Management accounting

Management accounting is concerned with the provisions and use of 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. Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business Cash conversion cycle or CCC is the time duration in which a firm is able to convert its resources into cash Return on invested capital (ROIC is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business In Corporate finance, Economic Value Added or EVA® is an estimate of true economic profit after making corrective adjustments to GAAP accounting including Just-in-time ( JIT) is an inventory strategy implemented to improve the Return on investment of a Business by reducing in-process Inventory and Economic order quantity is that level of inventory that minimizes the total of inventory holding cost and ordering cost Discounts and allowances are reductions to a basic Price of goods or services Factoring is a word often misused synonymously with accounts receivable financing. Capital budgeting (or investment appraisal is the planning process used to determine whether a firm's long term Investments such as new machinery replacement machinery new Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Managerial finance is the branch of finance that concerns itself with the managerial significance of finance techniques Financial accountancy (or financial accounting) is the field of Accountancy concerned with the preparation of Financial statements for decision makers In Financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances A business plan is a formal statement of a set of business goals the reasons why they are believed attainable and the plan for reaching those goals A corporate action is an event initiated by a Public company that affects the securities ( Equity or Debt) issued by the company The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers,

In contrast to financial accountancy information, management accounting information is:

usually confidential and used by management, instead of publicly reported;
forward-looking, instead of historical;
pragmatically computed using extensive management information systems and internal controls, instead of complying with accounting standards. Financial accountancy (or financial accounting) is the field of Accountancy concerned with the preparation of Financial statements for decision makers Management Information System ( MIS) is a subset of the overall Internal controls of a business covering the application of people documents technologies and procedures

This is because of the different emphasis: management accounting information is used within an organization, typically for decision-making.

1 Definition
2 Aims
3 Traditional vs. innovative management accounting practices
4 Role of Management Accountants within the Corporation
- 4.1 An alternative view of management accounting
5 Specific Concepts
6 Resources and Continuous Learning
7 Management Accounting Tasks/ Services Provided
8 Related qualifications
9 See also
10 External links

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. The Chartered Institute of Management Accountants (CIMA is a UK based professional body offering training and qualification in management accountancy and related subjects focused In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services 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. Financial statements (or financial reports) are formal records of a business' financial A mutual shareholder or stockholder is an Individual or company (including a Corporation) that legally owns one or more shares of A creditor is a party (eg person organization company or government that has a claim to the services of a second party The American Institute of Certified Public Accountants (AICPA is the national professional association of CPAs in the United States, with more than 330000 members
*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. The Institute of Certified Management Accountants (ICMA is an Australian organisation focused on management accounting it differs from other Australian Accounting societies CPA 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. "

Aims

Formulating strategies;
Planning and constructing business activities;
Helps in making decision;-
Optimal use of resources;
Supporting financial reports preparation; and
Safeguarding asset

Traditional vs. A Strategy is a long term plan of action designed to achieve a particular goal, most often "winning In economic theory factors of production (or productive inputs) are the resources employed to produce goods and services Financial statements (or financial reports) are formal records of a business' financial In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. 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. Cost accounting is a central method in management accounting, and 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. In Management accounting, cost accounting is that part of management accounting which establishes budget and actual cost of operations processes departments or product and In Budgeting (or Management accounting in general a variance is the difference between a budgeted planned or standard amount and the actual amount incurred/sold

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. Activity-Based Costing (ABC is a costing model that identifies activities in an organization and assigns the cost of each activity resource to products and services according to the actual consumption 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.

Role of Management Accountants within the Corporation

Consistent with other roles in today's corporation, management accountants have a dual reporting relationship. As a strategic partner and provider of decision based financial and operational information, management accountants are responsible to the business management team while at the same time also have reporting relationships and responsibilities to the corporation's finance organization.

The activities management accountants provide inclusive of forecasting and planning, performing variance analysis, reviewing and monitoring costs inherent in the business are ones that have dual accountability to both finance and the business team. Examples of tasks where accountability may be more meaningful to the business management team vs. the corporate finance department are the development of new product costing, operations research, business driver metrics, sales management scorecarding, and client profitability analysis. Operations Research (OR in North America South Africa and Australia and Operational Research in Europe is an interdisciplinary branch of applied Mathematics and Conversely, the preparation of certain financial reports, reconciliations of the financial data to source systems, risk and regulatory reporting will be more useful to the corporate finance team as they are charged with aggregating certain financial information from all segments of the corporation. One widely held view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. Consistent with the notion of value creation, management accountants help drive the success of the business while strict financial accounting is more of a compliance and historical endeavor.

An alternative view of management accounting

A very rarely 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.

Specific Concepts

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. Throughput Accounting (TA is an alternative to Cost accounting proposed by Eliyahu M (For a detailed description of Throughput Accounting, see cost accounting). In Management accounting, cost accounting is that part of management accounting which establishes budget and actual cost of operations processes departments or product and

Lean accounting (accounting for lean enterprise)

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 Toyota Production System (TPS combines management philosophy and practices to form an integrated socio-technical system at Toyota. The term lean accounting was coined during that period. Lean accounting is Accounting for the lean enterprise It seeks to move from traditional cost accounting to a system that measures and motivates good business practices 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.

Transfer Pricing

Management accounting is an applied discipline used in various industries. The specific functions and principles followed can vary based on the industry. Management accounting principles in banking are specialized but do have some common fundamental concepts used whether the industry is manufacturing based or service oriented. For example, transfer pricing is a concept used in manufacturing but is also applied in banking. Transfer pricing refers to the Pricing of contributions (assets tangible and intangible services and funds transferred within an organization It is a fundamental principle used in assigning value and revenue attribution to the various business units. Essentially, transfer pricing in banking is the method of assigning the interest rate risk of the bank to the various funding sources and uses of the enterprise. Thus, the bank's corporate treasury department will assign funding charges to the business units for their use of the bank's resources when they make loans to clients. The treasury department will also assign funding credit or business units who bring in deposits (resources) to the bank. Although the funds transfer pricing process is primarily applicable to the loans and deposits of the various banking units, this proactive is applied to all assets and liabilities of the business segment. Once transfer pricing is applied and any other management accounting entries or adjustments are posted to the ledger (which are usually memo accounts and are not included in the legal entity results), the business units are able to produce segment financial results which are used by both internal and external users to evaluate performance.

Resources and Continuous Learning

There are a variety of ways to keep current and continue to build the knowledge base in the field of management accounting. Certified Management Accountants are required to achieve continuing education hours every year, similar to a Certified Public Accountant. A company may also have research and training materials available for use in a corporate owned library. This is more common in larger "Fortune 500" companies who have the resources to fund this type of training medium. There are also numerous publications and on-line articles and blogs available. The Institute of Management Accounting (IMA) site http://www.imanet.org/publications_maq.asp is one such source which includes the Management Accounting Quarterly publication.