Management accounting is a specialised type of accounting in which accounting firms focus on the requirements and use of accounting information to managers within companies. This information helps to provide managers with data and advice that allows them to make informed business decisions, while also improving management and control functions. Compared to financial accounting, management accounting differs in that it is forward-looking rather than historical, model based rather than case based, intended for managers rather than stakeholders or clients, confidential instead of publically reported and focused on the needs of managers rather than general accounting standards.
The industry has changed greatly as business trends have changed, with many changes in the best practices of management accounting. Professional accountants who specialise in management accounting need to realise that both traditional practices and innovative practices play a role in ensuring the best practices overall.
Some of the more essential core practices include the following:
1. Determine user needs
While financial accounting has set guidelines and practices, management accounting focuses on specific needs of the user. Every business is different, and every management requirement is also different, therefore accountants need to spend time identifying the exact needs in order to develop a strategy. Users request different reports and analyses depending on their objective, with anything from employee overtime hours to expenses and other areas to be considered.
2. Determine specific information required
Companies retain a wide range of information that pertains to the management of the business, from production costs to payroll information, expense information and other financial data. Professional accountants handling the management accounting for the company therefore need to understand exactly what information is required by managers to reach their specific goals and also determine which information is relevant to these goals.
3. Understanding the role of internal customers
For management accountants, managers and employees take the role of internal customers. Each person’s role within the company is different, and accountants need to understand each of these roles in order to accurately identify tasks and assist properly. The accountant can then deliver reports and analysis that target these specific needs within the company, in order to assist all internal customers in reaching their business goals.
4. Communicate effectively with all role players
Communication plays a vital role in management accountant, and professional accountants working within the management sphere need to be able to effectively listen, process information and report back to managers at all times. In the accounting world, jargon is used on a regular basis. For most businesses who do not work within financial industries however, many of these terms are not understood. Being able to effectively communicate concepts and strategies is crucial, so that all parties are able to understand the accounting processes at all times.
5. Strategic, performance and risk management
A final essential practice within management accounting is the ability to develop and implement strategic, performance and risk management approaches within the company. As this type of accounting is forward-thinking rather than historical and partners with management areas, professional accountants working with management need to be able to understand the importance of these approaches in order to best serve the needs of companies.