Q.Discuss the nature and scope of management accounting.

Management accounting has a definite character (its nature) and covers a definite, and very wide, range of activities (its scope).

Its nature explains what kind of subject it is, while its scope lists the areas it draws upon — from the basic accounts, through cost data and budgets, to analysis and reporting.

Nature of management accounting. Its essential characteristics are:

• An aid to management, not a substitute for it — it provides information and analysis but does not itself take decisions.
• Selective — it records not every transaction but only the information relevant to the problem in hand.
• Future-oriented — although it uses past data, its focus is on planning and forecasting the future.
• No fixed rules or format — unlike financial accounting, it follows no statutory format or rigid principles; usefulness alone decides the form of its reports.
• Wide in scope — it blends financial accounting, cost accounting, statistics, economics and management theory.
• Supplies information, not decisions — its role ends with placing analysed information before management.
• Results not verifiable with certainty — because it deals largely with estimates and forecasts, its conclusions cannot be verified like financial-account figures.

Scope of management accounting. It is very wide and includes:

1. Financial accounting — the basic records and final accounts, the source of much of its data.
2. Cost accounting — cost ascertainment, cost control and cost-based decision techniques such as marginal and standard costing.
3. Budgeting and budgetary control — preparing budgets and controlling operations against them.
4. Financial statement analysis — ratios, comparative and common-size statements, trend analysis, cash-flow and fund-flow statements.
5. Statistical and graphical techniques — statistics, charts, graphs and index numbers for presenting and analysing information.
6. Interpretation and reporting — communicating interpreted information to management.
7. Tax planning and other related areas — internal audit, office and financial management, so far as they bear on decisions.

Students often answer only the 'scope' part and omit the 'nature' part (or the reverse). When both are asked, each must be dealt with distinctly. Another error is to treat management accounting as a rigid subject with fixed rules — its lack of a fixed format is one of its defining features.