Hello and welcome to Managerial Accounting.
Managerial Accounting differs in several ways from Financial Accounting. While the focus of Financial Accounting is to provide an external users with information about the company, Managerial Accounting focuses on internal users like business owners and managers. Managerial Accounting uses financial statements and other financial data to support management decision-making but does not have any standards and guidelines to follow when it comes to analyzing data to support decision-making.
There is no GAAP (Generally Accepted Accounting Principles) equivalent for Managerial Accounting.
One of the important functions of Managerial Accounting is to support management decision-making and responsibilities. Those include planning, directing, and controlling operations. Planning involves setting goals and objectives as well as how to achieve them. Managerial Accounting aides in this function through budgeting and forecasting primarily.
Directing is overseeing day-to-day operations as well as monitoring performance. This is commonly done through an old school approach of MBWA, which stands for Management by Wandering Around." This approach is equal parts effective and annoying as it tends to lead to micromanaging employees. Managerial Accounting can assist in this function through scheduling and other reporting.
Controlling is an important part of management's responsibility and one that is aided by managerial accounting. It is the process of comparing actual results with planned results. The difference between the two are known as variances. Managerial Accounting is heavily involved in this function.
All of these functions and responsibilities help support management decision-making. The decision-making is a never-ending casting most businesses. In fact, because of this the role of management accountants is changing. A changing global economy requires many businesses to be more flexible and adapt at quicker rates than in the past. Without improvements to technology this would be difficult for management accountants to support.
ERP, JIT, TQM, Lean Manufacturing, ISO 9001 - these acronyms are the alphabet soup of Managerial Accounting. Briefly ERP stands for Enterprise Resource Planning and it is an information system that links several business functions for improved and timelier decision-making. JIT stands for Just In Time, which is in inventory management system. Buying and holding inventory is expensive. Just In Time means that inventory is purchased and delivered right when it is needed. TQM stands for Total Quality Management. This focuses on reducing or eliminating waste and defects in processes and products. This lowers warranty costs as well as waste and scrap costs. Lean Manufacturing is a reconfiguration of production processes to eliminate wasteful, redundant, or unnecessary activities. ISO 9001 is an international organization of standards dealing with quality and continuous improvement.
These concepts have led to big improvements in operational efficiencies and profitabilities. Technological improvements have allowed management accountants to be right in the middle of these movements. Because of changing technologies, management accountant skills are also changing and expanding. And they include a strong knowledge of financial and managerial accounting, good analytical skills, general business knowledge, the ability to collaborate and work on a team, and good oral and communication skills.
The final topic I'd like to introduce is the professional organization for managerial accountants. The Institute of Management Accountants, or IMA as it's more commonly referred to, is the largest professional body of management accountants. It is estimated that nearly 85% of working accountants do so in some Managerial Accounting function. In fact, my entire career was in various fields of Managerial Accounting. There is also certification exam for management accountants who have a four year degree.
It is the CMA exam and passing it makes makes one a Certified Management Accountant.
The IMA has a code of ethics for its members to follow. The IMA's overarching ethical principles include honesty, fairness, objectivity, and responsibility. Within this code there are four key ethical standards. Let's look at get each one of them briefly. Competence relates to maintaining an appropriate level of professional expertise. This is often done by completing professional continuing education requirements. Confidentiality relates to keeping information confidential. Managerial accountants have access to sensitive and confidential information, so confidentiality is a must. Integrity relates to conducting one's activities in an honest and transparent manner. Finally, credibility relates to disclosing and communicating all relevant information fairly and objectively.
And that concludes this short video on the Introduction to Managerial Accounting.