Few outside of the accounting field and executive management arena truly understand that managerial accounting transcends the recording of debits and credits. In fact, managerial accountants play a vital role in keeping companies running. For this reason, graduate accounting degree programs like the University of West Florida’s online Master of Business Administration (MBA) with an emphasis in Accounting include in-depth coursework in advanced managerial accounting.
Managerial Accounting Vs. Financial Accounting
Three characteristics distinguish managerial accounting from financial accounting: the audience for the information produced, the time period under observation and the static or dynamic nature of the data.
|Nature of data
Managerial accounting focuses on what it takes to keep a business operating profitably. Tracking and projecting revenue and expense needs is critical. The data collected and the results reported help managers choose the best courses of action. Projecting the budget and investment cash flow are important functions that managerial accountants coordinate and lead. Since the outcome of managerial analysis is future directed, assumptions and projections are used. These can and do change in scenario analysis, and assumptions are present in these projections and analyses.
Of course, financial accounting is also vital. The focus of financial accounting is to record the activity that has already occurred. Complete and accurate reporting is necessary to provide information to external investors, government taxing authorities and consumers. Compliance with accounting principles and government regulations is essential in financial reporting.
Management Accounting: Adding Value
Every organization needs people who understand the nuances of managerial accounting. Understanding business results and projections is essential to interpreting data for decision-making.
Historical data is not neglected in managerial analysis. Instead, the insights it provides into past results help predict the future. Decision-makers need to assess whether to stay on course or amend their plans. Being able to adjust to changes in the physical or economic environments rests on the shoulders of today’s business leaders.
Cost Accounting Is Not Managerial Accounting
Cost accounting is but one key element of managerial accounting skills.
Analyzing and determining costs of products and services is critical to effectively pricing products and services for the marketplace. For example, the profit margin for re-tooling an aircraft engine and that of manufacturing the same engine from scratch wouldn’t be the same. Accurately accounting for all the expenses involved in each product, interpreting the potential market volume for each and predicting the resources needed for each are functions of cost accounting.
Managerial accounting practices include those skill sets but extend to budget and variance analysis, operational control, risk management, capacity evaluations and data analysis support to each business unit within an organization.
Just Another Required Course?
As a student of managerial accounting in a quality MBA program, you quickly learn that operational controls are just as important as financial controls. The turnover ratio of employees in the customer service department isn’t expressly reflected in the company’s income statement or balance sheet; however, business leaders know that that turnover rate is an element embedded within the bottom line through recruitment and talent acquisition expenses, onboarding costs, lost productivity and training time.
A knee-jerk reaction to a high turnover rate must be balanced by management assessment and knowledge of typical industry turnover rates, historical turnover rates and an understanding of the current economic job climate. Businesses might expect a high turnover number in customer service, but if the same occurs within production-line employees, it may be a red flag that warrants immediate concern.
How does one choose between two equally good (or bad) choices? Which product lines are the most profitable? Will bundling products help or hinder revenue generation? Business leaders have to make these choices every day.
Tactical execution and measurements need to be in place to determine the success of strategic plans to enter new markets, expand product offerings or sell off a well-established part of the business. To be effective, managerial accountants must have the skills to calculate, assess and communicate the options.
Managerial accountants can now use accounting information systems and analytics software that employ artificial intelligence technologies to exponentially increase the potential of accounting analysis for decision-making. These technologies can automate many of the routine processes like historical data collection, basic analysis and reporting that traditionally fills the workday hours of financial accountants. They also have the capacity to analyze vast amounts of complex, decentralized data, providing unprecedented levels of predictive and even prescriptive analytics insight.
Managerial accountants equipped with expertise in analytics and information systems can leverage these advancements in technology to add further value to their work and organization. This marks an evolution of the accounting role — one that began with the advent of managerial accounting practices. Supported by accounting analytics, managerial accountants can take on much more strategic, advisory roles, utilizing insight gained from advanced analysis to drive positive business outcomes, be it optimizing operations for efficiency, increasing profit margins or scaling business operations effectively.
Smaller and midsize companies often combine the functions of managerial and financial accounting under one umbrella. Such accounting departments require an equal focus on both aspects to support the needs of the internal and external audiences that will consume the financial data. When the two accounting competencies are combined into one department, it is important for department leaders to possess the knowledge and skills specific to each area.
In larger firms in the United States, managerial accounting departments may assume the Financial Planning & Analysis (FP&A) function. Business Finance, Budgeting and Planning, Business Planning and Analysis and Business Control are other names for FP&A.
The 12 core competencies evaluated through the Institute of Management Accountants’ Certified Management Accountant exam (CMA) cover the broad spectrum of skills expected of today’s management accounting professional. These 12 core competencies are separated into two parts, as follows:
Part 1 — Financial planning, performance and analytics:
- Internal Controls
- Planning, Budgeting and Forecasting
- Cost Management
- Performance Management
- External Financial Reporting Decisions
- Technology and Analytics
Part 2 — Strategic Financial Management:
- Investment Decisions
- Professional Ethics
- Decision Analysis
- Financial Statement Analysis
- Risk Management
- Corporate Finance
What Is Expected of Accounting-Focused MBAs?
An MBA program with a managerial accounting focus equips students with skills that enable them not only to create and evaluate performance reports of all types but also to provide context for the numbers. Skilled managers understand ratio analysis, provide management controls and perform risk assessments. They also serve as the go-to source for data evaluation.
To manage accounting departments and organizations as a whole, today’s financial leaders need decision-making and risk-management skills. By earning an MBA with an emphasis in accounting, students can gain knowledge of advanced managerial accounting that will enable them to lead a company toward optimal performance.
Learn more about the UWF online MBA with an emphasis in Accounting program.