KOKETSO SEKATE
AF21-046
THE IMPACT OF MANAGEMENT ACCOUNTING
IN BUSINESS
MANAGEMENT ACCOUNTING APPLICATIONS
27 MARCH 2024, 3PM
WORD COUNT: 2217
Table of Contents
INTRODUCTION ............................................................................................................... 2
PERFORMANCE MEASUREMENT .................................................................................. 3
REFLECTION ................................................................................................................ 4
PLANNING AND CONTROL ............................................................................................. 4
REFLECTION ................................................................................................................ 5
RISK MANAGEMENT ....................................................................................................... 6
REFLECTION ................................................................................................................ 6
COST MANAGEMENT ...................................................................................................... 7
REFLECTION ................................................................................................................ 8
KEY ISSUES ..................................................................................................................... 8
CONCLUSION .................................................................................................................. 9
References ......................................................................................................................... 10
1
INTRODUCTION
Through the processes of performance assessment, planning and control, risk
management, and cost management, this research examines the literature on the
effects of management accounting and the responsibilities of a management
accountant on business. My understanding of management accounting is reflected in
an analysis, and conclusions drawn from my observations. Moreover, I examine how
the economic crisis, globalization, and recent technological advancements may
affect how management accounting is practiced in both academia and the real world.
I examine how Financial and nonfinancial metrics are used to analyse performance
evaluation. I strive to comprehend how the budgeting process aids planning
controlling and performance evaluation. The contribution of MA in risk management
is examined and the impact of cost management is examined through costing
techniques.
2
PERFORMANCE MEASUREMENT
Melnyk et al., (2013) explains that the importance of performance measurement in
business is to enhance control by reporting the level of performance and comparing
it to a desired standard. Lynch & Cross (1991) maintains that implementing an
appropriate performance measurement system ensures that employee’s actions are
aligned with organizational goals. Bromwich & Brihmani (1989) highlighted that,
traditional financial performance measures are inappropriate in reflecting the true
performance of the organization in the uncertain, complex, and highly competitive
business environment, where success is greatly determined by the quality of the
qualitative factors such as customer satisfaction and organizational reputation.
Recognizing these limitations, Kaplan &Norton (1992) devised the Balanced
Scorecard (BSC). BSC organizes interdependent factors to present an overview of
organizational performance in areas of financial, customer, internal business process
and the learning and growth perspectives. The financial overview presents the
conventional financial metrics that appeals to shareholders. The customer
perspective stresses the need for a company to meet customer demands to maintain
brand loyalty and maximize market share. IBP looks to optimise internal business
practises to achieve maximum productivity. LGP stress the need for a firm to ensure
sustainability by continuous improvement and innovation. Overall, Pineno & Boxx
(2011) elucidates that the BSC integrates a set of financial and non-financial
measures to communicate a holistic performance of the business and provides
internal and external stakeholders with actionable feedback on the accomplishment
of business goals.
Back-Hock (1992) suggests that management accounting provides relevant
information to formulate performance measures. This view is reinforced by Bhimani,
Horngren, Datar & Rajan (2019) who states that management accountants can do
this because they have valuable expertise in understanding how different activities
affect the overall organization. Vollman (1989), however argued that management
accountant brings an overly financial view in performance evaluation, which leads to
a set of unbalanced set of performance metrics.
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REFLECTION
Pineno & Boxx (2011) pinpointed the disappointment of the business community in
higher education’s failure to produce graduates who have relevant skills to cope with
the everchanging business environment. In my MA studies, I have learnt about
techniques that aid performance evaluation such as, CVP analysis which MA use to
evaluate the performance of a prospective new market. Investigation of budget
variances evaluates the management’s effectiveness in meeting organizational
goals. Most of these techniques are financial in nature. The measurement of relevant
costing is one area where qualitative factors such are supplier and customer
relations are considered before deciding, however, this emphasises is relatively
insignificant as it mostly considered only when the calculations have been made.
This especially proves Vollman (1989) right, in saying that management accountants
often bring an overly financial view in each function of the business, especially
considering performance evaluation. Having recognized this limitation, I believe
management accountants have the capacity to bridge the evident gap that exists
between practise and academia, especially because practitioners utilize the BSC to
enhance performance evaluation of their organizations, which is clearly lacking in
management accounting studies.
