The History and Context of Management Accounting


If you browse through other texts on management accounting you will find that the authors have different ideas about what should be included within ‘management account­ing. One specific area for which differences of opinion are found is that of financial management or managerial finance. Traditionally, within the syllabuses of professional accountancy examinations, and also within universities’ accounting syllabuses, bound­aries have been drawn between ‘management accounting and financial management. This is often done as a pragmatic solution to the problems of achieving manageably-sized syllabuses for use within modularized courses. Like the boundary between financial accounting and management accounting, the boundary between management accounting and financial management is also rather blurred. Similarly, the scope or coverage of financial management is not always well defined. Texts on financial management tend to have certain areas of coverage in common, such as financial theories concerning the pricing of financial instruments, the calculation of the cost of capital and the implications of gearing, dividends, the effects of risk, treasury management, and so on.

The area of capital investment appraisal, that is, the appraisal of the implications of proposed invest­ments for the value of the organization (via the application of discounted cash-flow tech­niques), is usually covered by financial management texts but is also covered by many texts on management accounting. One possible reason for this dual coverage is that capital investment appraisal deals with investment decisions that have a strategically important effect upon the organization. Thus, when the strategic aspects of management accounting are considered, such investment decisions are part of the work of management accountants. Similarly, when the strategic financing decisions related to such investments are made, these decisions form part of financial management. What is obvious, then, is that such strategic decisions cannot be made in a one-dimensional way. Their impact is such that all aspects must be considered and all interested parties (financial managers, management accountants, financial accountants, etc.) have a part to play.

For completeness, capital investment appraisal techniques will be incorporated within this text, as an understanding of these techniques and the ability to apply them compe­tently is essential to management accountants, as is the ability to work and communicate effectively with financial managers, financial accountants and other managers. A housing department manager will require information about occupation rates, tenant turnover rates, the capital costs of housing programmes, the comparative cost implications of different approaches to the provision of social housing, etc., as well as the types of information identified earlier relating to staff performance, budget performance, and service level agreements. A hospital manager will require information (depending upon her/his specific role) about such matters as bed occupation, waiting list trends, surgical success rates, cost effectiveness of surgical procedures, comparative costs of alternative suppliers, budgetary matters, etc.

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