SiMaMa

By: Uma A Ilango
What is Management Accounting?

Management accounting is an internal accounting method used by managers of firms in order to help them make informed decisions about the business they are managing. Management accounting is for internal use in a company and is confidential, unlike financial accounting which is for external users. Looking toward the future, management accounting is used to determine how profitability for a company can be improved based on the data obtained. Versus complying with the standards of accounting, such as the GAAP (Generally Accepted Accounting Principles), management accounting uses extensive and complex internal controls as well as management information systems which are computed pragmatically.

Proper decision-making for a company requires managers to use internal information obtained by management accounting to improve a company's performance. Accountability in management is important, and because of the emphasis on the use of a company's resources in order to improve a company's performance as well as save a company money, management accounting creates a system for managers to rely on. Management accounting is the measurement, analysis, identification, accumulation, interpretation, preparation and communication of information that managers use to control, plan and evaluate the proper use of a company's resources. Management accounting also prepares the external financial reports.

Management accounting includes 3 primary areas: Performance Management, Strategic Management and Risk Management. Management accounting is responsible for the measurement, identification, reporting and management of risks as a major contributory factor to the framework of a company. Strategic management for management accountants helps them to advance in their role as a partner of strategy in that company. Performance Management for the management accountant requires the practice of decision-making in business and the ability to manage the performance of a company. These areas have special emphasis by the AICPA (American Institute of Certified Public Accountants) as a vital part of management accountant's responsibilities.

Management accountants apply their skill and knowledge to financial documents in order to provide managers with the necessary information to make informed decisions on the future of a company's performance. They are vital to a manager's ability to create policies as well as control and plan strategies necessary to improve a company's profitability. Management accounting creates value in a company out of production and their forward outlook helps a company to evolve into a well functioning and well managed machine. The historic aspects of costs and recording are not as important to a management accountant as looking toward the future is because that kind of data does not help to determine a company's future profitability as well.