Various limitations of management account are as given in points:-
Limitations of Management Accounting
Dependent on cost and financial accounting
Management accounting uses information from cost and financial accounting for analysis or forecasting purposes. Effectiveness of decisions taken by management accountant is based on the genuineness of past financial records used.
Management accounting system requires huge expenditure to be incurred on the part of organizations. Companies need to make large investments for implementing this accounting system as it requires a wide network of rule and regulations to be followed.
Management Accounting is only a Tool
Management accounting cannot be treated as a substitute of good administration and management system. It is a tool of management which supplies all data to them for effective decision making. Management accounting does not provide any decision but supplies only the required information.
Lack of knowledge
In order to make good decisions, it is essential that managers should have knowledge of various fields like accounting, economics, taxation, statistics, production, engineering, etc. But it has been observed that a person who is taking a decision may not have a comprehensive knowledge of all such subjects.
Lack of objectivity
Another major drawback is that objectivity of management accounting decisions is influenced by personal bias and prejudices. There is a possibility of manipulation from collection of data till its interpretation in financial records. It influences the overall validity of management accounting.
Management accounting is till now at its developing stage. The tools and methods used by this accounting system provide varying results. Also, this branch does not have any defined rules and regulations to be followed.
Effect of time element
All the information used by the management accountant is all from the past. The current conditions may be different from past conditions. Old information may lead to the failure of the organization or put the organization in danger.