Management accounting or managerial 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.

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

 designed and intended for use by managers within the organization, whereas financial
accounting information is designed for use by shareholders and creditors.
 usually confidential and used by management, instead of publicly reported;
 forward-looking, instead of historical;
 computed by reference to the needs of managers, often using management information
systems, instead of by reference to financial accounting standards.

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

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 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 (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.

[edit] Traditional vs. innovative 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.

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. Life-cycle 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 life-cycle (i.e., before the design has been finalized and production commenced), since
small changes to the product design may lead to significant savings in the cost of manufacturing
the products. 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.

[edit] Role within a 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 for managing the business team and at the
same time having to report 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. 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.

In corporations that derive much of their profits from the information economy, such as banks,
publishing houses, telecommunications companies and defence contractors, IT costs are a
significant source of uncontrollable spending, which in size is often the greatest corporate cost
after total compensation costs and property related costs. A function of management accounting
in such organizations is to work closely with the IT department to provide IT Cost Transparency.
[1]

[edit] An alternative view

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. Stated differently, Management Accounting information is the
mechanism which can be used by managers as a vehicle for the overview of the whole internal
structure of the organization to facilitate their control functions within an organization.

[edit] Specific concepts

[edit] Grenzplankostenrechnung (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[2] or
Flexible Analytic Cost Planning and Accounting.[3]

The origins of GPK are credited to Hans Georg Plaut, an automotive engineer and Wolfgang
Kilger, an academic, working towards the mutual goal of identifying and delivering a sustained
methodology designed to correct and enhance cost accounting information. GPK is published in
cost accounting textbooks, notably Flexible Plankostenrechnung und
Deckungsbeitragsrechnung[4] and taught at German-speaking universities today.
[edit] 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 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.

[edit] Resource consumption accounting (RCA)

Resource Consumption Accounting is formally defined as a dynamic, fully integrated, principle-

based, and comprehensive management accounting approach that provides managers with
decision support information for enterprise optimization. RCA emerged as a management
accounting approach around 2000 and was subsequently developed at CAM-I the Consortium for
Advanced Manufacturing–International, in a Cost Management Section RCA interest group in
December 2001. After spending the next seven years carefully refining and validating the
approach through practical case studies and other research, a group of interested academics and
practitioners established the RCA Institute to introduce RCA to the marketplace and raise the
standard of management accounting knowledge by encouraging disciplined practices.

[edit] Throughput accounting

Further information: Cost accounting

The most significant, recent direction in managerial accounting is throughput accounting; which
recognizes the interdependencies of modern production processes. For any given product,
customer or supplier, it is a tool to measure the contribution per unit of constrained resource.

[edit] 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. 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 to 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.

[edit] Resources and continuous learning

There are a variety of ways to keep current and continue to build one's knowledge base in the
field of management accounting. Certified Management Accountants (CMAs) 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 "Fortune 500" companies who have the resources to fund this
type of training medium.

There are also numerous journals, on-line articles and blogs available. Cost Management and the
Institute of Management Accounting(IMA) site are sources which includes Management
Accounting Quarterly and Strategic Finance publications. Indeed, management accounting is
needed in an organization.

[edit] Management accounting tasks/ services 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.

 Variance Analysis
 Rate & Volume Analysis
 Business Metrics Development
 Price Modeling
 Product Profitability
 Geographic vs. Industry or Client Segment Reporting
 Sales Management Scorecards
 Cost Analysis
 Cost Benefit Analysis
 Cost-Volume-Profit Analysis
 Life cycle cost analysis
 Client Profitability Analysis
 IT Cost Transparency
 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

[edit] Related qualifications

There are several related professional qualifications and certifications in the field of accountancy
including:

 Management Accountancy Qualifications

o CIMA
o ICWAI
o ICMA
o CMA

 Other Professional Accountancy Qualifications

o Chartered Certified Accountant, (ACCA)
o Chartered Accountant, (CA)
o International Accountant, (AIA)
o Certified Public Accountant, (CPA)
 American Institute of Certified Public Accountants
o Certified Practicing Accountant (CPA Australia)

[edit] Methods
 Activity-based costing
 Grenzplankostenrechnung (GPK)
 Lean accounting
 Resource Consumption Accounting
 Standard costing
 Throughput accounting
 Transfer pricing