CS Executive What are the limitations of Managerial Accounting and Notes
In this article, I am going to share some notes on the limitation of Management Accounting from a CS course for CS preparation is explained below:
Limitation of Management Accounting – What are the limitations of Managerial Accounting
- Based on accounting information: Management accounting is based on data and information provided by financial accounting and cost accounting. As such correctness and effectiveness of managerial decision will depend upon the quality of data provided by cost and financial accounts.
- Lack of knowledge: The use of management accounting requires the knowledge of a number of related subjects like accounting principles, statistical, economics, etc. But it has been observed that the person who is taking the decisions may not have comprehensive knowledge of all such subjects.
- Proper management action: A management accountant may provide information and figures in the most appropriate form to the management. It is the management and the people in the organisation who are to use the figure by understanding their language and act accordingly. The same set of figures, if not acted upon by the management, becomes useless or if misunderstood by the management, may lead to unwise actions.
- Intuitive Decisions: Though it has been realized that scientific decisions must be taken into consideration for the quantitative techniques yet because of simplicity and personal factors, the management has a tendency to persistence intuitive decision-making.
- Lack of Continuity and Coordination: In order to make the conclusions drawn by management accountant meaningful, they must be implemented in the organisation at various levels. But in actual practice, they lose their significance because it is not feasible to implement such conclusions.
- No Substitute of Administration: The techniques and tools suggested by the management accountant are not alternatives or substitutes of good administration, but in fact, these are only to supplement the sound management and administration.
- Lack of Objectivity: There is every possibility of personal bias and manipulation from the collection of data to the interpretation stage in financial accounting. Thus, it loses objectivity and validity.
- Unquantifiable Variables: There are various problems in business which cannot be expressed in monetary terms. Such problems cannot be interpreted for the future.
- Not in Final Stage: Management accounting has not reached the final stage and is in the process of development.
- Psychological Resistance: For the introduction and operation of management accounting system in any organisation, it requires a lot of changes in the organisation structure, rules and regulations. These changes are resisted by the management itself as it creates difficulties in its successful operations.
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