Introduction to Management Accounting

Lesson 01

Definition

According to the Institute of Management Accountants (IMA), "Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems,and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy."

The American Institute of Certified Public Accountants (AICPA) states that, "Management accounting as practice extends to the following three areas:

• Strategic management—advancing the role of the management accountant as a strategic partner in the organization.
• Performance management—developing the practice of business decision-making and managing the performance of the organization.
• Risk management—contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization."

The Institute of Certified Management Accountants (ICMA) states, "A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking."

Management accountants therefore are seen as the "value-creators" amongst the accountants. They are much more interested in forward looking and taking decisions that will affect the future of the organization, than in the historical recording and compliance (score keeping) aspects of the profession. Management accounting knowledge and experience can therefore be obtained from varied fields and functions within an organization, such as information management, treasury, efficiency auditing, marketing, valuation, pricing, logistics, etc.

Data and Information

The term Data means facts and consist of numbers, letters, symbols, raw facts, events and transaction which have been recorded but not yet processed into a form suitable for use.

Information is data which has been processed in such a way that it is meaningful to the person who receives it (for making decisions).

Attributes of good information (ACCURATE)

The attributes of good information can be defined by the ACCURATE acronym as shown below:

• A.Accurate: The degree of accuracy depends on why the information is needed.
• C.Complete: Managers should be given all the information they need, but information should not be excessive.
• C.Cost-effective: The value of information should be higher than the cost of producing it.
• U.Understandable: Use of technical jargon must be limited. Accountants must always be careful about the way in which they present financial information to non-financial managers.
• R.Relevant: The information contained within a report should be relevant to its purpose.
• A.Accessible; Information should be accessible via the appropriate channels of communication.
• T.Timely: Information should be provided to a manager in time for him/her to be useful for decision making and control.
• E.Easy to use.

Lesson 02

Main Functions involved with Management

The main functions involved in management are Planning, Decision-making, and Control.

• Planning:
• Decision making:
• Control: