Limitations of Management accounting

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Management accounting


Management accounting is concerned with the accounting information that is useful to management

Limitations of Management accounting

These are the following limitations of Management accounting :-

  • Based on Accounting information
  • Lack of Knowledge
  • Intuitive decision
  • Not an alternative to administration
  • Top heavy structure
  • Evalutionery stage
  • personal basis
  • Psychological resistance


(1) Based on Accounting Information : Management accounting is based on data supplied by financial and cost accounting. Historical data used to make future decision. The correctness and effectiveness of managerial decision will depend upon the quality of data on which these decisions are based.

(2) Lack of knowledge : The use of management accounting requires the knowledge of a number of related subjects. Management should be conversant with accounting principles, statistics,etc. and only the management can be effectively utilised. Deficiency in knowledge of any of these subjects limits the use of management accounting.

(3)  Intuitive decision : Though management accounting provide scientific analysis of various situation and enable decision taking based on facts and figures, there is a tendency to make decision intuitively. Management may avoid a lengthy course of deciding things and may take as easy course of arriving at decision using intuition. Intuitive decision limit the usefulness of management accounting.

(4) Not an alternative to administration : Management accounting does not provide an alternative to administration. The tool and techniques of management accounting provides only information and not decision. Decisions are to be taken by the management and their implementation is also done by management.

(5)  Top heavy structure : The installation of a management accounting system needs an elaborated Organisational system. A large number of rules and regulations are also require to make this system workable and effective. Introduction of management accounting system is costly affair and can be used by big concerns only. smaller units can not afford to use this system because of heavy cost.

(6)  Evalutionery stage : Management accounting is only a developmental stage, it has not yet reach a final stage. The techniques and tools uses by this system give varying and different results. The conclusion taken from analysis and interpretation  are not the same. It will take some time before management accounting take a final shape.

(7)  Personal basis : The interpretation of financial information depend upon the capability of interpreter as one has to make personal judgement. There is a very likely hood of personal bids in analysing and interpretation. Personal prejudices and bids affect the objectivity of decision.

(8) Psychological resistance : The installation of management accounting involves basic Change in organisational set up. New rule and regulations are also required to be framed which affect a number of personnel and hence there is a possibility of resistance from some quarters or the other. 

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