Limitations Of Management Accounting

Though management accounting is helpful tool to the management as it provides information for planning, controlling and decision making, still its effectiveness is limited by a number of reasons. Some of the limitations of management accounting are as follows:

1. Based On Accounting Information

Management accounting is based on data and information provided by financial accounting and cost accounting. As such the correctness and effectiveness of managerial decisions will depend upon the quality of data provided by cost and financial accounts. So, effectiveness of management account is limited to the reliability of sources of information.

2. Lack Of Knowledge

The use of management accounting requires the knowledge of number of related subjects. Deficiency in knowledge in related subjects like accounting principles, statistics, economics, principle of management etc. will limit the use of management accounting.

3. Intensive Decisions

Decision taking based on management accounting that provide scientific analysis of various situations will be time consuming one. As such management may avoid systematic procedures for taking decision and arrive at decision using intuitive. And intuitive limit the usefulness of management accounting.

4. Management Accounting Is Only A Tool

The tools and techniques of management accounting provide only information and not decisions. Decisions are to be taken by the management and implementation of decisions are also done by management.

5. Evolutionary Stage

Management accounting is still in a development stage and has not yet reached a final stage. The techniques and tools used by this system give varying and differing results. It is still named as internal accounting and/ or operational accounting.

6. Personal Prejudices And Bias

The interpretation of financial information may differ from person to person depending upon the capability of the interpreter. Analysis and interpretation of data and information may be influenced by personal basis. As such, the objectivity of decision may be affected by personal prejudices and bias.

7. Psychological Resistance

Changes in traditional accounting practices and organizational set up are required to install the management accounting system. It call for a rearrangement of the personnel and their activities and framing of new rules and regulations which generally may not be liked by the people involved.