Management accounting is an important factor that helps organizations to map their future directions through providing managers with necessary information for the establishment of strategies that ensures all inputs, processes, and outputs are in line with the organizational goals. Through the information provided by management accounting, managers access information that is critical in formulating policy, making comparison between alternative situations, and evaluate and examine performance. While management accounting has similar roles across organizations, the accounting procedures and techniques tend o differ significantly in the private and public sector.
Management Accounting in the Public Sector:
Management accounting in the public sector is usually conducted by the government with the main aim of protecting public treasury through preventing and identifying corruption and graft. Therefore, this process is normally geared towards facilitating and promoting sound financial management and public accountability. In an efficiently managed process, management accounting involves planning and budgeting for financial management activities like collecting revenues and taxes, borrowing, paying bills, and repaying debts. Public accountability through this process is promoted through the accountability of the chief executive's bureaucracy, legislature, and government to the people.
In the public sector, information obtained from management accounting is also used for external communication to users interested in the direction and effectiveness of a governmental entity (Hoque & Adams, 2008). The recipients of this information can be classified into three categories i.e. providers of resources, recipients of products and services, and parties conducting a supervisory function. While resource providers include lenders, suppliers, and employees; recipients of products and services include taxpayers and ratepayers and oversight parties include parliament, labor unions, employer groups, analysts, and regulatory bodies.
In addition to accounting in the service of managers...
Generally, these initiatives can be considered as instruments of financial policy on revenue and expenditure to accomplish macroeconomic objectives. Consequently, management accounting in the public sector is not only an expression of public policy but it's also a demonstration of political preferences.
Management Accounting in the Private Sector:
Management accounting in the private sector is normally for the purpose of preparing accounting information to meet the needs of users who are internal to the organization or business. In most cases, this financial information is prepared frequently and likely to include non-financial information and forecasts of the organization's future. Since management accounting in the private sector is largely non-regulated, managers are at liberty to generate the kind of information they need. Consequently, managers use a format that they consider to be helpful to them based on the available technology and financial information.
Notably, profit-oriented financial managers in the private sector usually have some flexibility to accomplish what they need to do to maintain the bottom line during the process of management accounting. This flexibility basically originates from the fact that this process is not regulated in the private sector. Furthermore, the need to maintain the bottom line drives these managers into using such means when conducting management accounting. Due to the hierarchical structure of organizations in the private sector, financial management decisions and accounting are made at the top and passed down to the bottom of the company. In some cases, financial managers are not accountable to the employees at the bottom of the organization.
Public Sector vs. Private Sector Management Accounting:
As previously mentioned, the use or practice of management accounting in the public and private sector differs significantly. These differences in the process can largely be attributed to the variations that exist in…
