The Role of Management Accounting in creating Added Value to the Firm

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The essay sets to provide a perspective upon Management accounting and the effect it can have in creating added value for a firm. It purposes to do so by first giving a short definition and history of management accounting, identifying the differences between management accounting and financial accounting and then proceeding to analyzing some of the most important tools for management-accounting' class='brand-secondary'>management accounting. The pylons of the essay will be defining the strategy and its role in management accounting, presenting the plan–do–check–act cycle, the strategy map and the Balanced Scorecard.

Management accounting, due to the broad area of interest, can be defined in several pertinent ways. According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities.

Another, more complex definition, would be that management accounting is the process of supplying the managers and employees in an organization with relevant information, both financial and nonfinancial, for making decisions, allocating resources, and monitoring, evaluating, and rewarding performance. The reported expense of an operating department, such as the assembly department of an automobile plant or an electronics company, is one example of management accounting information. Other examples are the cost of producing a product, th...

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...gement accounting is further used to measure the cost of serving customers and customer profitability. Cumulating the information provided in this manner, the executives can make decisions related to the overall department and business performance. Further on in the essay the importance of the nonfinancial information in the manager’s planning and control decisions will be highlighted. The particular nonfinancial measures most useful for an organization will vary based on its industry and strategy, but generally will include measures of customer loyalty, process quality, and employee capabilities and motivation.

Works Cited

Wikipedia – Charted Institute of Management Accountants

Management accounting - Information for Decision-Making and Strategy Execution/ A. Atkinson/ R. Kaplan, p.27

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