Discussion

Managerial Accounting: An Overview

Managerial Accounting: It’s More Than Just Crunching Numbers

BUSINESS FOCUS

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“Creating value through values” is the credo of today’s management accountant. It means that management accountants should maintain an unwavering commitment to ethical values while

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using their knowledge and skills to influence decisions that create value for organizational stakeholders. These skills include managing risks and implementing strategy through planning, budgeting and forecasting, and decision support. Management accountants are strategic business partners who understand the financial and operational sides of the business. They not only report and analyze financial measures, but also nonfinancial measures of process performance and corporate social performance. Think of these responsibilities as profits (financial statements), process (customer focus and satisfaction), people (employee learning and satisfaction), and planet (environmental stewardship). ■

Source: Conversation with Jeff Thomson, president and CEO of the Institute of Management Accountants.

his chapter explains why managerial accounting is important to the future careers of all business students. It begins by answering two questions: (1) What is managerial accounting? and (2) Why does managerial accounting matter to your career? It concludes by discussing six

topics—ethics, strategic management, enterprise risk management, corporate social responsibility, process management, and leadership—that define the business context for applying the quantitative aspects of managerial accounting.

What Is Managerial Accounting?

Many students enrolled in this course will have recently completed an introductory financial accounting course. Financial accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators. Managerial accounting is concerned with providing information to managers for use within the organization. Exhibit 1–1 summarizes seven key differences between financial and managerial accounting. It recognizes that the fundamental difference between financial and managerial accounting is that financial accounting serves the needs of those outside the organization, whereas managerial accounting serves the needs of managers employed inside the organization. Because of this fundamental difference in users, financial accounting emphasizes the financial consequences of past activities, objectivity and verifiability, precision, and companywide performance, whereas managerial accounting emphasizes decisions affecting the future, relevance, timeliness, and segment performance. A segment is a part or activity of an organization about which managers would like cost, revenue, or profit data. Examples of business segments include product lines, customer groups (segmented by age, ethnicity, gender, volume of purchases, etc.), geographic territories, divisions, plants, and departments. Finally, financial accounting is mandatory for external reports and it needs to comply with rules, such as generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), whereas managerial accounting is not mandatory and it does not need to comply with externally imposed rules.

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EXHIBIT 1–1

Comparison of Financial and Managerial Accounting