Management accounting process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions.
Unlike financial accounting, which produces annual reports mainly for external stakeholders, management accounting generates monthly or weekly reports for an organization’s internal audiences such as department managers and the chief executive officer.
Management accounting, being a comparatively new discipline, suffers from certain limitations, which limits its effectiveness. These limitations are as follows:
Limitations of basic records
Management accounting derives its information from financial accounting, cost accounting and other records. The strength and weakness of the management accounting, therefore, depends upon the strength and weakness of these basic records. In other words, their limitations are also the limitations of management accounting.
The conclusions draw by the management accountant are not executed automatically. He has to convince people at all levels. In other words, he must be an efficient salesman in selling his ideas.
Management accounting is only a tool:
Management accounting cannot replace management. The management accountant is only an adviser to the management. The decision regarding implementing his advice is to be taken by the management. There is always a temptation to take an easy course of arriving at decision by intuition rather than going by the advice of the management accountant.
Management accounting has a very wide scope incorporating many disciplines. It considers both monetary and non-monetary factors. This all brings inexactness and subjectivity in the conclusions obtained through it.
The installation of a management accounting system requires heavy costs on account of an elaborate organization and numerous rules and regulations. It can, therefore, be adopted only by big concerns.
Opposition to change:
Management accounting demands a break away from traditional accounting practices. It calls for a rearrangement of the personnel and their activities, which is generally not like by the people involved.
Management accounting is still in its initial stage. It has, therefore, the same impediments as a new discipline will have, e.g., the fluidity of concepts, raw techniques, and imperfect analytical tools. This all creates doubt about the very utility of management accounting.