Management Accounting
Introduction
Management control is to ensure that the organization achieves its objectives. Once the objectives have been agreed, action plans should be drawn up so that the progress can be directed towards the ends specified in the objectives. Such objectives are used to make comparison with alternatives in decision making & are also the critical elements in evaluating the success or failure of the action plans. One of the most widely used management control systems is the budgetary control & the term “Budget” itself is one of the objectives that is expressed quantitatively in financial value [1]. Undoubtedly budget is drawn up for control purposes & guiding the organization towards its objectives.
The budgeting process is done quite arbitrary by estimating the expenses in the next year or adding a few percentages from last years’ budget. Any contingency & extraordinary dollar spent would be acquired from the miscellaneous item; as long as it is still a positive figure. The main control function of the budget follows the same old rule: no budget, no expenses.
The scope of this paper is to explore better control & management in the organization’s financial resources deployed in training & development, especially in avoiding the ineffective use of resources, increasing accountability, streamlining & improving existing procedures, & managing & measuring performance in a systematic & data-oriented approach.
Control & Performance Measurement System
Referring to Broadbent & Cullen [2], management control is the process by which management ensures that the organization carries out its strategies, i.e. resources are obtained & used efficiently & effectively in the accomplishment of the company objectives. As pointed out by Brooks [3], the role of management accounting is to concern the performance of the organization & the way in which its activities are planned & controlled by its management. Further supported by Bromwich [4], the major functions of management accounting used by management are to plan, evaluate, & control within an organization & to assure use of & accountability for its resources. Although most literatures reviewed (Jeans & Morrow [5], Murphy & Braund [6], Clark & Baxter [7]) stated that the major use of management accounting control is on manufacturing process, the concept of performance measurem...
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[1] Noreen, Eric W., Brewer Peter C., et al., Managerial Accounting for Managers, Second Edition, McGraw-Hill/Irwin, New York, NY, 2011.
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[4] Colin Drury, Management and Costing Accounting, (7th edition), Chapter 3, Cost Assignment, p. 54-59
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Budgetary control system is criticised to encourage dysfunctional behaviour under management control perspective. Under contingency perspective, it is criticised to be inappropriate to meet the demands of the current competitive environment. It is also criticised to cost too much of managements’ time and incapable of identifying the root of problems under cybernetic perspective. Similarly, managers are criticised to have been indoctrinated with the principles of budgeting under the organisational behaviour perspective. Most of these criticisms are constructed under the assumption that budgetary control system is strictly still based the principles of controllability and functionality. Budgetary control system has evolved from being at the centre of management control system to being part of a wider control system. Organisations now do not reward and penalise people only based on their ability to meet budgetary targets but also consider other external events. Most organisations now encourage team working with members being selected for several departments. Regardless of the perspective used, it can be seen that the traditional budgetary control process is problematic, however the current system when budgetary control systems are used in a wider management control system caters for most of the criticisms. The call for budgets to be totally abandoned is
Stephen P. Robbins and David A.Decenzo, Fundamentals of management: essential concepts and applications (USA: pearson prentice hall, 2003), PP.13-14.
There are many weaknesses of traditional budgeting model and it has been the matter of considerable caviling. From recently research by Libby and Linsay, 2010 cited from Hansen et. al., 2003 encapsulated several discussions of budgets an...
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
In its current practice, the roles and functions of cost accounting includes additional functions. More specifically, it can be described as more than an inventory tracking system. This is because cost accounting entails defining the charges of activities and goods (Horngren & Srikant, 2000). Because of its many roles and functions, this accounting method has been of great help to growth and expansion of business planning and management. Again, the reports offer assistance in the planning and growth projections for different business functions and units within the organization. The information cost accountants offer different uses, some of which aid in the controllership function, as well as the industrial
Quantitative plans are called budgets. Budgets are prepared to impose cost controls on the activities of an organization (Chenhall, 1986).Budgets are then used to evaluate the performance of the management and budget itself is considered as a standard to evaluate the performance Solomon, 1956). The purpose of the budget is also to implement the strategy of the organization and communicate it to the employees of the organization Rickards (2006). The change in the external environment has led to the change in the budgeting approaches from the initial cash based budgets to the zerio based budgets (Bovaird, 2007).
Budgetary control is not just a financial plan that sets forth cost and revenue goals but a device for coordination, control, communication, motivation and measuring of performance. In a business environment it is most valuable as a tool to control the flow of cash because a good system would monitor cash inflow and flag up any projected shortfalls so that corrective action could be taken, for example if some consumers were not paying promptly or there was a sudden and unusual need for expenditure. Additionally, such a system in place would also ensure that money was always available for essential business purposes like for example buying raw materials.
Budget is becoming more and more important in the company and organization nowadays, the enterprise can get the benefits when adopted the budget. Budget is a good way to execute the strategic plan of the company. However, set the budget is not enough, the enterprise need to use the budgetary control to make the budget plan running effectively