Kwame Nkrumah University of

Science & Technology, Kumasi, Ghana

ACF 360
Management Accounting
LESSON 1
NATURE AND PURPOSE OF MANAGEMENT
ACCOUNTING

AKUA PEPRAH-YEBOAH
DEPT OF ACCOUNTING AND FINANCE
 Learning Objectives
After this lecture you should be
able to :
Explain the scope and principles of
management accounting
Explain the role of management
accounting
Identify key themes of
management accounting www.knust.edu.gh

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 NATURE & SCOPE OF
MANAGEMENT ACCOUNTING
The management of an organization performs a stewardship role
in its management of the organization.

The stewardship role requires management to report

periodically to the owners of the organization the degree at
which it is able to achieve efficient and effective utilization of
resources entrusted to it.

Thus management accounting provides information to

management for planning, control and decision-making.

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Management Accounting Defined
Management Accounting is an integral part of management
concerned with identifying, presenting and interpreting
information used for:

Formulation of strategy
Planning and controlling the activities
Decision making
Optimizing the use of resources
Disclosure to shareholders and others external bodies to the
entity
Disclosure to employees
Safeguarding assets

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The above involves participation in management to ensure that
there is effective:

Formulation of plans to meet objectives (strategic planning)

Formulation of short term operations plans (budgeting/profit

planning)

Acquisition and use of finance (financial management) and

recording of transactions (financial accounting and cost
accounting)

Communication of financial and operating information

Reviewing and reporting on systems and operations (internal

audit, management) www.knust.edu.gh

ACF 355/APY
Thus:
Management accounting is a broad
concept involving professional knowledge
and skill in the preparation and particularly
the presentation of information to all levels
of management in the organizational
structure.

The source of such information is the

financial and cost accounts.
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 THE ROLE OF THE MANAGEMENT
ACCOUNTANT
There are two terms which are often used to
describe the role of the management
accountant:

Gate-keepers

Information Manager

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 Gate Keeper
The management accountant is
often viewed as the keeper of the
gate through which all transaction
and information flow.

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Management accountants have
been trained to ensure that
transactions are properly
authorized and payments made
only when it is confirmed that the
goods/services have been provided
and that the price charged is what
was agreed.
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Gate Keeper Cont.

It is the management accountant who decides:

Which information concerning costs and revenues is

collected

The basis on which calculations and valuations are

made

How information is presented and with what frequency

Who receives the information

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 The Information Manager

Accounting information is part of the

overall information system of the
organization.

Since management accounting uses

numeric and other quantitative data in its
reports and analysis, the management
accountant is often seen as the focal point
for such information. www.knust.edu.gh

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 The Information Manager
Other managers will ask the
management accountant to
provide data in respect of certain
decisions.

These may be historical using data

already available, or they may
involve the prediction of future
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THE ROLE OF MANAGEMENT
ACCOUNTANTS IN THE
MANAGEMENT PROCESS
Planning
Control
Organizing
Communication
Motivation
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 SCOPE OF MANAGEMENT ACCOUNTING

The scope of management accounting inter alia, includes the

following:

Financial accounting
Cost accounting
Budgeting and forecasting
Tax planning.
Reporting to management.
Cost control procedures.
Statistical tools.
Internal control and internal audit.
Financial analysis and interpretation.
Office services
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 MAJOR THEMES IN MANAGEMENT
ACCOUNTING
A number of important themes pervade all
aspects of management accounting. They
are:

Future orientation
Goal congruence
Information systems
Statistical and Operational Research techniques
Uncertainty
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FUTURE ORIENTATION

Much of the work of a management accountant concerns the

future, for example, the provision of information for policy
formulation, for planning, for decision making. In details these
activities may involve:

• forecasting future costs and revenues –

• estimating future rates of taxation, interest and inflation-
• considering the reactions of markets and competitors to the
introduction of new products or prices-
• analyzing the likely changes to productivity due to the
introduction of new methods and equipment

Thus the analysis of historical data must be done in such a way

that it guides future outcomes. www.knust.edu.gh

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 ECONOMIC REALITY
Accounting data is used to represent the underlying economic
activities of the organization which include: buying materials,
selling products, manufacturing and financing the organization.
Accordingly it is essential that the records of past performance
and the information derived from the records which is used to
guide future planning and decision making represents the
underlying economic realities in a clear and unambiguous
manner unfettered by accounting convention. For example the
use of relevant costing instead of historical cost as required in
financial accounting.

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 GOAL CONGRUENCE

Management accounting must aim to encourage all

employees, including management, to act in a fashion
which contributes to the overall objectives of the
organization i.e. the employees’ objective and the
organizations objectives would in ideal circumstances
coincide.
The system and the approach adopted by management
accountant should motivate staff by means of genuine
participation, good communications, rapid feedback
etc.
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 INFORMATION SYSTEMS

An organization comprises a number of information

systems or networks, frequently computer based.
The management accounting information system is
usually the most developed system and is therefore
critical to the organizations success. They must thus be
designed to be as efficient as possible .

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 STATISTICAL AND OPERATIONAL
RESEARCH TECHNIQUES
Certain aspects of management accounting,
particularly in the areas of planning and decision
making, lend themselves to the use of appropriate
statistical and operational research techniques. The use
of such techniques does not alter the underlying
objectives of management accounting but helps to
improve or refine them.

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STATISTICAL AND OPERATIONAL RESEARCH
TECHNIQUES
There are numerous areas where such techniques have
been found to be useful to management accountants:
Statistical forecasting for cost and sales extrapolations
Linear programming for resource allocation problems
such as production planning,
Models such as EOQ to help solve inventory control
problems

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 UNCERTAINTY
Uncertainty exists where there are various possible outcomes or
results or values. It will be apparent that uncertainty is present in
most aspects of management accounting particularly the areas
of planning and decision making
There are many uncertainties in measuring data about the
economic climate, wage rates, performance levels, material
costs, the actions of competitors, the rate of inflation etc.
The management accountant must thus incorporate the effect of
uncertainty in his/her analysis .
This might require the use of probabilistic analysis when
processing the data, and or presenting and interpreting the
results for the decision maker.
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THANK YOU

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