Management Accounting

In management accounting or managerial accounting, managers use accounting information to make decisions and to assist in management and the execution of their control functions.


A simple definition of management accounting is the provision of information to managers for making financial and non-financial decisions. [2] In other words, management accounting helps directors make decisions within an organization. It can also be referred to as cost accounting. It is the way to isolate, examine, understand and provide data to supervisors to help them meet business goals. The information collected includes all fields of accounting that educate the administration about financial expenses and business functions identifying decisions made by the organization. Accountants use plans to measure the overall strategy of operations within an organization.

According to the Institute of Management Accountants (IMA): “Management Accounting is a profession that participates in management decision-making, prepares plans and performance management systems, and provides expertise in financial reporting and control to assist management in the creation and implementation of a organization strategy”.

Management accountants (also called managerial accountants) look at events in and around a business, considering the needs of the business. This gives rise to statistics and estimates. Cost accounting is the process of translating these estimates and data into knowledge that will ultimately be used to guide decision making. [4]

The Chartered Institute of Management Accountants (CIMA), the largest management accounting institution with over 100,000 members, describes accounting as “management consulting, analyzing information for business strategy and driving sustainable business success”.

Scope, Practice, and Application

The Association of International Certified Professional Accountants (AICPA) states that management accounting as a practice extends to the following three areas:

  • Strategic Management – Advancing the Management Accountant’s Role as a Strategic Partner in the Organization
  • Performance Management – Developing the practice of making business decisions and managing the performance of an organization
  • Risk Management – Contribute to the framework and practices for the identification, measurement, management and reporting of risks for the achievement of the organization’s objectives

The Institute of Certified Management Accountants (CMA) states, “Management accountants apply his or her professional knowledge and skills in the formulation and presentation of financial and other decision-oriented information in order to assist management in the formulation of policies and in The planning and control of operational undertakings”.

Management accountants are seen among accountants as “value-makers”. They are more concerned with making and moving forward decisions affecting the future of the organization than with the historical recording and compliance (score keeping) aspects of the profession. Management accounting knowledge and experience can be gained from a variety of areas and functions within the organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing and logistics. In 2014 CIMA created the Global Management Accounting Principles (GMAPs). [5] The results of research from 20 countries across five continents, the principles are intended to guide best practice in the discipline. [6]

Financial vs Management Accounting

Management accounting information differs from financial accounting information in several ways:

  • While shareholders, creditors and public regulators use publicly reported financial accounting information, only managers within the organization normally use confidential management accounting information.
  • While financial accounting information is historical, management accounting information is primarily forward -looking [7] [ Self-published source? ] ;
  • Whereas financial accounting information is case-based, management accounting information is model-based with a degree of abstraction to support general decision making;
  • While financial accounting information is calculated within the context of general financial accounting standards, management accounting information is calculated with reference to the needs of managers, often using management information systems .


  • Financial accounting focuses on the company as a whole.
  • Management accounting provides detailed and separate information about products, individual activities, divisions, plants, operations and functions.

Traditional vs. Innovative Practices

The differences between traditional and innovative accounting practices are illustrated with a visual timeline (see sidebar) of the managerial cost approach presented at the Institute of Management Accountants ‘ 2011 Annual Conference.

Traditional standard costing (TSC), used in cost accounting , dates back to the 1920s and is a central method in management accounting practiced today because it is used in income statement and balance sheet line items such as financial statement reporting to evaluate costs. is done for . Goods Sold (COGS) and Inventory Valuation. Traditional standard costing must follow generally accepted accounting principles (GAAP US) and aligns itself more with responding to financial accounting needs rather than actually providing solutions for management accountants. Traditional approaches limit themselves by defining cost behavior only in terms of production or sales volume.

In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that, despite radical changes in the business environment, management accounting practices (and even more so, the curriculum taught to accounting students) had changed little over the past 60 years. had changed. In 1993, Accounting Education Change Commission Statement No. 4 [9] calls on faculty members to expand their knowledge of the actual practice of accounting in the workplace. [10] Professional accounting institutions, perhaps fearing that management accountants would be seen as increasingly unnecessary in professional organizations, later devoted considerable resources to the development of a more innovative skill set for management accountants.

