Question

Question 01: Management accounting is not as important or useful in nonprofit organizations such as hospitals and government as it is in private business firms, since these organizations do not strive to make profits. Critically evaluate this statement. [Max. Marks = 20]

Answer 1

Management accounting refers to a function of tracking internal cost for any business process that helps an organization, firm or an individual in making decisions related to production, operation and investment in market.

The role of management accountant include collecting, recording and reporting financial data from several units of an organization, observe and analyze their budget and suggest their funding and allocation. This includes estimation of cost of raw material, labor, manufacturing, sales and advertising, social media networking, lobbying and company’s internal operation cost. A management accountant need to coordinate with all concerned departments to make an overall analysis of company’s functioning capital and availability of funds and then he or she has to report all the information to senior management and board of directors.

Non profit organizations are those organizations that do not produce or sell tangible goods. Many nonprofit organizations such as hospitals, educationalinstitutions, government agencies and departments are also considered service organizations. Technically speaking, all organizations require the assistance of management accountants, whether profit making or not (Herzlinger, 2002). The prime focus of this paper is to examine the role of management accounting in non-profit making organizations, using University of Ilorin, Ilorin as a case study.Herzlinger (2002) argues that non-profit and government organizations require the assistance of management accountants even more than the business organizations.

For quite sometime, management accountants have not been accorded the necessary position and are often seen as largely missing in action when it comes to non-profit making organizations (Herzlinger, 2002). This problem contributes to lack of accountability information needed to enable them plan and evaluate their activities. It is on this note that the role performed by management accounting in non-profit making organizations is deemed worthy of investigation and this study has selected University of Ilorin as a case study. The following specific objectives were pursued:

1) Evaluation of the perceptions of the accounting professionals in the Bursary Department of the University of Ilorin on the term “non-profit making organization”.

2) Critically examination of the need for managerial accounting information in non-profit making organizations for planning and controlling their activities.

A non-profit organization is an organization whose goal is something other than earning profit for its owners. Usually, its goal is to provide services”From the above definition, it can be summarized that in non-profit making organizations, decisions made by management are intended to result in provision of the best possible services with the available resources; and success is measured primarily by how much services the organizations provide and how well these services are rendered.

Omoregie (2000) observes the challenges facing management accountants in non-profit making organizations to include establishing the organizational objectives and goals, acquiring the resources needed to attain these goals and objectives setting of performance benchmarks, allocating the available resources among different activities so that objectives are achieved. The aforementioned challenges indicate that a management accountant role in the management process covers the interactive functions of planning, organizing/directing,controlling and decision making. These are as enunciated according to Herzlinger (2000) as follows;

- Management accountants aid managers in planning by providing reports which estimate the effects of alternative courses of action on an organization’s ability to achieve desired goal.

- Management accountants help in organizing and directing functions by providing reports which allow them to adjust daily operations for changing conditions. Allow them to adjust daily operations for changing conditions.

- Management accountants also assist in controlling operations by providing performance report of variances between expected and actual operating results.

- Management accountants make available the basic information which the management needs in selecting among alternative course of action

Conclusion and Recommendations

The study concludes that management accounting functions can be seen as value-adding participation in organizational process of strategy formulation,control and change. Management accountants have important tasks to perform in non profit organizations particularly in the areas of participation in resource related direction setting, support of organizational change processes, contribution to the design, implementation and review of performance measurement and control systems as well as contribution to the development of performance-based, user focused information systems.The management accounting role is being challenged by experts/professionals from other disciplines such as systems analysts,operational researchers, managerial economists, information technologists, etc.To be able to cope with these challenges, management accountants in non-profit making organizations must be more conversant with sufficient skills and knowledge of range of other disciplines to ease provision of the relevant accounting information at the right time.As part of the strategies for sustainable development in non-profit making organizations, management accounting role must satisfy

The following conditions in order to cope with the dynamic socio-economic environment:-

a) The need for provision of information that is non-financial in nature,particularly in human factors.

b) Judicious utilization of forecast

c) The need to be more conservative in cost allocation

d) The need to increase the frequency of reports to reflect the changes in the environment