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Management Accounting, Explained

By Yann, published on 02/10/2018 We Love Prof - AU > Academia > Accounting > What is Management Accounting?

To our knowledge, nobody pops popcorn and settles in for an exciting film about accountants’ feats of derring-do. Mainly because such films do not exist.

That fact heralds a bald truth: there is nothing glamorous about accounting.

Accountants are more of the behind-the-scenes type; they labour so that the frontperson, namely the business owner and/or executives, may shine.

Yet, accountants’ work is absolutely vital to the functioning of the economy; indeed, were it not for accountants, we’d have no idea of how much money and assets the economy consists of!

Of course, such recording and reporting is the job of financial accountants – a type of accounting management that is far more visible, if only for the financial information they provide.

Today, your Superprof is not concerned with the more commonly known CPA or public accountant, or even the downright sexy-sounding forensic accounting but with an altogether different accounting speciality: the managerial accountant.

That term does not describe an accountant at management level!

Also called management accountants, these number-crunchers have a specific function within any business or organisation.

We are now on our way to explore and discover exactly what such a job/position/title entails besides bookkeeping, auditing and financial statement analysis.

What Do Management Accountants Do?

Don't count on wild excitement as a managerial accountant Accounting in general is not known for its excitement and glamour Source: Pixabay Credit: Ivanovgood

Managerial accountants may also be called cost accountants, industrial accountants, private accountants or corporate accountants.

Regardless of the title assigned to the position, they all fulfil the same function within a company: they apply accounting concepts to prepare financial data for use within the company.

This contrasts with financial accounting, which entails preparing reports for external publication, such as stock reports for shareholders and corporate financial reports.

Management accountants are budgeters, planners, strategists and risk managers.

That may sound a bit multi-faceted and, to be sure, more than one person does this job in larger corporations.

In fact, you would be more likely to be assigned project work and even earn promotions as a managerial accountant than for any other type of accountant!

To make the many aspects of this job clear, let us paint a scenario where each quality would be called on to bring the business success.

Firm XYZ has found a measure of success in selling salon spa products locally and they are looking to branch out nationally; perhaps even globally!

The managerial accounting team would first look at the viability of the idea: how much money would be needed to make this move? Does the company have the money to branch out?

Are there enough assets and inventory to keep the company solvent until the new location starts turning a profit?

The accounting manager would then implement strategic thinking: where should the new shop be located? How much to spend on advertising?

What types of incentives could be used to attract customers in the new region and how much would they cost?

On budgeting: no matter how much the company bosses want to make the jump into new markets, it would be up to the managerial accounting team to tell them whether said jump would be advisable, or if they should hold off until the company has a more stable financial outlook.

To that end, they would surely prepare financial statements, as well as a proposed budget with the objective of bringing the plan to fruition as soon as possible.

They would make their recommendations based on the company’s current financial profile and its projected earnings.

Conversely, based on accounting information, if the move should prove viable they would then be responsible for budgeting every aspect of it, from renting commercial property and buying the store’s racks to advertising and the new employees’ wages.

If you are an undergraduate aspiring to a career in accounting, these scenarios might fill you with dread…

Has any management accountant ever steered their company wrong? Advocated for prudence rather than unchecked forward momentum? What about jumping in with both feet when they should have better considered the risks?

Both scenarios happen all of the time. That is why those who labour in finance and accounting are considered risk takers.

As an accountant, would you be comfortable advising your company on such risks? You don’t necessarily have to be.

More so than other types of accountants, management accountants work in teams, often with a distinct hierarchy.

For example, you may well work on the company expansion team, but only be assigned a portion of the project; perhaps budgeting for advertising or the employees’ payroll, and prepare a financial report for your superior to audit.

Of course, not every company accountant’s workday is so dramatic.

It could well be that you would be tasked, on any given work day, to analyse your firm’s financial performance in order to increase profits or help it run more efficiently.

No need to fret over taking risks: your accounting job is likely to be mostly mundane Your average workday as a managerial accountant is more likely to be about cost accounting than strategic management Source: Pixabay Credit: CPAStrick

The Average Workday of a Managerial Accountant

Basic accounting tasks fulfilled by cost accountants include recording expenses and tracking income, and assessing tax liabilities.

These data are then routinely compiled into reports, called income statements, balance sheets or cash flow statements.

Those would go to your boss, who would analyse them to make forecasts of the company’s financial health, propose budget changes, and make performance plans.

All of this information then goes to company executives, who are thus better informed to make decisions that impact the company’s profitability.

A management accountant identifies opportunities for improvement within the company: cutting waste and streamlining production are two ways they can accomplish that.

They are also responsible for keeping various departments on or even under budget and, if current trends indicate potential budget overruns, it is incumbent upon them to approach operational management with their findings.

Needed Knowledge and Skills

If you, like a majority of people, zone out when talk of economics, finance and accounting systems crop up, obviously this career field is not for you.

However, if you have knowledge of hard accounting skills and an aptitude for numbers, this could be the job for you!

Management accountants need a solid grounding in basic accounting and a thorough knowledge of the generally accepted accounting principles, or GAAP.

In our country, accountants need to know UK GAAP inside and out.

You will also need to know about basic tax principles, and how they apply to your municipality.

Beyond that, having knowledge of accounting practices and discounted cash flow would be very beneficial to your employer, and to your accountant skills set.

If that were all it took to be a good accountant, any computer could do it!

Because accountants work within a business environment, knowing how to communicate and having public speaking and interpersonal skills is essential.

Furthermore, knowing how to present financial material in such a way that it underscores the value of your findings – not just on the bottom line, is vital.

Generally speaking, executives are not necessarily detail-oriented people; they mostly crave the big picture. But, as you well know, how can one truly appreciate the big picture without being privy to the details?

Thus we conclude that persuasion goes hand in hand with presentation skills, and they are of equal importance to the management accountant.

having interpersonal skills is vital to being a management accountant In the managerial accountant profession, people should be adept at presentation and public speaking Source: Pixabay Credit: Graphic Mama Team

Finally, you may be well-versed in general business practices but you must further endow yourself with the inner workings of the business you’re keeping the books for.

If you’ve only ever tallied accounts for a local or national company, obviously those experiences do not compare with management accounting for a multi-national company!

Not even the accounting principles would be the same. Accountants for global companies are held to the International Financial Reporting Standards.

And, if you are an accountant with a firm that manufactures, you must be well-versed in production standards and processes.

All told, that is quite a bit to put on one plate but, as with every career path, the more you learn, the more you’re capable of – and the better all of that looks on your CV!

Are you currently taking accounting courses? Are you working toward your degree in accounting, maybe even your MBA?

What accounting theory are you most eager to put into practice? What about putting your analytical skills to work?

If you intend to go into business as a certified management accountant, it would probably be a very good idea to register with the Institute of Management Accountants.

Membership with them will bring you a host of benefits, continuing education in finance and accounting among them.

By the way, there are a few good films out there that feature accountants; you may have even seen a couple of them:

  • The Untouchables – this title is the closest an accountant might come to derring-do

  • Schindler’s List: a certified public accountant shows courage under fire

  • Shallow Grave, a story of a chartered accountant who leaves his ethics behind

  • The Royal Tenenbaums: who knew Danny Glover could be so soft-spoken?

  • Stranger than Fiction: one of Will Ferrell’s few serious roles

Please note that these films only feature accountants; accountancy is not the main storyline in any of these titles.

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