Describe the Limitations of management accounting:
1. Based on accounting information: the correctness and effectiveness of managerial decisions will depend upon the quality of data on which these decisions are based. If financial data is not reliable then management accounting will not provide correct analysis.
2. Lack of knowledge: the use of management accounting requires the knowledge of a number of related subjects. Management should be conversant with accounting principles statics economic principles of management etc and only then management accounting can be effectively utilized.
3. Intuitive decisions: though management accounting provides scientific analysis of various situations and enables decisions taking based on facts figures there is a tendency to make decisions intuitively. Management avoid may a lengthy course of deciding things and make take an easy course of arriving at decisions using intuition. Intuitive decisions limit the usefulness of management accounting.
4. Not an alternative to administration: management accounting does not provide an alternative to administration. The tools and technique of management accounting provide only information and not decisions. Decisions are to be taken by the management and their implementation is also done by management.
5. Top heavy structure: the installation of a management accounting system needs an elaborate organizational system. A large number of rules and regulations are also required to make this system workable and effective. Introduction of management accounting system is a costly affair and can be used by big concerns only. Smaller units cannot afford to use this system because of heavy cost.
6. Evolutionary stage: management accounting is only in a developmental stage it has not yet reached a final stage. The techniques and tools used by this system give verifying and differing results. The conclusions taken form analysis and interpretations are not the same. It will take some time before management accounting takes a final shape.
7. Personal bias: the interpretation of financial information depends upon the capability of interpreter as one has to make a personnel management. There is every likelihood of personal bias in analysis and interpretation. Personnel prejudices and bias affect the objectivity of decisions.
8. Psychological resistance: the installation of management accounting involves basic change in organizational setup. New rules and regulations are also required to be framed which affect a number of personnel and hence there is a possibility of résistance from some quarters or the other.