it cannot mechanically replace the manager's own thinking. …

Students sometimes drift into merely listing the functions of management accounting instead of addressing the statement. The answer must stay on the point that it only supplies information while decisions and respo …