Tag Archive | Management Accounting

Limitations Of Management Accounting

For the purpose of understanding the exact nature and importance of management accounting, it is indispensable to understand the limitations under which it has to perform the functions and the following are the important limitations when it comes to management accounting:

a)Dependence on historical data: Normally the data provided by the financial accounting and cost accounting on the basis of decision making and the accuracy of decisions arrived at on the basis of such data depends on the accuracy of data itself. Thus the success of management accounting is governed by the efficiency and accuracy with which the financial and cost records are maintained and established in an organization.

b)Lack of desired skill: It has been generally observed that the management accountant or any other officer dealing with management accounting tools for decision making purposes lack the necessary skill, acumen and experience on account of which the high degree of managerial efficiency cannot be expected. A cadre of professional management accountant has to be developed who could better look after the management accounting processes in large sized public companies.

c)Scope for subjectivity: Even though management accounting attempts to replace intuition by objectivity and scientific reasoning, yet it is not possible to do away with subjectivity as the personnel who are engaged in decision making are in a position to utilize the non quantitative information which can provide a lot of scope for subjectivity in decision making.

d)Management indifference: Sometimes, the indifference of management limits the use of management accounting and many managers do not like that there exists any formal system of accounting for the purpose of guiding them in the decision making process.

e)Costly affair: The installation of management accounting concept in any organization is found to be a costly affair, as its installation requires heavy investment in terms of physical infrastructure and trained man power. It is quite unsuitable for small scale business enterprises.

f)Imperfect tool: Management accounting is a growing subject. The tools and techniques employed are not found to be fool proof. It is found that two management accountants while facing the similar problem draw different and sometimes exactly opposite conclusions from the available same set of information.

g)No substitute for management: Management accounting is a means to an end and the end being the efficient business operations for achievements of various business objectives. Management accounting cannot replace the management as it is simply a tool in the hands of the management and the ultimate success in business always depends upon the will and dedication of the management.