Economics for accountants, Managerial Economics

Economics for Accountants

A few teachers and some students have questioned the rationale for including economics in a course of study for professional accountants. In order to appreciate the need for the knowledge of economics by accountants it is necessary to know something of the accountant's role. It might be necessary to provide a brief survey of accountancy before going to the value of economics to the accountant.

(i)         Accountancy

In general terms accounting consists of procedures for recording, classifying and interpreting

selected experiences of an enterprise to promote effective administration. More specially, the accounting function can and often is broken down into specializations, a common distinction being made between management accounting and financial accounting. Briefly put, the role of the management accountant is to provide management with the best possible information upon which decisions can be based and enable both effective use of an organisations resources. The older specialization of cost accounting is perhaps best considered as part of management accounting which establishes budgets, standard costs and actual costs of operation and processes.

Financial accounting by contrast is concerned with the analysis, classification and recording of financial transactions in order to illustrate the effects on the performance and financial position of an undertaking. Both aspects of the accounting function must be executed if the organisation is to have adequate information for its management to formulate policy and to plan and control operations.

(ii)        The role of economic knowledge

In no type of organisation can the accountant operate in isolation, however. He/she must have a working knowledge of many other areas, which impinge on the business or undertaking. The most relevant fields of knowledge are considered to be law, management, statistics, behavioural studies, information technology and economics.

The accountant is not expected to be an expert in these subject areas but to have sufficient knowledge to relate intelligently with specialists in such areas and to know enough to appreciate when and where to go for this specialist knowledge.

As part of the management team or advisor to that team, the accountant needs to appreciate the opportunities and constrains which the economic environment offers or impose on the organisation. This is true whether the organisation is in the private or public sector. All organisations must use the scarce resources available to them in an effective and efficient manner if the members of the organisations and the society generally are to gain maximum benefit.  Given that allocation of resources is a central concern of economics, the relevance of economics for the accountant follows.

The accountant as a key provider of financial information for planning, control and decision making purposes will be better equipped to provide relevant information if he/she is aware of the organisational objectives, and the environmental constrains within which those objective are pursued.

As a final word one can also say that accountants need economics to understand analyse and solve economic problems of the organisation and society in general.

Posted Date: 11/27/2012 4:48:57 AM | Location : United States

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