In order to understand the exact nature and importance of Management Accounting, it is necessary to understand the limitations under which it has to perform its functions. Main limitation may be mentioned as under:
1. Dependence on Historical Data: Data provided by financial accounting and cost accounting form the basis of decision-making. 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 in an organization.
2. Lack of Desired Skill: It has been generally observed that the management accountant or any other officer dealing with management accounting tools for decision purpose lack necessary skill and experience due to which a high degree of managerial efficiency cannot be expected. We have yet to develop a cadre of professional management accountant who could better took after the management accounting processes in large-sized public companies.
3. Scope for Subjectivity: Though management Accounting attempts to replace intuition by objectivity and scientific reasoning yet it is not possible to do away with subjectively as the decision-makers utilize non-quantitative information’s which provide a lots of scope for subjectivity in decision-making. This limitation can be overcome if the management uses personal judgment with great care and tries to remain as objective as possible.
4. Management Indifference: Sometimes the indifference of management limits the use of management accounting. Many managers do not like that there exists any formal system of accounting to guide them in decision-making. Resistance and non-cooperation of labour also hinder the application of standard labour costing technique on the pretax of their exploitation.
5. Costly Affair: Management Accounting is costly affair as its installation requires heavy investment in physical facilities and trained man-power. It is quite unsuitable for a Small Scale business enterprise.
6. Imperfect Tool: Management Accounting is a growing subject. Its tools and technique are not fool proof. Two different management accountants while treating a similar problem may draw different conclusion from the same set of figures. For example, the technique of accounting rations provides an indication towards a particular situation but it does not give precise answer to the problem.
7. No Substitute for Management: Management Accounting is a means to an end; the end being the efficient business operations for achievements of business objectives. It cannot replace management as it is simply a tool in the hands of management and the ultimate success in business depends upon the will and dedication of management.
1. Dependence on Historical Data: Data provided by financial accounting and cost accounting form the basis of decision-making. 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 in an organization.
2. Lack of Desired Skill: It has been generally observed that the management accountant or any other officer dealing with management accounting tools for decision purpose lack necessary skill and experience due to which a high degree of managerial efficiency cannot be expected. We have yet to develop a cadre of professional management accountant who could better took after the management accounting processes in large-sized public companies.
3. Scope for Subjectivity: Though management Accounting attempts to replace intuition by objectivity and scientific reasoning yet it is not possible to do away with subjectively as the decision-makers utilize non-quantitative information’s which provide a lots of scope for subjectivity in decision-making. This limitation can be overcome if the management uses personal judgment with great care and tries to remain as objective as possible.
4. Management Indifference: Sometimes the indifference of management limits the use of management accounting. Many managers do not like that there exists any formal system of accounting to guide them in decision-making. Resistance and non-cooperation of labour also hinder the application of standard labour costing technique on the pretax of their exploitation.
5. Costly Affair: Management Accounting is costly affair as its installation requires heavy investment in physical facilities and trained man-power. It is quite unsuitable for a Small Scale business enterprise.
6. Imperfect Tool: Management Accounting is a growing subject. Its tools and technique are not fool proof. Two different management accountants while treating a similar problem may draw different conclusion from the same set of figures. For example, the technique of accounting rations provides an indication towards a particular situation but it does not give precise answer to the problem.
7. No Substitute for Management: Management Accounting is a means to an end; the end being the efficient business operations for achievements of business objectives. It cannot replace management as it is simply a tool in the hands of management and the ultimate success in business depends upon the will and dedication of management.
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