In order for businesses to be financially secure, they rely on hundreds of decisions and generally accepted accounting principles (GAAP) each day. Their financial matters must be handled by qualified individuals with knowledge and widened focus to make the right recommendations and decisions. Managerial accounting essentially determines the financial status of a business along with its success and helps handle a variety of tasks that are crucial in driving a business’s strategy and overall management. One of leading functions includes the establishment of essential data and information for developing, plans and forecasts of business operations. This allows for establishment of business processes and allocation of time, resources and finances. Such analyses provide the internal decision-making processes with information on the financial position and performance of a firm. Outcomes of such financial analyses may lead final decision makers to adjust enterprise’s operations and investment plans accordingly. Shroff (2017) indicates that all negative cumulative effects noted from analysis of financial statements often lead managers to revise down net present value (NPV). He further shows that results from financial analysis help internal decision making determine projects that shall result in greatest profits. This way, managerial accounting help internal decision with industry trends to react to them early enough and remain ahead of their competitors.
Customer Analytics for Internal Decision-Making and Control
The allocation of decision making does not have to completely lie at the top tier of the organization. Bonacchi and Perego (2019) suggest conducting a Customer Lifetime Value analysis, which tells internal decision-making process how well the firm resonates with the customers, it can indicate how much of structural alignment, incentives, and decision-rights allocation is needed in the firm to minimize coordinating costs and boost efficiency. (Brandau et al., 2017) supports this position by suggesting that a CLV enables businesses to develop and sustain a culture of customer centricity. In doing so, firms are able to boost decision making abilities of employees which ultimately enhance performance. According to the authors, issues that are noted in headquarters of transnational companies are often traced to their subsidiaries spread across the globe. In cases where this is not evident, the authors show that companies internalize imputed costs such as cost of material at present value or depreciation without considering whether there is economic justification or not. Such roles are performed by managerial accountants because they can evaluate the implications of certain actions and provide a consolidated position for a firm to take. In all this better aligns the determination of contractual costs, coordinating costs, and strategic investment decisions.
Separation – integration – and now?
Managerial accounting aids in the identification of business opportunities in the market for a firm to capitalize upon. Bonacchi and Perego (2019) show managerial accounting to be meaningful when business centered operations are analyzed. It is instrumental in developing target audiences for products and services. The initiative helps identify the right demographic to target and guides the business to invest its resources, additional time and acquire capital necessary to increase market reach and profitability. However, other research (Brandau et al., 2017) confirms that it is important to integrate managerial accounting with financial accounting. The necessity is brought about by the need to look at broader view of particular attributes of interest such as the cost of pension and reward systems and financial performance of a firm. This is why most annual budgets are reviewed with front line leaders and the division or corporate financial officer depending on the size of the firm.
Further Research
In review, managerial accounting serves to align a business to its short-term and long-term goals. These evaluations provide internal management with a direction in terms of whether the business needs to invest or not. Further research should be given to the role of financial accounting changes as they relate to managerial manipulation and how the collective effect of these changes responds to their adoption. In regards to customer relationships and managerial accounting there should be more research in non-subscription-based models where the interface between the customer and firm are not as well defined. While others (Brandau et al., 2017) a benefit to the use of integrated accounting systems in managerial accounting, it would be productive to research the significances of these types of systems in management of the general ledger.
References
Bonacchi, M., & Perego, P. (2019). Customer Analytics for Internal Decision-Making and
Control. In Customer Accounting (pp.37-65). Springer.
Brandau, M., Endenich, C., Luther, R., & Trapp, R. (2017). Separation – integration –
and now …? A historical perspective on the relationship between german management accounting and financial accounting. Accounting History, 22(1), 67-91.
Shroff, N. (2017). Corporate investment and changes in GAAP. Review of
Accounting Studies, 22(1), 1-63.
Vetter, A. (2020, April 13). A call for honest leadership. Retrieved July 18, 2020, from
https://www.journalofaccountancy.com/newsletters/2020/apr/radical-candor-transparent-leadership.html.
