Top 10 Limitations or Disadvantages of Management Accounting [With PDF]
Like other branches of accounting, management accounting is not an exact science but an art that has evolved based on logic and common sense through theories and accounting procedures. Such behaviors are not static, but they develop.
These are commonly accepted management principles, but various industries interpret and implement them differently. Generally, large companies use management accounting.
Management accounting has many advantages by which the organization benefits a lot. Despite providing so many benefits, there are many limitations or disadvantages of management accounting.
What are the Top 10 Limitations or Disadvantages of Management Accounting?
The Top 10 limitations or disadvantages, or demerits of Management Accounting are as follows:
# Limitation-01:
Management Accounting takes decisions concerning past financial and cost accounting records.
The decision taken by management accounting may therefore be misleading because of the inaccuracy of the record.
# Limitation-02:
The management accounting methods and procedures of different organizations are not the same. Therefore, the same situation results in different ways.
# Limitation-03:
Management accounts have different results than financial reports. To verify the accuracy, it is often necessary to prepare reconciliation statements.
It increases unnecessary workload.
# Limitation-04:
Management has to know the accounting, finance, taxation, statistics, production, and economics and make decisions using modern management accounting tools or techniques.
But people who make decisions in many organizations have insufficient knowledge of all topics.
# Limitation-05:
Installing the advanced management accounting system requires changes in traditional accounting practices and organizational setup.
It calls for the rearrangement of managers and their operations and the development of new rules and regulations that the executives involved are generally not happy with these changes.
# Limitation-06:
Depending on the interpreter’s capacity, the interpretation of financial information collected from the system may differ from person to person.
The personal basis may be affected by the analysis and interpretation of the information. Consequently, personal prejudices and biases may influence the objectivity of the decision.
# Limitation-07:
The Management accounting system (MIS) installation costs are very high. Therefore, a small company cannot bear the costs of such a facility.
Besides, only more extensive and complex organizations have the utility of this system.
# Limitation-08:
Management Accounting is a new discipline of development. Its utility depends on the intelligent interpretation of the management data.
Therefore, Management accounting is supposed to be in the evolutionary stage.
# Limitation-09:
The management accounting scope is vast because it considers the business organization’s monetary and non-monetary transactions.
The management accountant’s limited knowledge and experience can make the data unreliable and unstable.
# Limitation-10:
To make the management accountant’s conclusions meaningful, It needs to implement at various organization levels.
In reality, however, they are losing their importance because all the organization’s people cannot implement such conclusions.
You can also read:
- What is management accounting? and its functions
- What are the objectives of Management Accounting?
- The Scope of Management Accounting
- The Techniques of Management Accounting
