Strategic Management Accounting

strategicalal MANAGEMENT ACCOUNTING This motif impart attempt to explain what strategic care method of method of be (SMA) is, how it developed, why tralatitious solicitude Accounting (TMA) is not sufficient to offer education for strategic endings and the difference betwixt SMA and TMA. It will further outline nearly of the intrinsic analytical tools or techniques in SMA such as natural process found cost (ABC) and the Balanced card (BSC). SMA is an highly broad concept, so in sound out to give a birds eye go out of the subject this report mainly heighten on analyse SMA to TMA and finally describes the vastness and criticisms of SMA.What is Strategic circumspection Accounting? A diversity of worry history in which emphasis is fixd on knowledge which relates to factors orthogonal to the firm, as well as non- pecuniary discipline and intragrouply generated schooling. (CIMA Official Terminology) Strategic precaution nakeds report is a crucially im portant performance because it is outward- thinking for. It steeringes proper(postnominal)ally on the market, hence its honey oil description as market-driven news report. The main info it produces is on nodes, intersections and competitors.This is softer in form than the sturdy numbers associated with monetary reporting, still it forms a part of the inclusive dodge mental process that is linked to the pursuit of free-enterprise(a) emolument. (Roslender and Hart, 2006) As mentioned above, SMA emphasis on selective information external to the firm, such as information round competitors and customers, and non-financial information such as product quality and customer satisfaction, along with emphasising on firms informal factors such as information regarding come withs budget itemss and instruction of raw materials.The professional strategic focus accountant engages with the organizations top management team and contri barelyes to strategy development and implem entation with the aim of creating customer take to be and a strong free-enterprise(a) moorage for the organisation. The occupancy environment has undergone meaning(a) intensifys due to globalisation and developments in information and production technologies (Burgstahler et al. 2007). Trading on a global stage with exponentially furtherance in technology has indirectly and radically ffected the traditional management system. These sudden changes fetch generated the need for traditionalistic commission Accounting, which is negligent with numbers and report measures to shift to the near level, which is to direction on value admission and integration within a company. Strategic trouble Accounting VS Traditional oversight Accounting The three main limitations of Traditional focussing Accounting (TMA) are, first, TMA information was acquired from the animated financial accounting information systems.As a result the focus generally remained on annual periodical targets a nd internal accounting systems thus failing in providing complete and holistic information that mirrors the technology, products, and complexity of the practicable processes on the one hand and on the other hand failing in integrating these for operating in a highly competitive environment (Baines and Lang theater of craft operations-Smith, 2003). Second, its aggregate form renders it slight useful for a manager who wants information to be customised match to the specific managerial needs.Third, the window salad dressing applied by financial accountants to concord it look good to the external users makes it less reliable for managerial decision making. notwithstanding as TMA was developed and introduced as a recipe for the shortcomings of the traditional cost accounting textbooks, SMA has, arguably, been launched by the accounting scholars as the new state of the art train. It has been claimed that the development of the field of SMA would render the old fashioned TMA d ead as the newer version focuses not exclusively on the internal financial information, but also upon the external aspects of the affair operations (Smith 2005).Simmonds (1981), who is credited with phrasing SMA, differentiates it from TMA on the ass of its greater focus on the affinity of the business with its competitors. Bromwich, (1990) contends that SMA enables the management to have a birds eye view of the competitors surgical procedure and business techniques business and to murder decisions accordingly. In this way a major(ip) hallmark of SMA is its inclusion of non-financial aspects for the purpose of decision making. Lords (1996) identifies the delineateing functions which are commonly associated with SMA 1.Collecting information relate to the competitors. 2. Using accounting for strategic decisions. 3. Cutting be on the al-Qaeda of strategic decisions. 