Management Accounting

Management accounting is the application of the principles of accounting

and financial management to create, protect, preserve and increase value
for the stakeholders.
It requires the identification, generation, presentation, interpretation and
use of relevant information to:

Inform strategic decisions and formulate business strategy

Plan long, medium and short-run operations
Determine capital structure and fund that structure
Design reward strategies for executives and shareholders
Inform operational decisions
Control operations and ensure the efficient use of resources
Measure and report financial and non-financial performance to
management and other stakeholders
Safeguard tangible and intangible assets
Implement corporate governance procedures, risk management and
internal controls

Management accounting started off as costing, with the emphasis being

placed on the determination of costs. The discipline has grown enormously
in importance and prominence since then. Management accountants are
involved in the management of the business at all levels from relatively
minor practices through to strategic planning. They ensure that plans and
strategies are carried out by looking backwards at past performance.
Management accounting is future oriented and proactive. It creates and
increases value. It also protects and preserves value that has already been
created.
Management accounting is equally vital in profit-driven commercial
organizations and in service oriented not-for-profit entities such as charities
and public sector bodies.

The management accountant does not simply inform managers and equip
them to make decisions. The management accountant is part of the
management team. Management accounting is just as important in longterm, strategic decision-making as in short-term tactical thinking.

Measuring performance
Performance measures can motivate managers and staff: The manner in
which measurement is reported can have a huge impact on the organisation
as a whole. This is partly because what gets measured gets managed. In
other words, managers and staff may be particularly motivated when they
know their performance is measured and reported.
Performance measures can be used to check for managers who indulge in
dysfunctional behaviour: A manager may be unintentionally encouraged to
act in a manner that is in his or her best interests against the interests of the
entity as a whole.

Measuring performance of profit and not-for-profit entities:

Profit entities: The success or failure of a commercial entity can be

summed up in its reported profit figure. Costs can be justified if they
are associated with revenues that enable the business to create
wealth.
There is no real equivalent to profit in a not-for-profit entity. The
whole reason for the entitys existence may be the provision of a
service that cannot be valued in any monetary sense.

The management accountant

Management accountants are involved with every aspect of running a
typical company.
The Context of Management Accounting - Page 1

The roles that Professional Accountants in Business perform include

implementing and maintaining operational and fiduciary controls, providing
analytical support for strategic planning and decision making, ensuring that
effective risk management processes are in place, and assisting
management in setting the tone for ethical practices.
Management accountants require considerable skill, both in terms of
technical excellence in management accounting techniques and also in
terms of personal skills. There is a danger that the managers and staff with
whom the accountant must interact will indulge in dysfunctional behaviour
if they do not receive the necessary motivation and encouragement. Badly
designed monitoring and appraisal systems can be dangerously counterproductive.

CIMA
CIMA is the world's largest and leading professional body of management
accountants. It has 183,000 members and students in 168 countries.
One implication of these inter-related responsibilities is that CIMA requires
its members to pass exams and obtain professional experience. That means
that anybody who holds the CIMA qualification should have the necessary
technical competence to discharge his or her responsibilities.
CIMA members are required to maintain their professional skills by engaging
in continuing professional development (CPD) and CIMA provides courses
that can be purchased and followed in a range of areas to maintain and
enhance competence.
CIMA exists to further the discipline of management accounting and to
pursue the interests of its members. As part of that, CIMA also exists to
protect the interests of those who rely on the integrity and competence of
management accountants by ensuring that its members are competent and
well disciplined.

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