Question

In at least 225 words answer the following: How does an accounting department determine what reporting to present to management, since there are no regulations governing managerial accounting

Answer 1

Managerial accounting is the type of accounting which is meant for the decision makers to analyze the performance of the company, whether the company is on the right track to meet the organizational goals and what day-to-day decisions are to be taken to effectively achieve those. Managerial accounting provides a more detailed version of all the events which are happening across the organization which helps the top level management to determine the next steps to be taken for success.

The main objective of management accounting is to provide useful information to managers to assist them in the planning, controlling, and evaluating roles.

Managerial accounting is not covered by any GAAP and hence there is no set information that is required to be provided in such accounting. Hence there is a lot of flexibility available with the accounting department as to what is to be included in the monthly management report and what is not to be included.

What is to be included in the report is generally dependent on several factors. Most important of these factors is determining the purpose of the report. First the accounting department determines which departments within the organization are going to make use of this report and whether the information they have included meets the purpose of all such departments. This report is more about planning for the future needs and to analyse what decisions are to be taken in order to meet those needs. For example : A company has recently launched a new product which has just recently entered the market. So the management report will not only include the financial factors such as cost-wise data for such product, sale figures for such products, but also the non-financial factors such as reviews received for the product, a cost-benefit analysis and future projections estimating whether the product should be continued or not etc.

Another important type of factor to be considered while deciding the information to be included in the report is the pricing of the products. In a lot of organizations, monthly management information system report generated by the accounting department forms the basis for setting a price for an existing/new product. Hence the accounting department has to make sure that appropriate, complete and accurate cost figures have been included in the report to make a correct pricing decision.

Also management reports should not only include monetary, but the non-monetary information as well as such type of information is very important for decision-making. Budgeting analysis is one analysis which should form part of a management report and which is generally missing from the external reports. What is important for the accounting department to understand is that the managerial report is meant for the internal users, those within the organization and not the external users. A lot of departments depend on the management report for budget-setting, performance reviews etc.

Hence, to conclude, an accounting department should decide what to include in the management report on the basis of the needs and demands of the internal users for whom the report is being prepared.