Variance analysis is a systematic approach to compare the actual and budgeted costs of raw materials and labor used during a production period. While some form of variance analysis is still used by most manufacturing firms, today it is used in conjunction with innovative techniques such as life cycle cost analysis and activity-based costing , which address specific aspects of the modern business environment. Designed with this in mind. , life-cycle costassumes that managers’ ability to influence the cost of manufacturing a product is at its greatest when the product is still in the design phase of its product life-cycle (i.e., design is finalized and production begins). before), since small changes in product design can result in significant savings in the cost of manufacturing the products.

Activity-based costing (ABC) assumes that, in modern factories, most manufacturing costs are determined by the amount of ‘activities’ (for example, the number of production runs per month, and the amount of time production equipment is idle) and That the key is therefore to optimize the efficiency of these activities for effective cost control. Lifecycle costing and activity-based costing both recognize that, in the typical modern factory, avoiding disruptive events (such as machine breakdowns and quality control failures) is much more important than (for example) reducing raw material costs. Activity-based costing also emphasizes direct labor as the cost driver and focuses on activities that drive costs, such as the provision of services or the production of a product component.

The other approach is the German Grenzplankostenreichung ( GPK ) cost method. Although it has been practiced in Europe for over 50 years, neither GPK nor proper treatment of ‘untapped potential’ is widely practiced in the US [11]

Another accounting practice available today is resource consumption accounting (RCA). RCA has been recognized by the International Federation of Accountants (IFAC) as a “sophisticated approach to the upper levels of the continuum of costing techniques” [12] This approach provides the ability to obtain or isolate and measure costs directly from operational resource data. does. unused capacity cost. RCA was obtained by taking the cost characteristics of the GPK and combining the use of activity-based drivers when needed, such as those used in activity-based costing. [12]

A modern approach to closing accounting is continuous accounting, which focuses on achieving a point-in-time close, where the accounting procedures usually performed at the end of the period are evenly distributed throughout the period.

Role within a corporation

As with other roles in modern corporations, 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 as well as reporting on the relationships and responsibilities of a corporation’s finances and an organization’s finances.

The activities management accountants provide, including forecasting and planning, performing variance analysis, reviewing and monitoring the costs involved in the business, has dual responsibility for both the finance and business team. Examples of tasks where accountability may be more meaningful to the business management team versus the corporate finance department are the development of new product costing, operations research , business driver metrics, sales management scorecarding and customer profitability analysis. ( See financial planning .) Conversely, preparing some financial reports, matching the source systems of financial data, risk and regulatory reporting would be more useful to the corporate finance team as they are charged with collecting certain financial information from all sectors. Is. the corporation.

In corporations that derive most of their benefits from the information economy , such as banks, publishing houses, telecommunications companies and defense contractors, IT costs are a significant source of uncontrollable spending, often the largest corporate in size after total compensation costs. There is a cost and a cost related to the asset. One of the functions of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency . [13]

Given the above, one view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. [14] Consistent with the concept of value creation, management accountants help drive business success while strict financial accounting exceeds compliance and historical effort.

Specific ways

Activity-Based Cost (ABC)

Activity-based costing was first introduced in 1987 by Robert S. Kaplan and W. Bruns in his book Accounting and Management: A Field Study Perspective. They initially focused on the manufacturing industry, where increasing technology and productivity improvements have reduced the relative proportion of direct costs of labor and materials, but increased the relative proportion of indirect costs. For example, increased automation has reduced labor, which is a direct cost, but increased depreciation, which is an indirect cost.


The Grenzplankostenreichung (GPK) is a German costing method, developed in the late 1940s and 1960s, designed to provide a consistent and accurate application of managerial costs to be calculated and assigned to a product or service. Was. The term Grenzplankostenreichung, often referred to simply as GPK, is best translated as either marginal planned cost accounting [15] or flexible analytical cost planning and accounting . [16]

The origins of the GPK are attributed to Hans Georg Platt, an automotive engineer, and Wolfgang Kilger, an academic, working towards the mutual goal of identifying and delivering a continuous methodology designed to correct and enhance cost accounting information. are doing. The GPK is published in cost accounting textbooks, notably the Flexible Plankostenrechung und Dekungsbeitragsrechung [17] and taught in German-speaking universities.

