Management accounting, in accordance with the Chartered Institute of Management Accountants (CIMA), is the procedure of recognizing, gauging, gathering, studying, researching, analyzing and communicating of information utilized by the management to plan, evaluate and control within body and to ensure proper use of and liability for its resources.
It also includes the preparation of financial reports for non-management groups such as tax authorities and regulatory agencies.
On the other hand, The American Institute of Certified Public Accountants (AICPA) says that management accounting, as a practice extends to three areas such as:
• Risk Management – contributes to practices and frameworks for determining, gauging, managing and reporting risks to the attainment of the objectives and goals of the organization.
• Performance Management – develops the practice of decision-making and managing the organization’s performance.
• Strategic Management – advances the function of the management accountant as a tactical partner in the organization.
An excellent management accounting process also helps in tackling the four major aspects of a business such as:
• Proper planning
• Directing
• Decision-making
• Controlling
The Objectives of Management Accounting
Management accounting has the following core objectives:
• To formulate effective strategies and techniques in reaching the company’s goals quickly but surely
• To plan and construct business activities to ensure the business’ sustained growth and profit
• To help the firm in making the right financial decision by making use of effective strategies
• To use resources optimally
• To support financial reports
• To safeguard asset
How Can Management Accounting Keep Your Business Afloat In Spite of the Recession and Competition?
It is said that the strength and sustainability of a business relies on management accounting. This is the reason why accountants who perform this job are paid higher than those who perform other accounting jobs. So, how can management accounting keep your business afloat in spite of the recession and competition? They are as follows:
• Management accounting provides factual information in relation to the actual and budgeted figures, therefore allowing the business owners and managers to take the right cost controlling measures
• It gives timely feedback in relation to present operational activities, thus helping in re-evaluating the operational decisions and having better control over the business’ activities.
• It also helps in gauging the performance of different departments and sub-units within a company or organization. This information can then be utilized to determine and reward the better performing employees and departments. For example, an employee might be the reason for the company’s higher sales figures. As a result, you may prefer to promote him to manage the other staff.
• Management accounting helps business owners or managers to fully analyze the organization. In this regard, management accounts can give useful information when looking at the plans of an organization and when performing any SWOT analysis. This type of analysis is designed to analyze the strengths, weaknesses, opportunities and threats that a business is faced with.
• Management accounting also determines the profitable and non-profitable services or products. For instance, this can greatly help the company in speeding up the process of discontinuing a product that is making a huge loss. In turn, this will lead to great financial savings.
Management Accountants – What Do They Do?
Management accountants have a twice working relationship. As a tactical partner and provider of a decision-based operation and financial information, management accountants are obliged to manage the team and report responsibilities and relationships to the finance organization of the corporation.
They also break down the outflow or cost into processes and functions to make the process of cost control smooth at every prepared level in the business. They also suggest smart alternatives in order to enhance the business’ productivity.
In management accounting, accountants also develop a high standard for all working areas in the business sector. They determine the areas of invisible losses, inefficiencies, leakages and wastages that the business has dealt with in the past few years.
Management accounting does not just cover financial records, but can be applied all over a company’s or organization’s activities to determine areas that require improvement. This is the reason why it is considered as a very crucial tool in helping a business achieve their goals and objectives.
According to experts, management accounting must not be seen as something that only large businesses should try.
Any business, no matter how large or small must prepare must prepare management accounting information, even though it is just written down or printed on a piece of paper.
Bear in mind that this is one of the most helpful tools for the success of your business. Without proper and excellent management accounting, your business will just be caught up in a snare the moment you least expect it. Thus, you need to entrust your business’ accounting needs only to qualified and knowledgeable management accountants.