MANAGEMENT ACCOUNTING AS AN INFORMATION SYSTEM

We have already seen that management accounting can be seen as the provision of a service
to its ‘clients’, the managers. Another way of viewing management accounting is as a part
of the business’s total information system. Managers have to make decisions concerning
the allocation of scarce economic resources. To ensure that these resources are efficiently
allocated, managers often require economic information on which to base their decisions.
It is the role of the management accounting system to provide that information.
The management accounting information system has certain features that are common
to all information systems within a business. These are:
■ identifying and capturing relevant information (in this case economic information);
■ recording the information collected in a systematic manner;
■ analysing and interpreting the information collected; and
■ reporting the information in a manner that suits the needs of individual managers.
The relationship between these features is set out in Figure 1.8.

There are four sequential stages of a management accounting information system. The first two
stages are concerned with preparation, whereas the last two stages are concerned with using the
information collected.

Figure 1.8 The management accounting information system

Given the decision-making emphasis of this book, we shall be concerned primarily with the
last two elements of the process – the analysis and reporting of management accounting
information. We shall consider the way in which information is used by, and is useful to, man-
agers rather than the way in which it is identified and recorded.
Efficient management accounting systems are an essential ingredient of an efficient busi-
ness. When accounting systems fail, the results can be disastrous. Real World 1.9 provides
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an example of a systems failure. It arose from the failure to integrate two separate accounting
systems following the merger of two businesses.

Real World 1.9

Blaming the system

Peter Long, chief executive of TUI Travel, said the tour operator had suffered ‘a blot on the
copybook’ after an accounting blunder cost the chief financial officer his job and forced it
to restate its 2009 results to the tune of £117m. Paul Bowtell announced his resignation
after the group wrote off an additional £88m on top of the £29m writedown announced in
August. The City reacted by pushing shares in TUI down 11 per cent, or 25.4p, to close at
205p on Thursday.
The cause of the errors lies in TUI’s use of two separate computer systems in its business
after its merger with First Choice in 2007. One system is used by TUI’s retail division to
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MANAGEMENT ACCOUNTING AS AN INFORMATION SYSTEM

Atrill, P, & McLaney, E 2015, Management Accounting for Decision Makers, Pearson Education Limited, NOIDA. Available from: ProQuest Ebook Central. [19 January 2022].
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