The wide scope of management accounting
The UK professional body for management accounting, CIMA (Chartered Institute of Management Accountants), gives the following definition:
Management accounting is the practical science of value creation within organizations in both the private and public sectors.
CIMA expands this laudable but very broad definition by stating that:
Management accounting combines accounting, finance and management with the leading edge techniques needed to drive successful businesses. The focus of chartered management accountants, whilst qualified in accounting and finance, is aimed at being commercial and forward looking, pre-empting and adapting to businesses' changing needs. (CIMA, 2013)
Desirable qualities indeed, and this reinforces the point that any director or executive who has to wait for a report or output from a model before being aware of what is happening possibly lacks the understanding of his or her business and what is going on - are you commercial enough? However, we are not all geniuses and the support of appropriate management models and reports is essential if we are to perform to our and others' expectations.
With regard to reports, the word 'appropriate' is very apposite, as a common problem with reports is that they are sometimes too brief and misfocused or more often far too voluminous, with excess and irrelevant figures. Typical traditional management accounting tasks include:
- budgeting and managing the budget process (Chapter 10);
- costing products, projects or services (including dealing with overheads) - full costing;
- costing activity, volumes, process, direct and indirect costs over a period - this is costing for planning purposes, including break-even analysis and using the term marginal costing;
- costing for control in detail, effectively budgeting at the micro or unit of output level, leading to concepts of having detailed standard costs against which actual progress can be measured - standard or unit costing.
These traditional management accounting tasks can all assist with strategy delivery. A distinct split in businesses between financial accounting and management accounting is found less and less; much analysis, if not the modelling, can be carried out directly by the responsible manager with the aid of spreadsheets or computer models. The need for a separate management accounting function will exist in some sectors and entities.