10 Major Limitations of Management Accounting

The following points highlight the ten major limitations of management accounting. The limitations are: 1. Based on Records 2. Lack of Knowledge and Understanding of the Related Subjects 3. Intuitive Decisions 4. Lack of Continuity and Coordination 5. No Substitute of Administration 6. Lack of Objectivity 7. Unquantifiable Variables 8. Costly 9. Not in Final Stage 10. Psychological Resistance.

Management Accounting: Limitation # 1.

Based on Records:

The management accountant takes into consideration the past records provided by the financial and cost accounting while making decisions for the future. The accuracy and utility of past records will limit the dependence of the management accountant for future decisions. If the past data is not reliable, the decisions suggested by management accountant may be misleading.

Management Accounting: Limitation # 2.

Lack of Knowledge and Understanding of the Related Subjects:

For taking a sound decision it is necessary that the management must have knowledge of various fields like accounting, statistics, economics, taxation, production, engineering and so on. But it has been observed that the person who is taking the decisions may not have comprehensive knowledge of all such subjects.

Management Accounting: Limitation # 3.

Intuitive Decisions:

Though it has been realized that scientific decisions must take into consideration the quantitative techniques yet because of simplicity and personal factors, the management has a tendency to persistence intuitive decision-making.

Management Accounting: Limitation # 4.

Lack of Continuity and Coordination:

In order to make the conclusions drawn by management accountant meaningful, they must be implemented in the organisation at various levels. But in actual practice they lose their significance because it is not feasible to implement such conclusions.

Management Accounting: Limitation # 5.

No Substitute of Administration:

The techniques and tools suggested by the management accountant are not alternatives or substitutes of good administration but in fact these are only to supplement the sound management and administration.

Management Accounting: Limitation # 6.

Lack of Objectivity:

There is every possibility of personal bias and manipulation from the collection of data to the interpretation stage in financial accounting. Thus, it losses objectivity and validity.

Management Accounting: Limitation # 7.

Unquantifiable Variables:

There are various problems in business which cannot be expressed in monetary terms. Such problems cannot be interpreted for the future.

Management Accounting: Limitation # 8.

Costly:

The installation of management accounting system in a concern requires large organisation and a wide network of rules and regulations and thus requires a heavy investment. Therefore, it cannot be utilized by a small organisation profitably.

Management Accounting: Limitation # 9.

Not in Final Stage:

Management accounting has not reached the final stage and is in the process of development. That is why its techniques suffer from fluidity of concepts, diversity in opinions and various interpretations.

Management Accounting: Limitation # 10.

Psychological Resistance:

For introduction and operation of management accounting system in any organisation, it requires a lot of changes in the organisation structure, rules and regulations. These changes are resisted by the management itself as it creates difficulties in its successful operations.