MANAGEMENT ACCOUNTING AND ITS APPLICATION TO ORGANISATIONAL, PLANNING, CONTROL AND DECISION MAKING
(CASE STUDY OF NIGERIA BREWERIES PLC.)
- BACKGROUND TO THE STUDY
In every business organization today, Management Accounting serves as the ‘language’ used by businesses to communicate both financial information and non-financial information to individuals and groups who have an interest in how the business isperforming.
From a management accounting point of view the primary purpose of management is to plan, control and make decisions that may be classified as marketing, production, and financial. The tactical decisions which must be preceded by strategic decisions provide the historical data from which the accountant prepares financial statements. The business firm or enterprise is an organizational structure in which the basic activities are departmentalized as line and staff. The organization is run or controlled by individuals collectively called management.
Every organisation has managers, however, these managers have a responsibility to the organisation’sstakeholders to manage the organisation in the most-effective and most-efficient way, to maximize the organisation’s potential, thus it involves the managers undertaking adequate planning for the short-term and long-term future of the business, ensuring that the business is being properly controlled to ensure plans succeed, and making decisions that will enable the business to survive and grow in the future.
The management faces a broad array of decisions, including production, marketing, financial and other decisions. Having in mind that decision making is a fundamental part of management such decisions about the acquisition of equipment, mix of products, methods of production and pricing of products and services confront managers in all types of organizations.
though, The fundamental objective of planning is to assist management in deciding how to allocate an organisation’s resources, while Control is a key feature of management accounting and follows on from planning, it can be exercised at a strategic and / or an operational level, while decision making process .
Management accounting equips managers with information required to carry out these tasks. Management accounting is an important part of the economic information system, with a key role in decision making, whether we talk about small and medium enterprises or large companies. However, management accounting is superficially treated in most economic entities,
The format and content of management accounts depend upon the specific requirements of management. Different businesses will have different information requirements and their individual management accounts will reflect this. As internal reports, management accounts will often contain business-sensitive information for a restricted audience and can focus on both financial information and non-financial information, such as critical success factors (measures of factors or aspects of an organisation’s performance deemed to be critical, or essential, to its competitive advantage and thereby its success).
Early studies place management accounting in a service function with the scope to provide all levels of management with high-quality scorekeeping, attention-directing and problem-solving information and also to provides management with data in order to establish policies, develop plans and control operations.(Simon et al.1954).
Management accounting In a general sense, managerial accounting is an integral part of management that deals with identifying, presenting and interpreting information used for strategies, decision making, resource optimization, employee information, asset protection planning and control of activities, information of associates or other external information users. (Briciu, and Căpuşneanu, 2011: 57-68).
Furthermore, there is a separate division within management accounting which captures cost accounting, cost analysis, cost control and cost reduction. Singer (1961), Bruns and McKinnon (1993) point out that management accounting captures collecting (financial) information which is useful.
It should be noted that, in addition to principals of financial analysis, the application of management accounting in an organization captures good knowledge of the business the firm operates in, fluent communication skills and knowledge of (change) project management.
Further analysis has clarify that the emergence of team-oriented management accounting roles (management accountants)nowadays need to have hybrid skills from the traditional roles, this is because management accounting is becoming wider involved in integrated business situations, agendas and decision-making forums.
It is against this issue, ideas, information that this study tends to analyze, explain, and assess the application of management accounting in organizational planning, control and decision making process.
1.2 STATEMENT OF PROBLEMS
The business world has changed totally. As a result, the role of management accountant is very different now than it was years ago.
In the past, management accountants operation is strictly staff capacity usually separated from the managers for whom they provided reports and information.
Also from a broad perspective, financial reporting is one of the significant objectives for an accountant, due to its major effect in highlighting and examining the financial information of a company. The quality of reporting financial information is an international issue and the decision making skills of the accountant plays a major role in reaching the overall company objectives, but most organization today lag behind when reporting financial activity of the company as a result of inadequate application of Management accounting skills and functions, this sometimes diminish the integrity and reputation of the organization.
In any organization where there is an effective and adequate management accounting technique, it provides vital information for internal reporting manager’s use in decision-making and formulation of long term plan.
In corporations that derive much of their profits from the information economy, such as banks, publishing houses, telecommunications companies and defence contractors, IT costs are a significant source of uncontrollable spending, which in size is often the greatest corporate cost after total compensation costs and property related costs. A function of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency.
Presumably most of this function are not applied in most organization, thereby leading to inability of the manager to plan, control and make IT cost decisions.
Although many agree about the important role of management accountants in organisations plan, control and decision making, moreso certain studies show a certain lack of involvement by management accountants. Even though quantifiable information is important for planning and decision making, accountants are not engaged in it because of the absence of the appropriate techniques. “They are not perceived as having a positive contribution to decision-making, unless the contribution is to legitimize decisions arrived at through a political process, whereas this poses serious challenges to the organization business activity.
Finally, the inability of some organization to use management accounting techniques in their decision-making has resulted to non-effective and efficient accomplishment of the firm’s or organizational goal.
Therefore, the aim of this research work is to have a look at or show the information, management can derive from management accounting techniques, then usefulness or lack of it for decision making in business organization.
1.3 OBJECTIVES OF THE STUDY
Thought it is an undisputed fact that, Management accountants are responsible for financial information in most companies, have a certain role in the decision making process. That role differs from company to another, depending on the skills and qualities a person has and earned over the years.
The main objective of the study is to examine the application of Management Accounting on organizational planning, control and decision making.
The specific objectives are: