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Management accounting

Management accounting is concerned with the provisions

and use ofaccounting 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.
http://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Accounting


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contrast to financial accountancy information,management accounting information is:

usually confidential and used by management, instead ofpublicly reported;

forward-looking, instead of historical;

pragmatically computed using extensive managementinformation systems and internal controls, instead ofcomplying with accounting standards.

This is because of the different emphasis: management

accounting information is used within an organization,typically for decision-making.
http://en.wikipedia.org/wiki/Financial_accountancyhttp://en.wikipedia.org/wiki/Management_information_systemhttp://en.wikipedia.org/wiki/Management_information_systemhttp://en.wikipedia.org/wiki/Management_information_systemhttp://en.wikipedia.org/wiki/Management_information_systemhttp://en.wikipedia.org/wiki/Financial_accountancy


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Definition

According to the Chartered Institute of ManagementAccountants (CIMA), Management Accounting is "theprocess of identification, measurement, accumulation,analysis, preparation, interpretation and communication of

information used by management to plan, evaluate andcontrol within an entity and to assure appropriate use of andaccountability for its Resource (economics) resources.Management accounting also comprises the preparation offinancial reports for non-management groups such as

shareholders, creditors, regulatory agencies and taxauthorities" (CIMA Official Terminology).
http://en.wikipedia.org/wiki/Chartered_Institute_of_Management_Accountantshttp://en.wikipedia.org/wiki/Chartered_Institute_of_Management_Accountantshttp://en.wikipedia.org/wiki/Chartered_Institute_of_Management_Accountantshttp://en.wikipedia.org/wiki/Chartered_Institute_of_Management_Accountants


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The American Institute of Certified PublicAccountants (AICPA) states that managementaccounting as practice extends to the followingthree areas:

Strategic ManagementAdvancing the role of themanagement accountant as a strategic partner in theorganization.

Performance ManagementDeveloping the practice ofbusiness decision-making and managing the performance ofthe organization.

Risk ManagementContributing to frameworks and practicesfor identifying, measuring, managing and reporting risks tothe achievement of the objectives of the organization.


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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 orientedinformation 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 beobtained from varied fields and functions within an

organization, such as information management, treasury,

efficiency auditing, marketing, valuation, pricing, logistics,

etc.


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Aims

1. Formulating strategy|strategies

2. Planning and constructing business activities

3. Helps in making decision

4. Optimal use of Resource (economics)

5. Supporting financial reports preparation

6. Safeguarding asset


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Traditional vs. innovative management accountingpractices In the late 1980s, accounting practitioners and educators

were heavily criticized on the grounds that managementaccounting practices (and, even more so, the curriculumtaught to accounting students) had changed little over thepreceding 60 years, despite radical changes in the businessenvironment. Professional accounting institutes, perhapsfearing that management accountants would increasingly be

seen as superfluous in business organizations, subsequentlydevoted considerable resources to the development of a moreinnovative skills set for management accountants.

The distinction between traditional and innovativemanagement accounting practices can be illustrated byreference to cost control techniques. Cost accounting is a

central method in management accounting, and traditionally,management accountants principal technique was varianceanalysis, which is a systematic approach to the comparison ofthe actual and budgeted costs of the raw materials and laborused during a production period.
http://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Variance_analysis_%28accounting%29http://en.wikipedia.org/wiki/Variance_analysis_%28accounting%29http://en.wikipedia.org/wiki/Variance_analysis_%28accounting%29http://en.wikipedia.org/wiki/Variance_analysis_%28accounting%29http://en.wikipedia.org/wiki/Cost_accounting


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While some form of variance analysis is still used by mostmanufacturing firms, it nowadays tends to be used inconjunction with innovative techniques such as life cycle costanalysisand activity-based costing, which are designed withspecific aspects of the modern business environment in mind.Lifecycle costingrecognizes that managers ability toinfluence the cost of manufacturing a product is at its greatestwhen the product is still at the design stage of its productlifecycle (i.e., before the design has been finalised and

production commenced), since small changes to the productdesign may lead to significant savings in the cost ofmanufacturing the product. Activity-based costing(ABC)recognizes that, in modern factories, most manufacturingcosts are determined by the amount of activities (e.g., the

number of production runs per month, and the amount ofproduction equipment idle time) and that the key to effectivecost control is therefore optimizing the efficiency of theseactivities. Activity-based accounting is also known as Causeand Effect accounting.
http://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysis


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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.


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Role of Management Accountants within the Corporation

Consistent with other roles in today's corporation, managementaccountants have a dual reporting relationship. As a strategic partner

and provider of decision based financial and operational information,management accountants are responsible for managing the businessteam and at the same time having to report relationships andresponsibilities to the corporation's finance organization.

The activities management accountants provide inclusive offorecasting and planning, performing variance analysis, reviewing andmonitoring costs inherent in the business are ones that have dual

accountability to both finance and the business team. Examples oftasks where accountability may be more meaningful to the businessmanagement team vs. the corporate finance department are thedevelopment of new product costing, operations research, businessdriver metrics, sales management scorecarding, and client profitabilityanalysis. 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 teamas they are charged with aggregating certain financial information fromall segments of the corporation. One widely held view of theprogression of the accounting and finance career path is that financialaccounting is a stepping stone to management accounting. Consistentwith the notion of value creation, management accountants help drivethe success of the business while strict financial accounting is more of a

compliance and historical endeavor.
http://en.wikipedia.org/wiki/Operations_researchhttp://en.wikipedia.org/wiki/Operations_research


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An alternative view of management accounting

A very rarely expressed alternative view ofmanagement 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 inthe context of management control theory.


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Specific ConceptsGrenzplankostenrechnung (GPK)

Grenzplankostenrechnung (GPK) is a German costing

methodology, developed in the late 1940s and 1950s,

designed to provide a consistent and accurate application of

how managerial costs are calculated and assigned to a

product or service. The term Grenzplankostenrechnung,

often referred to as GPK, has best been translated as either

Marginal Planned Cost Accounting orFlexible Analytic CostPlanning and Accounting.
http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29


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The origins of GPK are credited to Hans

George Plaut, an automotive engineer and

Wolfgang Kilger, an academic, working towardsthe mutual goal of identifying and delivering a

sustained methodology designed to correct and

enhance cost accounting information. GPK is

published in cost accounting textbooks, notablyFlexible Plankostenrechnung undDeckungsbeitragsrechnung[3] and taught atGerman-speaking universities today.
http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Managerial_accountinghttp://en.wikipedia.org/wiki/Managerial_accountinghttp://en.wikipedia.org/wiki/Managerial_accountinghttp://en.wikipedia.org/wiki/Managerial_accountinghttp://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29


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Lean Accounting (accounting for leanenterprise)

In the mid to late 1990s several books werewritten about accounting in the lean enterprise(companies implementing elements of the ToyotaProduction System). The term lean accountingwas coined during that period. These bookscontest that traditional accounting methods arebetter suited for mass production and do notsupport or measure good business practices in

just in time manufacturing and services. Themovement reached a tipping point during the2005 Lean Accounting Summit in Dearborn, MI.320 individuals attended and discussed the meritsof a new approach to accounting in the lean

enterprise. 520 individuals attended the 2ndannual conference in 2006.
http://en.wikipedia.org/wiki/Toyota_Production_Systemhttp://en.wikipedia.org/wiki/Toyota_Production_Systemhttp://en.wikipedia.org/wiki/Lean_accountinghttp://en.wikipedia.org/wiki/Lean_accountinghttp://en.wikipedia.org/wiki/Lean_accountinghttp://en.wikipedia.org/wiki/Lean_accountinghttp://en.wikipedia.org/wiki/Toyota_Production_Systemhttp://en.wikipedia.org/wiki/Toyota_Production_Systemhttp://en.wikipedia.org/wiki/Toyota_Production_Systemhttp://en.wikipedia.org/wiki/Toyota_Production_Systemhttp://en.wikipedia.org/wiki/Toyota_Production_System


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Resource Consumption Accounting (RCA)

Resource Consumption Accounting is formally defined as adynamic, fully integrated, principle-based, and comprehensivemanagement accounting approach that provides managers withdecision support information for enterprise optimization. RCA

emerged as a management accounting approach around 2000and was subsequently developed at CAM-I the Consortium forAdvanced ManufacturingInternational, in a Cost ManagementSection RCA interest groupin December 2001. After spendingthe next seven years carefully refining and validating theapproach through practical case studies and other research, a

group of interested academics and practitioners established theRCA Institute to introduce RCA to the marketplace and raise thestandard of management accounting knowledge by encouragingdisciplined practices.
http://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://www.cam-i.org/http://www.cam-i.org/displaycommon.cfm?an=1&subarticlenbr=30http://www.cam-i.org/displaycommon.cfm?an=1&subarticlenbr=30http://www.cam-i.org/displaycommon.cfm?an=1&subarticlenbr=30http://www.rcainstitute.org/http://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://www.rcainstitute.org/http://www.cam-i.org/displaycommon.cfm?an=1&subarticlenbr=30http://www.cam-i.org/displaycommon.cfm?an=1&subarticlenbr=30http://www.cam-i.org/displaycommon.cfm?an=1&subarticlenbr=30http://www.cam-i.org/http://www.cam-i.org/http://www.cam-i.org/http://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://en.wikipedia.org/wiki/Resource_Consumption_Accounting


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Throughput Accounting

The most significant, recent direction in managerial accountingis throughput accounting; which recognizes theinterdependencies of modern production processes. For anygiven product, customer or supplier, it is a tool to measure

the contribution per unit of constrained resource . (For adetailed description of Throughput Accounting, see costaccounting).
http://en.wikipedia.org/wiki/Throughput_accountinghttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Cost_accountinghttp://en.wikipedia.org/wiki/Throughput_accounting


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Transfer Pricing

Management accounting is an applied discipline used in variousindustries. The specific functions and principles followed can vary based onthe industry. Management accounting principles in banking are specializedbut do have some common fundamental concepts used whether theindustry is manufacturing based or service oriented. For example, transferpricing is a concept used in manufacturing but is also applied in banking. Itis a fundamental principle used in assigning value and revenue attributionto the various business units. Essentially, transfer pricing in banking is themethod of assigning the interest rate risk of the bank to the various fundingsources and uses of the enterprise. Thus, the bank's corporate treasurydepartment will assign funding charges to the business units for their use ofthe bank's resources when they make loans to clients. The treasurydepartment will also assign funding credit to business units who bring in

deposits (resources) to the bank. Although the funds transfer pricingprocess is primarily applicable to the loans and deposits of the variousbanking units, this proactive is applied to all assets and liabilities of thebusiness segment. Once transfer pricing is applied and any othermanagement accounting entries or adjustments are posted to the ledger(which are usually memo accounts and are not included in the legal entityresults), the business units are able to produce segment financial results

which are used by both internal and external users to evaluateperformance.
http://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Transfer_pricing


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Resources and Continuous LearningThere are a variety of ways to keep current and continue

to build one's knowledge base in the field of managementaccounting. Certified Management Accountants (CMA's) arerequired to achieve continuing education hours every year,similar to a Certified Public Accountant. A company may alsohave research and training materials available for use in acorporate owned library. This is more common in "Fortune500" companies who have the resources to fund this type oftraining medium.

There are also numerous journals, on-line articles andblogs available. Cost Management and the Institute ofManagement Accounting (IMA) site are sources whichincludes Management Accounting Quarterly and StrategicFinance publications. Indeed, management accounting isneeded in an organization.
http://ria.thomson.com/eStore/detail.aspx?ID=ZMCMP&productInfo=Details&SITE=http://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://en.wikipedia.org/wiki/Management_Accounting_Quarterlyhttp://en.wikipedia.org/wiki/Management_Accounting_Quarterlyhttp://en.wikipedia.org/wiki/Management_Accounting_Quarterlyhttp://en.wikipedia.org/wiki/Management_Accounting_Quarterlyhttp://en.wikipedia.org/wiki/Management_Accounting_Quarterlyhttp://en.wikipedia.org/wiki/Management_Accounting_Quarterlyhttp://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://www.imanet.org/publications_maq.asphttp://ria.thomson.com/eStore/detail.aspx?ID=ZMCMP&productInfo=Details&SITE=http://ria.thomson.com/eStore/detail.aspx?ID=ZMCMP&productInfo=Details&SITE=http://ria.thomson.com/eStore/detail.aspx?ID=ZMCMP&productInfo=Details&SITE=


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Management Accounting Tasks/ ServicesProvided

Listed below are the primary tasks/ services

performed by management accountants. Thedegree of complexity relative to these activities aredependent on the experience level and abilities ofany one individual.

Variance Analysis

Rate & Volume Analysis

Business Metrics Development

Price Modeling Product Profitability

Geographic vs. Industry or Client SegmentReporting


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Sales Management Scorecards

Cost Analysis

Cost Benefit Analysis

Cost-Volume-Profit Analysis

Life cycle cost analysis

Client Profitability Analysis

Capital Budgeting

Buy vs. Lease Analysis

Strategic Planning

Strategic Management Advise

Internal Financial Presentation and Communication Sales and Financial Forecasting

Annual Budgeting

Cost Allocation

Resource Allocation and Utilization
http://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Cost_Allocationhttp://en.wikipedia.org/wiki/Cost_Allocationhttp://en.wikipedia.org/wiki/Cost_Allocationhttp://en.wikipedia.org/wiki/Cost_Allocationhttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Life_cycle_cost_analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysishttp://en.wikipedia.org/wiki/Cost-Volume-Profit_Analysis


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Related QualificationsThere are several related professional qualifications and certifications

in the field of accountancy including:

Management Accountancy Qualifications

o CIMA

o ICMA

o CMA

o Institute of Cost and Works Accountants of India

Other Professional Accountancy Qualifications

o Chartered Certified Accountant, (ACCA)

o Chartered Accountant, (CA)

o Certified Public Accountant, (CPA) American Institute of Certified Public Accountants

o Certified Practicing Accountant (CPA Australia)
http://en.wikipedia.org/wiki/Chartered_Institute_of_Management_Accountantshttp://en.wikipedia.org/wiki/Institute_of_Certified_Management_Accountantshttp://en.wikipedia.org/wiki/Certified_Management_Accountanthttp://en.wikipedia.org/w/index.php?title=Www.icwai.org&action=edit&redlink=1http://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/wiki/Association_of_Chartered_Certified_Accountantshttp://en.wikipedia.org/wiki/Chartered_Accountanthttp://en.wikipedia.org/wiki/Chartered_accountanthttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/CPAhttp://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountantshttp://en.wikipedia.org/wiki/CPA_Australiahttp://en.wikipedia.org/wiki/CPA_Australiahttp://en.wikipedia.org/wiki/American_Institute_of_Certified_Public_Accountantshttp://en.wikipedia.org/wiki/CPAhttp://en.wikipedia.org/wiki/Certified_Public_Accountanthttp://en.wikipedia.org/wiki/Chartered_accountanthttp://en.wikipedia.org/wiki/Chartered_Accountanthttp://en.wikipedia.org/wiki/Association_of_Chartered_Certified_Accountantshttp://en.wikipedia.org/wiki/Chartered_Certified_Accountanthttp://en.wikipedia.org/w/index.php?title=Www.icwai.org&action=edit&redlink=1http://en.wikipedia.org/wiki/Certified_Management_Accountanthttp://en.wikipedia.org/wiki/Institute_of_Certified_Management_Accountantshttp://en.wikipedia.org/wiki/Chartered_Institute_of_Management_Accountants


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Methods

Activity-based costing

Grenzplankostenrechnung (GPK)

Lean accounting

Resource Consumption Accounting Standard costing

Throughput accounting

Transfer pricing
http://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Lean_accountinghttp://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://en.wikipedia.org/wiki/Standard_costinghttp://en.wikipedia.org/wiki/Throughput_accountinghttp://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Transfer_pricinghttp://en.wikipedia.org/wiki/Throughput_accountinghttp://en.wikipedia.org/wiki/Standard_costinghttp://en.wikipedia.org/wiki/Resource_Consumption_Accountinghttp://en.wikipedia.org/wiki/Lean_accountinghttp://en.wikipedia.org/wiki/Grenzplankostenrechnung_%28GPK%29http://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Activity-based_costinghttp://en.wikipedia.org/wiki/Activity-based_costing

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