Management reports - to assist with understanding strategy and its delivery
Why have detailed internal management reports?
What is the purpose of management reports? As a minimum, affirmation of where you are is always helpful. A 'good' director or manager should know what they are doing. This is a rather blunt and simplistic statement but, as was indicated in Chapter 3, it is important to grasp the point that if you have to wait for the figures before you understand what is going on, it may be too late, or at least too late to ask for the detailed figures which may identify the root causes of straying from your chosen strategy.
Financial accounting is focused on the production of true and fair, accurate and fairly presented annual accounts for an entire entity. Financial accounting requires the historic recording of every transaction. Although financial accounting depends on the detail of every transaction and knowledge of what has happened since the balance sheet date, or what has a high probability of happening that may well affect measurement of the balance sheet and income statement figures, financial accounting is not about the future, forecasting or especially detail.
A significant part of management accounting time and effort is focused on the production and analysis of, and commentary on, detailed historic figures; the specific reports and models that can assist with tracking and thus controlling delivery of a strategy.
The need for management accounts and supporting detailed analysis is well established and obvious; for example, a restaurant business needs to track sales, margins on food and liquor, staff costs in relation to sales on a daily, if not hourly basis. Why such detail, why such precision with analysis? With the mounds of data to be mined, analytics is a commonly used term today, but in fact the word has been around since the 1600s. Capturing and storing data as in the restaurant example is relatively inexpensive, essential for day-to-day control and, properly analysed, can assist, for example, with focusing advertising and promotions on quiet periods and in having appropriate shift patterns. Thus internal, detailed management reports are essential in tracking the delivery of strategy, but this is only part of what accountants call 'management accounting'.