Blog Details

Top Trends in Management Accounting

April 30, 2021 | Navin Mishra

Management accounting is a branch of accounting that is concerned with the future, stresses on cause and effect relationship and provides results that are highly sensitive to management needs. It is a realm that helps the management make informed decisions for its strategic goals.

Use of Software like Futrli and Fathom

As a business owner, one would like to know how one’s business is performing on chosen Key Performance Indicators (KPI’s). Futrli and Fathom are two Financial Reporting Software packages which are in the accounting package add-on space. An accounting firm’s client base will determine which add-on is most suitable. If the objective is to provide customised budgeting and planning, Futrli is a great way for accounting firms to provide this service given that it is a cloud-based business forecasting and reporting solution which offers KPI Dashboards, 3-way forecasting, auto alerts, and more. If the objective is to provide streamlined management reporting, Fathom will provide solutions that will transform the accounting data into management reports and deeper insights.

Use of Tableau and Power BI 

The age of Big Data is upon us. Combining financial with non- financial data sources brings insights that have never been seen before. So where you feel restricted by the rigid reporting capabilities of Futrli or Fathom and where you would like to use all the data sources that SME’s use, you can rely on Tableau and Power BI. Tableau is a market favorite business intelligence software that has mobile-friendly dashboards with the ability to integrate infinite amounts of data points in the analysis. Power BI is an extension of Microsoft Excel that has an open-sourced visualisation building software and hence can provide data in forms of storyboarding, toggles, bookmarks, etc.). It has predictive analytics, machine learning, and automation of processes. One key element of Power BI is that one has to build templates from scratch basis what one is looking for in the data.

Data Visualization

Data visualization explains complex things using simple and engaging stories and by selecting the important things business owners/ decisions makers should be informed about. Management accounting like any other domain uses Data Visualization to create a visual tool to help people understand complex data, discover patterns, identify trends, and ultimately drive a point home. Example: Management wants monthly expense reports that compare spending data across categories- travel, office supplies, etc. While just looking at the numbers might just give an indication, a bar chart will visualize the data, uncover highs and lows at a glance.

Using Financial Dashboards to ensure transparency as a business strategy has become commonplace. Businesses can demonstrate areas of success and opportunities for improvement. Furthermore, one can present multiple views so that the stakeholders involved can connect to the data without tuning out.

Going beyond Finance and Accounting numbers- Operational Analytics 

Before analysing any data, one needs to determine the type of data to be used and the source of the same. Data trends provide powerful insights to identify problem areas and hence allow one to use corrective measures in time. Data analytics can help businesses improve operational efficiency, drive revenue, and gain a competitive advantage. It can also help them identify opportunities to streamline operations and maximise profit. Harnessing the power of data has many benefits. It helps to improve operational standards and processes. Operational Analytics leads to increased profits, Competitive advantage, improved decision making, and improved employee engagement.

Use of Drop-Downs, Options to visualise data in several ways

Businesses look for the presentation of data in a way that is easily understandable helping the business to pull out relevant insights for decision making. This leads to the graphical presentation of data values by understanding the relationship between data sets. The knowledge of when to use which type of graphs and charts turns an enormous amount of data into its simplest form. To determine which option should be used for visualising the data, it is important to know who the audience for the data is, which metric is being analysed and what questions you wish to be answered.

Some great ways to visualise data are by using Line Chart, Vertical and horizontal bar charts, Pie charts, Area charts, and Data Tables. Data tables can further be customised to quickly summarise, sort, group, and filter data by using drop-downs.

Comparatives

The core purpose of management accounting is to enable the stakeholders to make an informed decision whether these are financial decisions for investors/ management or operational decisions for improving operations and processes internally.

  1. Same time last year. A Horizontal Analysis approach compares the data usually financial statements and ratios for a certain period. Such an approach is used to analyse historical trends. In such a case the current year’s data or ratios are usually measured against a base year to determine an increase or decrease in a specific value. Some examples are Return on Equity, Inventory Turnover, or profit margin.
  1. Actual v/s Budget. Actual v/s Budget analysis is a key analysis that the business performs. The insights gathered from this analysis guide the business strategy and decision-making. The success of this analysis depends to a very large degree on the correctness of assumptions (used to determine the budgets). 

If the actual percentage of expenses such as payroll, marketing, R&D, etc. in comparison to the revenue budget is reduced, it means that the business is improving its efficiency. The actual v/s budget variance also highlights the appropriateness of spending and consistency of margins. 

Ratio Analysis based on Industry

Ratio analysis is the foundation of fundamental analysis, it helps to gain deeper insights into the financial health and the current and probable performance of the business. Ratios are classified into Liquidity ratios, Profitability ratios, Working Capital Ratios, Capital structure ratios, etc. Since the ratio is an expression of the relationship of two or more items in mathematical terms, ratios differ across industries because every industry has its own, separate, and distinct norms when analysing performance. The industry comparison approach is used for sector analysis, to determine which businesses within an industry are the most (and least) valuable. Businesses in the same industry tend to operate in a similar environment with similar fixed asset investments and similar capital structures, this makes the results of the ratio analysis comparable.