PLANNING AND CONTROL
Chad´es et al., (2015) suggests that planning for the future helps the business to
determine its most significant priorities, ensure efficient resource allocation and align
employee actions with organizational strategic goals through creating a vision and
mission of the business. Bufan (2013) maintains that the controlling process ensures
that managers efficiently supervise the implementation of the plans in action and
make necessary corrective measures. Therefore, the purpose of management
accounting in accelerating these processes is to provide tools such as budgets which
are used to model future activities and ensure sufficient resource allocation to
prospective activities, (Mayeli & Bakhanda, 2016). Josh, Al-Mudhaki & Bremser
(2003) budget variances evaluate the management’s ability to recognize problems
quickly and implement corrective measure and to ultimately improve next period’s
budget plans.
Management accountants are responsible for making predictions and estimations of
future company needs according to previous figures and statistical data for a specific
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period and they monitor and administer the budget control by comparing actual
performance with the figures and data relating to budget to take necessary actions
for solving or preventing the recurrence of deviations. (Moghaddam & Alikhani, 2015)
Mack & Goretzki (2017) claims that this becomes difficult for the management
accountant because they often struggle to influence the actions of the operational
managers. They suggest that for the management accountant to ensure operational
managers implement budgets efficiently, they must inscribe budgets in an
authoritarian manner instead of making casual suggestions. By doing so, they make
it more consequential for an operational manager who did not implement a budget
efficiently. Having done this, the MA can gradually strengthen his influence and
ensure that budgets are carried out accordingly to control the outcomes and
employing necessary corrective measure to deviations.
REFLECTION
The literature reviewed on planning and control emphasises that a poorly
implemented budget leads to mismanagement of company resources. It is the
utmost responsibility of the MA to ensure that operational managers stick to the
budgets. As Mack & Goretzki (2017) elucidates, the management accountant often
struggles to influence the actions of the operational managers because she has no
formal authority on these managers, and they often consider her an outsider that
they distance themselves from.
I disagree with this conclusion because, as the middleman between senior
management and operational managers, the MA have the power and the capability
to reconcile the conflicts of interest that exist between these 2 parties. I believe the
MA can do so because, she knows and understand the vision and the goals of the
senior management, which enables her to communicate these targets to operational
managers. Furthermore, the MA understands the struggles of the operational
managers and as such, must act as the representative of the operational managers
in terms of preparing budgets that are practical and will not restrict the work of the
operational manager too much. Hence why I see the MA as the mediator who
facilitates the implementation of budgets by ensuring that all the practical
expectations and interests of all the participants are catered for in all the budgets.
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RISK MANAGEMENT
Afifa & Saleh (2021) explains that rapid technological advancements and
globalization exposes an organization to risks and unprecedented adverse events,
which is why Rasid, Isa & Ismail (2014) highlighted the need for the development
and implementation of Enterprise Risk Management (ERM) systems, which
manages risks in an integrated and holistic manner. Soin &Collier (2013)
emphasizes that the management of risk has shifted from being a narrow concern for
the finance department, but to an issue about management and control, hence why
this a key area in which management accounting actively engages in. Dung (2018),
suggest that what enables management accounting to predict risks in the
organization is that it collects information of different natures, be it financial or nonfinancial, monetary, or qualitative, from all department and present it in an integrated
comprehensible report, and this establishes a solid mechanism for wise decision
making. Bento, Mertins & White (2018), suggest MA facilitates the development of
ERM systems to enhance their capacity to identify and manage risks systematically.
They argue that management accountants make this contribution because of their
experience in designing and implementing internal controls and providing relevant
information for decision-making.
Hancock, Branson & Beasley (2015) explains that poor ERM implementation is
because organizations to manage risk more strategically. Hence why they suggest
that it is the responsibility of management accountants to identify and quantifying the
probability of occurrence of risks, measuring financial consequences of such events
and explain why investing in control and contingency systems that will respond to
risks that may not even materialize is necessary to the survival of the business. With
their specialized expertise in measuring, analyzing, and reporting information, they
can establish ERM systems that are truly enterprise driven and not limited to
departmental silos.
