Managerial and financial accounting.
Management and financial accounting are both crucial tools for business growth but serve different purposes. The accounts produced by management and financial accountants have different audiences, represent different business durations, and have different uses in application. Financial accounting represents the financial status or health of an organization to create an appealing image to the external holders. Contrary management accounting is done to make decisions concerning daily business operations (Stolowy and Lebas, 2007).
Managerial accounting provides physical, economic and financial data used internally by business executives, operators and managers. Contrary, financial accounts provide financial data only used by outsiders such as investors, government agencies, creditors, reporters and analysts. Managerial accounts provide local information on business departments while financial accounts provide information, which can be used globally as it represents business operations in a holistic perspective. Financial accounts are mandatory and regulated by FASB, SEC and other determinants such as GAAP while managerial accounts do not have any international regulations (Needles, Powers and Crosson, 2010). The principles underlying management accounting are regulated by value added principles of an organization and are not mandatory.
The facts represented by financial accounts are characterized by reliability; accuracy, objectivity, and consistency while facts under managerial accounts provide facts that enable timelines and promote relevance. Management and financial accounts also differ in terms of time horizon; management accounting represents the past, current and future of a business while financial accounts are historically based. This explains why management accounting is enhances decision making processes as it reflects the trend of growth of business (Stolowy and Lebas, 2007). Additionally, financial reports can only be released after a business makes its annual reports, while in management accounting; the reporting frequency is continuous and can be done any time depending on need and business procedures.
Needs and use of financial information for internal purposes.
The objective of financial information is to avail data about the financial position, business performance, and changes in financial positions. Such information is used internally and externally to make crucial decisions. Internally, the information is used by management as well as employees in assessments and decision making. Every employee of an organization from the highest to the lowest ranks has the right to access financial information (Needles, Powers and Crosson, 2010). However, the amount of use particularly the involvement in the reports varies considerably amongst the employees. The leaders and business owners, for example, need the information for business and profitability assessments while employees use it for motivational and other purposes.
Financial information acts as a guiding principle in decision making based on the past and present growth rate, and the future prospects of an organization (Needles, Powers and Crosson, 2010). They guide managers in deciding which areas need attention, increased investments, or those that need to be scrapped off. The information acts as a guide to the managers in making crucial business and financial decisions with the intention of business growth. Some of these decisions may include maintenance of profitability levels, and liquidation of some departments in ensuring business operations.
The information provided by financial data also is used to represent the culture of a business entity. This acts as a guide to existing and new recruits in fitting in an organization’s structure. It demonstrates the uniqueness of an organization in the market, and demonstrates the mission of the company to employees (Stolowy and Lebas, 2007). The culture assists in regulating ethics, behavior, and productivity expectations, and also ensures that employees work to meet the objectives of an organization.
Roles of managerial accounts in today’s business environment, and how it has changed over time.
In 1980’s, the function of management accounting was located at the lower end of supply chain information; most organizations did not recognize its needs. Changes in global business growth impacted by financial recessions, political influences, and economic instabilities prompted the Institute of Management Accountants (IMA) to come up with a profession that could act as a guide for strategic initiatives in cases of business risks. This is when management accounting started been recognized as a need in business development and growth.
Since 2008 when IMA introduced management accounting as a tool that can be used in partnering in decisive planning, providing financial reporting expertise and a tool that can assist in the formulation and implementation of business strategy, the discipline has evolved considerably. What was seen as unnecessary has climbed the supply chain ladder to be at the highest end of the same. Additionally, financial information acts as an employee motivation tool (Needles, Powers and Crosson, 2010). The data provided by the statements act as a reference point to a business growth curve, and the expectations. It assists the employees in assessing their productivity and value to the business. The employees assess the impacts of business growth on their future remunerations and job security. It motivates the employees to work harder in meeting the objectives, and also attaining the business targets (Weygandt, Kieso and Kimmel, 2010).
In the past, managerial accountants were grouped together with the rest of staff, and the information that they provided was only used by managers. However due to changes in the business environment such as increased competition, economic stabilities, and sustainability needs, the accountants have now been integrated into the team. They form a crucial part of business planning and goal setting just as any other management staff members.
Certified Management Accountant (CMA) designation.
CMA is currently the most prominent certification ahead of Certified Public Accountants (CPA), and Certified Financial Managers (CFM), among others. The IMA awards the CMA designation n to financial and accounting professional who complete a bachelors degree from an accredited university, obtain a background in Economics, financial accounting and statistics, acquire a two year working experience, and pass at least two exams in financial planning, internal controls, risk analysis, and financial decision making (Stolowy and Lebas, 2007).
The CMA credential is an advanced professional certification that delivers tangible value and demonstrates a command of critical financial and management accounting skills. These are elements that the modern dynamic business environment demands. The certification proves that the accountant possesses advanced knowledge on accounting and management practices, which are demanded by today’s business environment (Needles, Powers and Crosson, 2010).
The modern business prosperity requires a broad range of knowledge in topics like business finance, economics, analysis, and decision making topped with emphasis on ethics (Stolowy and Lebas, 2007). The CMA program covers these topics and combines them with rule-based project matters, critical thinking ability, and decision making skills. This ensures effective ability to demonstrate and maintain the relevant skills and knowledge required in making concrete decisions from financial reports.
Companies obtaining CMA professionals distinguish themselves as transparent as they employ professionals who have the knowledge of accounting principles, and who know how to apply these principles in real life. Such employers prefer to pay the high salaries demanded by CMA’s to ensure business efficiency, and create an appealing image to their external financial report users. The external financial report users also feel at ease making investment decisions with companies whose financial reporting is done through professional management accountants (Weygandt, Kieso and Kimmel, 2010).
Reference.
Needles, B. E., Powers, M., & Crosson, S. V. (2010). Financial and managerial accounting. Mason, OH: South-Western Cengage Learning.
Stolowy, H., & Lebas, M. (2007). Financial accounting and reporting: A global perspective. London: Thomson.
Weygandt, J. J., Kieso, D. E., & Kimmel, P. D. (2010). Managerial accounting: Tools for business decision making. Hoboken, NJ: Wiley.
