Management accounting is concerned with the provisions and use of accounting
information to managers within organizations, to provide them with the basis in making informed business decisions that would
allow them to be better equipped in their management and control functions. Unlike financial accountancy information (which, for public companies, is public information), management
accounting information is used within an organization (typically for decision-making) and is usually confidential and its access
available only to a select few.
Definition
According to the Chartered Institute of Management
Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis,
preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity
and to assure appropriate use of and accountability for its resources.
Management accounting also comprises the preparation of financial reports for non
management groups such as shareholders, creditors,
regulatory agencies and tax authorities" (CIMA Official Terminology)
The American Institute of Certified Public
Accountants(AICPA) states that management accounting practice extends to the following three areas:
*Strategic Management—Advancing the role of the management accountant as a strategic partner in the organization.
*Performance Management—Developing the practice of business decision-making and managing the performance of the
organization.
*Risk Management—Contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the
achievement of the objectives of the organization.
The Institute of Certified Management Accountants (ICMA),
state "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of
financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the
planning and control of the operation of the undertaking. Management Accountants therefore are seen as the "value-creators"
amongst the accountants. They are much more interested in forward looking and taking decisions that will affect the future of the
organization, than in the historical recording and compliance (scorekeeping) aspects of the profession. Management accounting
knowledge and experience can therefore be obtained from varied fields and functions within an organization, such as information
management, treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc."
Acounts managers also are responsible for personal decorating and local tour guide
Aims
- Formulating strategies;
- Planning and constructing business activities;
- Helps in making decision;
- Optimal use of resources;
- Supporting financial reports preparation; and
- Safeguarding assets.
Traditional vs. innovative management accounting practices
In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that management accounting
practices (and, even more so, the curriculum taught to accounting students) had changed little over the preceding 60 years,
despite radical changes in the business environment. Professional accounting institutes, perhaps fearing that management
accountants would increasingly be seen as superfluous in business organizations, subsequently devoted considerable resources to
the development of a more innovative skills set for management accountants.
The distinction between ‘traditional’ and ‘innovative’ management accounting practices can be illustrated by reference to cost
control techniques. Traditionally, management accountants’ principal technique was variance analysis, which is a systematic approach to the comparison of the actual and budgeted
costs of the raw materials and labor used during a production period.
While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction
with innovative techniques such as life cycle cost analysis and
activity-based costing, which are designed with specific aspects of the
modern business environment in mind. Lifecycle costing recognizes that managers’ ability to influence the cost of
manufacturing a product is at its greatest when the product is still at the design stage of its product lifecycle (i.e., before
the design has been finalised and production commenced), since small changes to the product design may lead to significant
savings in the cost of manufacturing the product. Activity-based costing (ABC) recognizes that, in modern factories, most
manufacturing costs are determined by the amount of ‘activities’ (e.g., the number of production runs per month, and the amount
of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these
activities. Activity-based accounting is also known as Cause and Effect accounting.
Both lifecycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive
events (such as machine breakdowns and quality control failures) is of far greater importance than (for example) reducing the
costs of raw materials. Activity-based costing also deemphasizes direct labor as a cost driver and concentrates instead on
activities that drive costs, such as the provision of a service or the production of a product component.
Development of throughput accounting
The most significant recent direction in managerial accounting is throughput
accounting, which recognises the interdependencies of modern production processes and provide managers with a tool that
will allow them to measure the contribution per unit of constrained resource for any given product, customer or supplier. (For a
detailed description of Throughput Accounting, see cost accounting)
An alternative view of management accounting
A seldom expressed alternative view of management accounting is that it is neither a neutral or benign influence in
organizations, rather a mechanism for management control through surveillance. This view locates management accounting
specifically in the context of management control theory.
Lean accounting (accounting for lean)
In the mid to late 1990s several books were written about accounting in the lean enterprise (companies implementing elements
of the Toyota Production System). The term lean accounting was coined during that period. These books contest that traditional accounting methods
are better suited for mass production and do not support or measure good business practices in just in time manufacturing and
services. The movement reached a tipping point during the 2005 Lean Accounting Summit in Dearborn, MI. 320 individuals attended
and discussed the merits of a new approach to accounting in the lean enterprise. 520 individuals attended the 2nd annual
conference in 2006.
Related qualifications
- There are several related professional qualifications in the field of accountancy including:
- Management Accountancy Qualifications
-
- Other Professional Accountancy Qualifications
See also
External links
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