Controlling or Management Accounting?


Have you come across the terms management or managerial accounting and controlling in practice? Have you thought about how different these terms are? Let us see what management accounting is and how it is related to controlling.

 

What is Management Accounting?

Management accounting amounts to a system of information. It provides information for making decisions on a company. It includes and uses all components of the business information system. It is based on accounting. However, it also uses methods of costing, budgeting, statistics and econometric approaches. The subject matter of management accounting consists not only in costs, but also in revenues and, ideally, cash flows. Internal management of a company is traditionally focused on economization. Management accounting must serve even for control of efficiency.

 
Which Tasks Are Provided through Management Accounting?

Although management accounting is far from being related to costs only, it is beyond dispute that information on a cost structure is tied to efficiency control. Management accounting monitors costs both in nature of expense classification and as to the purpose of their spending. Function of the expense classification is, on the contrary, primarily focused on internal utilization within a company as it gives an answer to the question what purpose the expense was spent on.

Management accounting also indicates a lot about performance of the company. The fundamental utilization of management accounting product orientation consists in costing and pricing. Frequently the responsibility aspect of management accounting, which plays a substantial role in decentralization of responsibility and powers, is very important to the company. This is mainly the information on overhead costs by incurrence. An important field is the master budget and/or capital budgets, both in relation to internal budgets and financial accounting or financial analysis.  The overhead cost budget plays a unique role both in internal management and in estimate costing. The budget of centre cost and benefits is not limited only to the overhead cost, but it also deals with all cost and benefits accrued in the respective department or which the department is responsible for.

 
To Use or Not to Use Management Accounting, That Is the Question

The financial accounting is focused on external users. Financial statements are standardized, and they are based on statutory requirements. Much more information for management is needed in the company; frequently, in a different structure or in a more or less detailed form. Each company, based on its structure and specialization, delimits requirements for management accountancy by themselves. There is no general template. However, what is necessary while considering management accounting is summarized in the following principle:

Costs on information acquisition must be lower than effects they provide.

It is a common practice that the more complex and less favourable the situation of the company (or its department) is, the more information is required from management accounting. If management accounting is effective as required thus depends on specific conditions of the company. Do you wish to know what costs, margins and profits from your products or services are? Product line accounting can help you. Are you interested how much the specific department contributes to company results? You can find the answers through responsibility accounting.

 
And How about Controlling?

Management accounting is thus “controlling-oriented cost-benefit accounting”. If we are able to delimit requirements of management and thanks to that if we can purpose-orient the company information system, then we can logically deal with coordination of all functions of this system. We need such a system which can depict the business process and provide information on the actual and desired courses of business activities. Since the established designation of the specialist coordinating the system is a controller, the way of business process controlling using the accountancy system which takes controlling requirements into account is called controlling.