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July 12, 2009
Management Accounting | Managerial AccountingIn today’s economy, it is more important than ever to utilize the expertise of Management Accountants (also called cost, managerial, industrial, corporate, or private accountants) for the survival of both small and large companies. Management decisions must be cost effective, for the “bottom line” is the ultimate goal for survival. What is Management Accounting?
In order to properly maintain and grow a profitable business, companies strongly rely on Management Accountants who work closely with the company’s management. Managerial Accounting focuses primarily on internal financial reports of past performance which become the basis for short- and long-term decision making. The accounting procedures are more flexible than those regulated for financial accounting. Preparation of the data and reports is the focus of managerial accounting, which consists mainly of four broad functions: budgeting, performance evaluation, cost management, and asset management. With operating costs, taxes, and cost of living continually to increase, management may find itself in a situation where cuts may need to be made to maintain quality while earning a reasonable profit. It is the responsibility of the Management Accounting department to find which business activities were least profitable and then make a recommendation whether or not to continue with the business activities, or estimate future revenues in order to aid present day decision-making. Professional Standards for Management AccountantsManagement Accountants are expected to uphold the highest standards of ethical conduct including competence, confidentiality, integrity, objectivity, and resolution of ethical conflicts. The Institute of Management Accountants confers the Certified Management Accountant (CMA) designation upon applicants who complete a bachelor’s degree or who attain a minimum score or higher on specified graduate school entrance exams. Applicants must have worked at least 2 years in management accounting, pass a four-part examination, agree to meet continuing education requirements, and comply with standards of professional conduct. The exam covers areas such as financial statement analysis, working-capital policy, capital structure, valuation issues, and risk management. Confidentiality and Type of InformationManagement Accounting is the branch of Accounting that deals primarily with confidential financial reports for the exclusive use of top management within an organization. These reports are prepared utilizing scientific and statistical methods to arrive at certain monetary values which are then used for decision making. Such reports may include:
Management accountants based their reports on historical values, while employing statistical methods to arrive at future values. The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization’s goals. This is also known as “cost accounting.” Management Accounting is used primarily by those WITHIN a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be “future looking” and have forecasting value to those within the company.
Accounting concepts that managers need to understand in order to make successful, informed decisions. Managerial Accounting focuses attention on decision making through incremental analysis and performance measurement. Ability to accumulate, classify, measure, analyze, interpret and report cost and other financial information useful to internal and external decision makers reviewing the execution of an organization’s program or project resources to ensure they are effectively being used to meet objectives. Financial accounting is used primarily by those OUTSIDE of a company or organization. Financial reports are usually created for a set period of time, such as a fiscal year or period. Financial reports are historically factual and have predictive value to those who wish to make financial decisions or investments in a company. Managerial (Management) AccountingProcess of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information that is used by management to plan, evaluate, and control within an organization. It is the accounting used for the planning, control, and decision-making activities of an organization. Managerial accounting is concerned with providing information to internal managers who are charged with directing, planning, and controlling operations and making a variety of management decisions. Managerial accounting can be contrasted with Financial Accounting which is concerned with providing information,via financial statements, to stockholders, creditors, and others outside the organization. More specifically, the differences between financial and managerial accounting are summarized here:
Management accounting is managers oriented therefore its study must be preceded by some understanding of what managers do, the information managers need, and the general business environment. Accordingly we shall briefly examine these subjects. Need for Managerial Accounting Information: Every organization-large and small-has managers. Someone must be responsible for making plans, organizing resources, directing personnel, and controlling operations. Every where mangers carry out three major activities-planning, directing and motivating, and controlling. Continue Reading. History of Managerial Accounting: Managerial accounting has its roots in the industrial revolution of the 19th century. During this early period, most firms were tightly controlled by a few owner-managers who borrowed based on personal relationships and their personal assets. Since there were no external shareholders and little unsecured debt, there was little need for elaborate financial reports. Continue Reading. Competence:Practitioners of management accounting and financial management have a responsibility to:
Confidentiality:Practitioners of management accounting and financial management have a responsibility to:
Integrity:Practitioners of management accounting and financial management have a responsibility to:
Objectivity:Practitioners of management accounting and financial management have a responsibility to:
Resolution of Ethical Conflicts:In applying the standards of ethical conduct, practitioners of management accounting and financial management may encounter problems in identifying unethical behavior or in resolving an ethical conflict. When faced with significant ethical issues practitioners of management accounting and financial management should follow the established policies of the organization bearing on the resolution of such conflict. If these policies do not resolve the ethical conflict, such practitioner should consider the following course of action.
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