Lean Accounting (Accounting for a Lean Enterprise)

Several books about accounting were written at Lean Enterprise (companies implementing elements of the Toyota Production System) since the mid-1990s. The term lean accounting was created during that period. These books protest that traditional accounting methods are better suited for mass production and do not support or measure good business practices in manufacturing and services over a period of time. The movement reached a turning point during the 2005 Lean Accounting Summit in Dearborn, Michigan, United States. 320 individuals participated and discussed the benefits of a new approach to accounting in Lean Enterprises. In 2006, 520 individuals attended the second annual convention and since that time it has varied between 250 and 600 attendees.

Resource Consumption Accounting (RCA)

Resource Consumption Accounting (RCA) is formally defined as a dynamic, fully integrated, principles-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 later developed in December 2001 by CAM-I, [18] in the Consortium for Advanced Manufacturing-International, cost management section RCA Interest Group [19] .

Throughput accounting

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

Transfer pricing

Management accounting is an applied discipline used in various industries. The specific actions and principles to be followed may vary depending on the industry. Management accounting principles are specific in banking, but some common fundamental concepts are used, whether the industry is manufacturing-based or service-oriented. For example, transfer pricing is a concept used in manufacturing, but also applied in banking. It is a fundamental principle used in determining the value and revenue of various business units. Essentially, transfer pricing in banking is the method of assigning a bank’s interest rate exposure to the various funding sources and uses of the enterprise. Thus, The Bank’s Corporate Treasury Department will provide funding fees to business units for the use of the Bank’s resources when making loans to customers. The Treasury Department will also grant funding credits to business units that bring deposits (resources) to the bank. Although the fund transfer pricing process primarily applies to loans and deposits of various banking units, it applies to all assets and liabilities of the active business segment. Once the transfer price is applied and any other management accounting entries or adjustments are posted to the ledger (which are usually memorandum accounts and are not included in legal entity results), the business entities segment is required to generate financial results. which are used by both internal and external users to evaluate performance. This applies to all assets and liabilities of the active business segment. Once the transfer price is applied and any other management accounting entries or adjustments are posted to the ledger (which are usually memorandum accounts and are not included in legal entity results), the business entities segment is required to generate financial results. which are used by both internal and external users to evaluate performance. This applies to all assets and liabilities of the active business segment. Once the transfer price is applied and any other management accounting entries or adjustments are posted to the ledger (which are usually memorandum accounts and are not included in legal entity results), the business entities segment is required to generate financial results. which are used by both internal and external users to evaluate performance.

Resources and Continuous Learning

There are many ways to stay current in the field of management accounting and continue to build your knowledge base. Certified Management Accountants (CMAs) are required to earn continuing education hours each 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 that have the resources to fund this type of training medium.

Magazines, online articles and blogs are also available. The journal Cost Management ( ISSN 1092-8057) [20] and the Institute of Management Accounting (IMA) [21] sites are sources that include Management Accounting Quarterly and Strategic Finance publications.

Work and Services Provided

The primary functions/services performed by Management Accountants are listed below. The degree of relative complexity of these activities depends on the experience level and abilities of any one individual.

  • Rate and Quantity Analysis
  • business metrics development
  • value modeling
  • product profitability
  • Geographic vs. Industry or Customer Segment Reporting
  • sales management scorecard
  • cost analysis
  • cost benefit analysis
  • Cost-volume-benefit analysis
  • Life cycle cost analysis
  • customer profitability analysis
  • IT Cost Transparency
  • capital budgeting
  • Buy Vs Lease Analysis
  • strategic plan
  • strategic management advice
  • Internal Financial Presentation and Communication
  • Sales forecast
  • Financial forecast
  • annual budgeting
  • price planning

Relevant qualification

There are a number of related professional qualifications and certifications in the field of accountancy, including:

  • management accounting qualification
    • CIMA
    • ICMA
    • ICAI-CMA
    • ICMAP
    • CMA
  • Other Professional Accounting Qualifications
    • Chartered Institute of Public Finance and Accountancy, CIPFA
    • Chartered Certified Accountant (ACCA)
    • Cost and Management Accountant (CMA)
    • Chartered Accountant (CA)
    • Certified Public Accountant (CPA)
      • American Institute of Certified Public Accountants
    • Certified Practice Accountant (CPA Australia)
    • Chartered Global Management Accountant


  • Activity based costs
  • Grenzplankostenreichung (GPK)
  • lean accounting
  • resource consumption accounting
  • standard cost accounting
  • throughput accounting
  • transfer pricing
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