1. 1
   What is managerial accounting?
2. 2
   Managerial accounting vs. financial accounting
3. 3
   Managerial accounting vs. cost Accounting
4. 4
   Code of ethics for management accountants

What is managerial accounting?

Managerial Accounting

Managerial accounting, or management accounting, is the branch of accounting that focuses on providing information for internal parties - i.e. the company's management, to aid in decision-making.

As defined by the American Accounting Association,

"Managerial accounting involves the application of appropriate techniques and concepts in processing information to assist management in establishing plans and making rational decisions towards the achievement of the organization's objectives."

Line and Staff Function

There are two broad functions in an organization: line and staff. Line function is the one that is directly involved in the core operations of the company such as sales and production. Staff function, on the other hand, provides advisory and support to the organization.

Generally, management accountants exercise staff functions. They support the company by providing information to enable decisions which are vital for the company's performance and continuity.

The Chief Management Accountant (or controller) exercises line function over his or her subordinates, and performs staff functions to the other members of the management.

The Management

1. Top management - The top management or administrative level consists of the Chief Executive Officer (CEO) and the board of directors (BOD). The CEO is also called the managing director or president, and is selected by the board of directors from among themselves. The BOD is selected by the shareholders to represent them in managing the company. The top level management is in-charge with the overall direction of the company. They set company goals, policies and long-term plans.
2. Middle management - Also known as executory management, the middle-level management consists of departmental heads and branch managers. They implement and execute the plans and policies set by the top managements. The middle management is the intermediary between the top and low level management. They report to the top management as well as communicate the plans of the top level to the lower levels.
3. Low level management - The low level management or front-line management is responsible in directing and controlling the day-to-day operations of the company. They report directly to the middle management. The lower level management consists of supervisors, foremen, and officers who are in-charge of directing workers and employees.

Chief Management Accountant (Controller)

The Chief Management Accountant or Controller, sometimes "Comptroller" especially in government agencies, is mainly responsible for the accounting aspects of management planning and control. The controllership department carries out the following functions:

1. Planning and control - such as making budgets and determining expectations regarding future outcomes of alternative courses of action
2. Internal reporting and interpreting - accumulating and summarizing financial data and disclosing its implications to different levels of management
3. Evaluation and consulting - assessing different alternatives giving advice to the management to come up with appropriate decisions
4. Tax administration - supervising the formulation and implementation of tax policies and procedures of the organization and evaluating implications of tax-related decisions
5. External reporting - preparation of financial statements in accordance with appropriate accounting standards to meet the information needs of external users, especially the government
6. Protection of assets - implementing internal controls, insurance and performing internal audits to protect the company from losing its assets because fraud, theft, natural disasters, etc.
7. Economic appraisal - assessing the value the economic and social and government influences, and interpret their effects or impact on the business

Often compared to the controllership function is the treasurership function. Both the controller and the treasurer report directly to the company's head of finance. While the controller's functions involve internal finance and accounting, the treasurer's responsibilities involve external finance and cash functions.

The functions of the treasurer include: (1) provision of capital, (2) investor relations, (3) short-term financing, (4) banking and custody, (5) credit and collections, (6) investments, and (7) insurance.

Conclusion

Managerial accounting processes economic information to aid the management in making decisions. Unlike financial accounting, it is not mandatory yet is equally important. Without managerial accounting, a business would suffer in information deficiency leading to misguided decisions that are detrimental to the entity's performance or even to its existence.