REFLECTION
Management-accountants contribute to the development and implementation of
ERM systems by utilizing traditional management accounting techniques such as
budgeting and relevant costing decisions. A management accountant can use
budget variances to investigate risks, because these variances often point at
financial and operational risks that exist in the enterprise. Moreover, because MA
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understands internal business processes, they aid ERM systems by allocating risk
owners to enable accountability and proper distribution of risk-management.
The literature claims that management-accountants aid the development and the
implementation of ERM systems. However, thus far, I haven’t learnt any MA
techniques to justify this conclusion. I believe management-accounting’s intense
emphasis on internal management and control, limits its contribution to risk
management because most of the unprecedented risks such as market and
economic risks that businesses face is largely caused by externals such as
technological developments, intense competition, globalization, and customer
demands, of which management-accounting fails to show how they impact the
organization.
COST MANAGEMENT
According to Lucey (2003), the primary goal of any business is to maximize profits
therefore, for profit maximization to be achieved, there needs to be an adequate
control of costs. Innes, Mitchell & Sinclair (2000), highlights that cost control affects
product quality and customer retention since customers are seeking excellent quality
products and affordability.
Management-accounting provides the techniques of Activity Base Costing and Lean
accounting to establish effective cost management in the business. Lean accounting
is used to facilitate efficient use of resource by eliminating waste and reducing
product cycle time, thereby maximizing productivity. ABC is used to identify drivers of
product, service, distribution, and customer profitability. It achieves this because it
establishes the linkages of resource expenses through process to products and
customers and consequently to shareholder wealth creation. (Cokins, 2019)
Carg, Ghosh, Hudick & Nowacki (2003) emphasises that it is the responsibility of the
management-accountant to monitor and control costs effectively by providing
accurate and timely information on costs incurred in various activities, departments,
or products. This information enables businesses to analyse cost drivers, identify
cost-saving opportunities, and make informed decisions to optimize resource
allocation and improve profitability. Cokins (2019), therefore argues that a
progressive accountant will combine the ABC and lean accounting to accurately
determine profitability and productivity of the business.
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REFLECTION
We learnt about how cost accumulation and cost allocation affect product pricing
special pricing, outsourcing, and investment decisions. Our curriculum emphasised
more on the use of traditional costing methods which are largely criticized because it
provides less accuracy and visibility to cost drivers and therefore provides inaccurate
information for decision making. However, we also learnt about the ABC technique
and why it is more accurate because it considers the cause-effect relationship
between cost and cost objects. I believe that it is important that I learn the lean
accounting system because literature has shown its extensive use in practise and
how it benefits the business in terms of managing resources efficiently by reducing
costs and increasing profitability. I also believe that the lean accounting and ABC
should be greatly included in management accounting curriculum so that students
have a deep understanding on how cost management is achieved in the modern
business environment.
KEY ISSUES

As economic crisis intensifies the difficulty of business operations, information
requirements for wise decision making becomes highly demanded by senior
managers, which is primarily provided by the management accountant. This
will probably strengthen the interaction between management and the MA.
This increased interaction will place the MA in more powerful position, where
he will easily influence both the operational and the senior managers.
(Pavlatos & Kostakis, 2018)

According to Appelbaum, Kogan, Vasarhelyi, and Yan (2017), the focus of
management accounting has shifted due to the importance of data collection,
processing, and analysis in a competitive global environment. As a result, MA
must have a thorough and clear understanding of data evaluation to deliver
decision-making information that is complete, precise, valid, accurate,
relevant, and timely. As a result, Saggi & Jain (2018) have advocated for the
full integration of big data analytics and technology into management
accounting education to generate graduates with data analytics skills for
today's business environment.
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CONCLUSION
Reflecting on the impact of management accounting in the business and the role of
management accountants in the management process has made me realize that our
curriculum emphasises heavily on traditional management accounting techniques
that are losing their relevance in the business environment, which may render us
graduates without relevant skills required in the modern workplace. Organizational
value, in a rapidly changing business environment plagued with economic crisis,
technological advancements and extreme customer demands is driven by qualitative
factors of brand loyalty and reputation. These circumstances require a MA who will
use big data analytics to enhance cost management information, risk management
strategies, holistic performance measurement tools and efficient implementation of
budgets.
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