Management accounting or managerial accounting gives accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
In contrast to financial accountancy information, management accounting information is:
- primarily forward-looking, instead of historical;
- computed by reference to the needs of managers, often using management information systems, instead of by reference to general financial accounting standards.
- designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators;
- model based with a degree of abstraction to support decision making generically, instead of case based;
- usually confidential and used by management, instead of publicly reported;
Definition
The Institute of Management Accountants (IMA) recently updated its definition as follows: "management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems,and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy".
The American Institute of Certified Public Accountants (AICPA) states that management accounting as 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), states "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 (score keeping) 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.
MAnagement Accounting Tasks / Service Provided
Listed below are the primary tasks/ services performed by management accountants. The degree of complexity relative to these activities are dependent on the experience level and abilities of any one individual.
- Client profitability analysis
- IT cost transparency
- Capital budgeting
- Buy vs. lease analysis
- Strategic planning
- Strategic management advice
- Internal financial presentation and communication
- Sales forecasting
- Financial forecasting
- Annual budgeting
- Cost allocation
- Rate and volume analysis
- Business metrics development
- Price modeling
- Product profitability
- Geographic vs. Industry
- Sales management scorecards
- Cost analysis
- Cost–benefit analysis
- Cost-volume-profit analysis
- Life cycle cost analysis
