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Management accounting is concerned with the provisions and use of Accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. Unlike Financial Accountancy information (which, for public companies, is public information), management accounting information is used within an organization (typically for decision-making) and is usually confidential and its access available only to a select few. DEFINITION According to the Chartered Institute Of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its Resources . Management accounting also comprises the preparation of Financial Reports for non management groups such as Shareholder s, Creditor s, regulatory agencies and Tax authorities" (CIMA Official Terminology)
The Institute Of Certified Management Accountants (ICMA), state "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 (scorekeeping) 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." AIMS # Formulating Strategies ; # Planning and constructing business activities; # Helps in making decision; # Optimal use of Resources ; # Supporting Financial Reports preparation; and # Safeguarding Asset s. TRADITIONAL VS. INNOVATIVE MANAGEMENT ACCOUNTING PRACTICES In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that management accounting practices (and, even more so, the curriculum taught to accounting students) had changed little over the preceding 60 years, despite radical changes in the business environment. Professional accounting institutes, perhaps fearing that management accountants would increasingly be seen as superfluous in business organizations, subsequently devoted considerable resources to the development of a more innovative skills set for management accountants. The distinction between ‘traditional’ and ‘innovative’ management accounting practices can be illustrated by reference to cost control techniques. Traditionally, management accountants’ principal technique was '' Variance Analysis '', which is a systematic approach to the comparison of the actual and budgeted costs of the raw materials and labor used during a production period. While some form of variance analysis is still used by most manufacturing firms, it nowadays tends to be used in conjunction with innovative techniques such as '' Life Cycle Cost Analysis '' and '' Activity-based Costing '', which are designed with specific aspects of the modern business environment in mind. ''Lifecycle costing'' recognizes that managers’ ability to influence the cost of manufacturing a product is at its greatest when the product is still at the design stage of its product lifecycle (i.e., before the design has been finalised and production commenced), since small changes to the product design may lead to significant savings in the cost of manufacturing the product. ''Activity-based costing'' (ABC) recognizes that, in modern factories, most manufacturing costs are determined by the amount of ‘activities’ (e.g., the number of production runs per month, and the amount of production equipment idle time) and that the key to effective cost control is therefore optimizing the efficiency of these activities. Activity-based accounting is also known as ''Cause and Effect accounting''. Both lifecycle costing and activity-based costing recognize that, in the typical modern factory, the avoidance of disruptive events (such as machine breakdowns and quality control failures) is of far greater importance than (for example) reducing the costs of raw materials. Activity-based costing also deemphasizes direct labor as a cost driver and concentrates instead on activities that drive costs, such as the provision of a service or the production of a product component. DEVELOPMENT OF THROUGHPUT ACCOUNTING The most significant recent direction in managerial accounting is Throughput Accounting , which recognises the interdependencies of modern production processes and provide managers with a tool that will allow them to measure the contribution per unit of constrained resource for any given product, customer or supplier. (For a detailed description of Throughput Accounting, see Cost Accounting ) AN ALTERNATIVE VIEW OF MANAGEMENT ACCOUNTING A seldom expressed alternative view of management accounting is that it is neither a neutral or benign influence in organizations, rather a mechanism for management control through surveillance. This view locates management accounting specifically in the context of Management Control Theory . LEAN ACCOUNTING (ACCOUNTING FOR LEAN) In the mid to late 1990s several books were written about accounting in the lean enterprise (companies implementing elements of the Toyota Production System ). The term Lean Accounting was coined during that period. These books contest that traditional accounting methods are better suited for mass production and do not support or measure good business practices in just in time manufacturing and services. The movement reached a tipping point during the 2005 Lean Accounting Summit in Dearborn, MI. 320 individuals attended and discussed the merits of a new approach to accounting in the lean enterprise. 520 individuals attended the 2nd annual conference in 2006. RELATED QUALIFICATIONS
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