In the past years, financial accounting emphasised on presenting financial statements information to parties outside an organization, e.g. lenders, who used the information to make future investment decisions. This means that financial accounting denied internal managers the information they needed to make appropriate decisions. This has forced many organizations to have an internal accounting system which provides information the managers need to value inventory, control operations and measure product costs.
Objectives of internal accounting systems
Information from internal accounting system is critical in guiding firms to achieve their both short and long term goals and objectives. Short term objectives include preparation of monthly budgets for each department and completing daily accounting tasks like tracking incomes, purchases and preparation of employees’ payroll. Long-term objectives of an internal accounting system include preparing and presenting annual financial reports which are useful in making improved financial decisions for the company. Internal accounting system also acts as a control tool for employees especially in regard to internal theft and fraud.
Characteristics of Internal Accounting System
Internal accounting information is future oriented as it helps organization to look forward and predict the future, the information is also presented in timely manner; this helps organizations in budgeting and control purposes. Internal accounting information measures how well an employee uses resources and how well they execute the goals of the organization. In addition, the information is critical in helping an organization attain both short and long term accounting objectives and goals (Miegs, Williams, Haka & Bettner, 2003).
Importance of Internal Accounting Information
Information prepared by internal accounting systems serves the following purposes: it is a means to the end, i.e. the information is useful in helping the management in achieving both short term and long term goals of an organization. The information is also useful in evaluating and rewarding decision making performance. Another key role of internal accounting information is measuring the efficiency of employees (i.e. maximizing output for the level of input of each resource utilized) and effectiveness (i.e. how well are organizational objectives achieved). The information can also be used as control tool for employees.
Ethics in business and the managing accountant’s role
Ethics simply refers to the rules of conduct recognized in respect to a particular class of human actions or a particular group. Business ethics is the behaviour that a business adheres to in its daily dealings with the world. Doing ethical business is key concern for any organization; otherwise, the organization can find itself in a comprising situation whenever they break the law governing business operations (Miegs, Williams, Haka & Bettner, 2003).
Managerial accountants are viewed as business partners in managing the firm’s activities; they are responsible for directing operations and formulating organizational strategies. They are supposed to carry out these activities in the right manner as they uphold moral values and principles. In regard to this, managerial accountants’ performance should be based not only on financial terms but also other non-financial performance measures (Hilton, 2008).
A managerial accountant should uphold business ethics at all times so as to protect the image of an organization. Ethical business should cut across all the levels of management and business processes right from procurement to marketing (Miegs, Williams, Haka & Bettner, 2003). An organization that engages in ethical business tends to increase its competitive advantage in the market.
Hilton, R. (2008). Managerial Accounting.7th ed. New York: McGraw-Hill/Irwin.
Miegs, F., Williams, J., Haka, S., & Bettner, S. (2003). Financial Accounting. 11th ed. New York: McGraw-Hill/Irwin.