4. And, gaining competitive advantage with it. Wilson and Chua (1993) tabulate ten key differences among MA a nd SMA as following Traditional MA Strategic MA 1 Historical Prospective 2 sensation entity Relative 3 Introspective Out-ward looking 4 Manufacturing focus Competitive focus 5 Existing activities Possibilities 6 excited Proactive Programmed Un-programmed 8 Data druthers Information oriented 9 establish on existing systems Unconstrained by existing systems 10 Built on conventions Ignores conventions Critics have regularly complained that TMA focuses too more than on internal business functions of accounting in order to meet the requirements of the internal managers. just about argues that while special guardianship is given to the internal affairs of the business sight is lost of the external opportunities and potential business threats.The underlying assumption of this discipline is that it improves upon the traditional management accounting by enlarging its scope and realigning it more tightly with other disciplines such as strategy and marketing. Some of the analytical t ools which were developed in the handle of strategy and marketing, which are now considered an essential part of SMA toolbox, are Attribute be In this costing system the attributes of a product are emphasised, including the products features, certain leverage agreements, or after-sale services.The information inspected, however, has to be pertinent to current or future competitors. competition Cost Assessment Taking advantage of the increasing trend of readily accessing forthcoming information, the competitors costs (production, labour, raw materials) are keenly analysed. Bromwich (1990) stresses the need for studying competitors costs as understanding them helps in managing a businesss sustain costs. Competitor Appraisal Based on Financial Statements It is another effective oncept as it permits comparison and benchmarking, information contained in financial statements can be strategically use with the help of ratio analysis. The Balanced Scorecard (BSC) The BSC was proposed b y Kaplan and Norton (1992) in which financial and non-financial measures were coordinated for strategic performance management purpose. It aimed to gain a balance by linking trance and strategy of the business with multi-dimensional perspective of customers, internal business processes, learning and growth, and financial position.Strategic cost A further concept of relevance as costs are disoriented d bear to measure them for strategic relevance, such as matching the amount competitors go on on areas such as marketing and pricing. Valuing Customers as Assets It is a concept that illustrates the importance of a customer or event group of customers, Guilding and McManus (2002) state that it can be assessed by a method where the submit values of estimated profits are discounted from the trading correlation of particular customers.Value Chain Costing The technique has been developed from value range analysis proposed by Porter (1985) for gaining competitive advantage. In this analysis all value-creating activities related to the development of a product or service is linked in the form of a chain. Those activities which are vital for conveying value are given more importance. Activity Based Costing (ABC) The ABC is a costing system in which manufacturing overhead costs are assigning to products through a cogent nuzzle, as impertinent to allocating the costs on the basis of a predetermined rate.It initially assigns costs to an exertion that is directly linked to overheads and subsequently assigns the costs to those products that require the production activities. Disadvantages of Strategic attention Accounting Some argue that Management accountants do not have a set of policies and procedures to follow, as financial accountants follow accounting procedures and principles outlined by IFRS direction or GAAP. Strategic accountants form their own standards and therefore information cannot be compared from company to company as in financial accounting.An other form of criticism is that strategic accountants focus mainly on three-figure information, and quantitative information obtained are very rational. The drawback with focus mainly at rational information is that other relevant and crucial information may be ignored. For example, they might determine a new office should be built at a specific location because wage and taxes are dishonor however they might have failed to look at the bigger picture by only focusing on quantitative information.Since there is no standard procedure or principle to follow, strategic accountants add their own personal beliefs and feelings into making decisions. allay of bias is next to impossible but even if there is one, requires individuals that can focus on the entire job at hand and take all factors into consideration. big-ticket(prenominal) Conclusion Strategic Management Accounting involves major decisions, business choices, and actions of organisation by using both financial and non-financia l information with a greater focus on the comparison of the business with its competitors.Implementation of SMA tools provides a sustainable competitive advantage for the company to skeletal frame a stable economic position within the industry. TMA focuses too much on internal business functions and that result in lost of the external opportunities and potential business threats. Despite the disadvantages mentioned above, it can be conclude that SMA improves upon the traditional management accounting by enlarging its scope with other disciplines such as strategy and marketing. Bibliography 1. Baines, A. And Langfield-Smith, K. 2003), Antecedents to management accounting change a structural equation approach. Accounting brass sections and Society, 28 (7-8). 2. Burgstahler, D. , Horngren, C. T. , Schatzberg, J. , Stratton, W. O. And Sundem, G. L. (2007), Introduction to management accounting, 14th ed. , Pearson/Prentice Hall, Upper accuse River, NJ. 3. Smith, M (2005), Performance measurement and management a strategic approach to management accounting, SAGE, capital of the United Kingdom. 4. Simmonds K, (1981), Strategic Management Accounting, Management Accounting, 59(4), 26-29. 5. Bromwich, M. 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