To answer the question we first must understand – “What is management accounting.”
The Chartered Institute of Management Accountants (CIMA) answers the question this way – “Management accounting combines accounting, finance and management with the leading edge techniques needed to drive successful businesses.”
“Our members are qualified to work across an organization, not just in finance. In addition to strong accounting fundamentals, CIMA teaches strategic business and management skills:
- Analysis – they analyze information and using it to make business decisions.
- Strategy – they formulate business strategy to create wealth and shareholder value.
- Risk – they identify and manage risk.
- Planning – they apply accounting techniques to plan and budget.
- Communication – they determine what information management needs and explain the numbers to non-financial managers.”
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“CIMA is the world’s largest professional body of management accountants. We offer the most relevant finance qualification for business.” It is important to note that this is a global designation and not just for the United States.
The definition of management accounting by Business Dictionary.com is:
The process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions.
Unlike financial accounting, which produces annual reports mainly for external stakeholders, management accounting generates monthly or weekly reports for an organization’s internal audiences such as department managers and the chief executive officer. These reports typically show the amount of available cash, sales revenue generated, amount of order in hand, state of accounts payable and accounts receivable, outstanding debts, raw material and inventory, and may also include trend charts, variance analysis, and other statistics. Also called managerial accounting.
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Thus management accountants are involved in helping to operate the business for profitability. In contrast financial accounting is focused on providing financial information primarily to outside third parties such as stockholders’, investors, bankers, etc. The primary purpose of the Securities and Exchange Commission (SEC) is to ensure that public businesses are providing timely, accurate, and relevant information to the third parties. That is also why public companies have their financial statements certified by a CPA firm.
Thus there are two primary areas of accounting (excluding taxation) – financial accounting and managerial accounting. The information related to financial accounting is not enough to successfully run the business on a daily basis. Operational financial information needs be used to run the business.
In the area of financial accounting the CPA designation provides a standard indicating that an individual, holding the designation, has achieved a certain level of education, experience, and qualifications in financial accounting.
In the area of management accounting, the CGMA designation provides a standard indicating that an individual, holding the designation, has achieved a certain level of education, experience, and qualifications in management accounting. The CGMA designation is provided by a joint venture between the AICPA (American Institute of CPA’s) and CIMA.
In large businesses (over $30 million in revenues) the CFO will be primarily dealing with financial accounting and will have management accountants reporting to the CFO. In small business (those under $30 million) the CFO will be very involved in management accounting.
As the founder of CFO 4 Small Biz, I am both a CPA and a CGMA. I help small business owners, who don’t need a full-time CFO, to drive their business to higher levels of profitability.
Every company needs financial guidance.®
Is yours exceptional?
If not please contact me.
David Mayo, CPA, CGMA
Founder & Partner
CFO 4 Small Biz, LLC