Student Name : Tehseen Ahmed

Semester : 5th (Finance & Accounts)

Program : MBA Regular (Evening)

Campus : Preston University

Main Campus
Karachi

Registration Number : 1532308004

Assigned By : Sir Jameel Babar

Assignment Sequence : 1st

Subject : Managerial Accounting

Topic Of Assignment : Challenging Role Of Managerial

Accountant In Dynamic Environment

Date Of Submission : Tuesday, 16th February, 2010.

 Challenging Role Of Managerial Accountant In Dynamic Environment

The purpose of management accounting in the organization is to support competitive decision making by
collecting, processing, and communicating information that helps management plan, control, and evaluate
business processes and company strategy. The interesting thing about management accounting is that it is
rare to find an individual within a company with the title of “management accountant.” Often many
individuals function as accountants within the organization, but these individuals typically operate as
financial accountants, costs accountants, tax accountants, or internal auditors. However, the ability to
develop and use good management accounting (which covers a lot more ground than the product costing
done by cost accountants) is actually an important ability for many individuals, including finance
professionals, operational and marketing managers, top-level executives, and information technologists.

Generally, in a very large company, each division has a top accountant called the controller, and much of
the management accounting that is done in these divisions comes under the leadership of the controller. On
the other hand, the controller usually reports to the vice president of finance for the division who, in turn,
reports to the division’s president and/or overall chief financial officer (CFO). All of these individuals are
responsible for the flow of good accounting information that supports the planning, control, and evaluation
work that takes place within the organization.

As should be clear by now, the process of management accounting is the process of creating and using cost,
quality, and time-based information to make effective decisions within the organization. Many people in
the organization play a role in this process. The internal audit department has the responsibility of ensuring
that controls are followed and operations are efficient. Financial accounting, while providing information to
outsiders (such as creditors, investors, and government agencies), must also provide relevant financial
reports to decision makers within the organization. Systems professionals have the responsibility to
process information so that it is available to management in formats useful for decision making. Tax
department experts make sure that the organization complies with the tax laws and pays no more than its
legally obligated tax liability, but these people also participate in good planning, control, and evaluation of
processes and decisions that will affect future tax expense exposure. Finally, cost accounting obviously
plays a key role in tracking and reporting relevant product and service costs. Overall, the controller works
to bring together all this information as an integral part of the planning, controlling, evaluating, and
decision-making activities that take place throughout the organization.

FYI
Individuals interested in developing and demonstrating a professional competency in management
accounting can obtain a professional certificate that is much like the CPA certification. The Certificate in
Management Accounting (CMA) is sponsored by the Institute of Management Accountants (IMA), a
national organization of professional management accountants. Five areas of study are emphasized on the
CMA exam: (1) economics and finance, (2) organizational behavior, (3) public reporting, (4) periodic
reporting for internal and external purposes, and (5) decision analysis, including modeling and information
systems.

Technology and the Management Accountant

As you have read this introductory chapter to management accounting, you have likely noticed that the goals of
management accounting information provided to the management and executive teams inside the organization are
quite different from the financial accounting information provided to groups outside the organization, such as
investors, creditors, and regulators. You may even ask how information and performance measures regarding
quality and time can be provided by a typical general ledger system that is limited to debits and credits of
dollar amounts. This is a good question! For most of the twentieth century, management accountants have
been able to successfully produce management accounting information using the general ledger system of
financial accounting. This marriage of management accounting and financial accounting information
systems worked as long as the goal of management accounting was strictly to track cost information. Now,
however, the emergence of JIT, coupled with increased competition in a worldwide market, has forced
most organizations to compete on issues of quality and timeliness, as well as cost. The problem is that it is
very difficult to use a debit/credit system to track organizational performance regarding quality and time.
Thankfully, computerized information systems, specifically database systems, have progressed to a point
where it is economically feasible for organizations to track just about any kind of information. Now the real
challenge for current and future management accountants is to organize the immense amount of data that
can be provided to support decision making without creating information overload in managers and
executives. In this process, management accountants should understand how to use the most current
technology. Typically, developing knowledge and skills in computer technologies will require additional
courses of study for the future business professional. The goal of the remainder of this book is to provide
you with a framework for developing cost, quality, and time-based information that supports the
management process. This framework must then be used with top-notch technology in order to provide
information that truly adds competitive value to organizations!

Looking Forward in the Management Accounting Profession

Business professionals involved in management accounting have come a long way since the early days of
management accounting in the 1800s. Today, management accounting professionals play a key role in many
organizations. The nature of their work continues to expand as new industries develop and computer technology
grows in importance in the gathering and use of information by decision makers. For example, you’ve spent the
bulk of this chapter being introduced to management accounting in the context of DuPont, a manufacturing
business. However, businesses focused on service rather than manufacturing (e.g., law firms, banks, hospitals,
transportation, hotels) are far and away the dominant industries in the U.S. economy. Further, merchandising
companies (retailers and wholesalers) combine to be as strong an economic force as the manufacturing industry.
And as you’re certainly aware, the explosion of the Internet has established a new aspect in our economy—e-
commerce. At this point, e-commerce is generally a growing delivery platform for many service and
merchandising companies, rather than a separate industry. You need to be aware of these trends as you work
through this textbook. We will spend a lot of time applying concepts and tools of management accounting to
nonmanufacturing settings. As we close this chapter, we want to leave you with two lingering, but important,
questions. First, can a service or merchandising company effectively perform C-V-P analysis, product costing,
and segment analysis? Or are these techniques useful only for manufacturing companies? Second, does the arrival
of e-commerce in service, merchandising, or manufacturing organizations change your response to the first
question? That is, as companies shift more and more of their operations (such as sales of software, financial
services, and groceries) into the “virtual environment” of the Internet, does e-commerce affect the use of any
management accounting techniques that you are studying in this textbook? Think about these questions. We plan
to spend a lot of time in the next several chapters exploring some possible answers with you.

FYI
By 2004, e-commerce activities across the world will be enormous, amounting to $6.8 trillion, or 8.6% of
the global sales of all goods and services. Interestingly, while the United States accounted for 75% of
worldwide e-commerce sales in 2000, that share is expected to drop to a little less than 50% by 2004.
Source: “Global eCommerce Approaches Hypergrowth,” Forrester Research, Inc., April 18, 2000

TO SUMMARISE
Management accounting plays a key role in organizations today. The top accountant in most organizations
is the controller. All accounting functions report to this individual, including the cost accountants, the
financial and tax accountants, the internal auditors, and systems support personnel. Though much
management accounting originates within these positions, all decision makers in the organization must
understand how to create and use good management accounting information. Management accounting is
also being significantly affected by dramatic improvements in computer technology. Today’s technology
allows management to track performance information that goes beyond the cost-based information of
historic general ledger systems. Good management accounting involves a responsibility to manage a wide
variety of critical information. Hence, those involved need to anticipate and be prepared to deal with
various ethical dilemmas. And finally, though we’ve used DuPont as the example company in this chapter,
you need to understand that management accounting is not just for manufacturing companies. Service and
merchandising industries represent a much larger portion of the U.S. economy than does the manufacturing
industry. Further, the advent of the Internet and e-commerce is bringing dramatic changes to many
companies and industries. This textbook will explore management accounting in all types of business. As
you work through the remainder of this textbook, you should consider how each new concept you learn
could be applied in multiple types of business settings.