Significance of Management Accounting System to an Organization
Management accounting refers to the internal recording as well as reporting of an organization’s financial information. This also enables companies in making decisions through analysis of financial figures associated with these decisions. Moreover, management accounting reports are a major source of crucial financial information relevant to business operations. Such information reflects the financial strength of an organization.
Companies utilize management accounting for evaluation of production costing methods and production processes. Not only do the management accountants assess the utility of existing costing methods, but also compare it with other useful systems for enabling improvement of business operations. Therefore, management accounting systems are indispensable for running an organization.
An effective management accounting system enhances the profitability of a company. It also helps in finding out the areas wherein operating costs can be decreased. Moreover, as management accounting begins with the financial information process, it becomes easy to determine the areas for improvement of financial performance.
Generally, internal reports of the company might represent the information for a specified period of time, like a yearly, half-yearly, quarterly or monthly basis. Such reports help in analyzing the financial health of an organization over a specified time-period. Therefore, these accounting systems can be utilized for assessment of profit-making areas. Moreover, they also help in devising measures to improve profitability and reduce expenses.
An accounting system helps an organization in following the lean management principles. This ensures effective business growth in the long run. Moreover, the system provides crucial business information to the management of an organization in a cost-effective and timely manner.
The design of such an accounting system is generally based on the pursuit of technical prudence which is demonstrated in terms of best practices and techniques or good reporting and budgeting. Are the aspects of an accounting system and the size of an organization related to each other? The evidence of such a relationship would provide management accountants with a rationale to decide upon the techniques, reports and practices which need to be utilized. Moreover, the effect of different parameters is exhibited in the requirements and needs of organizations of various sizes.
In terms of technology, we can compare an organization to an information processor where a management accounting system acts as the management information system. It provides precise and accurate information for planning, organizing and controlling.