Management Accounting

The main objective of management accounting is to provide management information which will help managers to optimize their decisions with a view to improving present performance and providing for longer-term profitable growth. Management accounting could therefore be described as the development and maintenance of a management information system.

In carrying out this task, management accountants are governed by two key principles:

1. Comparison. Either of: what has been achieved with what should have been achieved – this
   is a feedback process designed to point the way to corrective action and improved performance, not simply a stick with which to beat managers; or alternative courses of action with a view to deciding which, on balance, is the best in terms of cost/benefit, cost-effectiveness or return on investment – this is an evaluative process.
2. Relevance. Management accounting as a decision making tool must only be concerned with relevant data, ie information that will lead the manager to the best decision. When managers make decisions they are choosing between alternatives in order to predict which one has the best future. Historical costs only help to shape predictions, and the relevant data or costs are the expected future data that will differ among alternatives. Any item is irrelevant if it will remain the same regardless of the alternative selected.