What Is Management Accounting?

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Management accounting is a specialty branch of accounting that involves analyzing financial information to develop and assess a business strategy. Management accountants can also help their companies with risk management, strategic management, and performance measurement.
Qualified management accountants can work in every sector of business — for both public and private organizations. By earning a Master of Accountancy, accounting professionals can obtain the industry knowledge they will need to become certified as a Chartered Global Management Accountant (CGMA).

What Is Management Accounting? An Introduction

Management accounting typically entails gathering and analysis of data to provide an organization with information that can help it achieve its business goals. A management accountant helps business leaders make critical decisions by identifying the financial risks of each option available. But when business professionals ask “What is management accounting?” they may also wish to know how this field is different from other areas of accounting, such as financial accounting.

A financial accountant is more oriented toward tasks such as preparing reports of past performance to help the organization’s leaders understand exactly how resources are being spent. A management accountant focuses on aggregating financial information to create reports that can be used to inform business decisions on a day-to-day basis. Through management accounting coursework, students can learn how to effectively implement dynamic solutions that can improve business strategies and counteract financial risks.

What Is Management Accounting Coursework Like?

Management accounting coursework covers the following accounting and asset management techniques:

  • Capital Budgeting. Capital budgeting is the process of deciding whether long-term investments are worthwhile for business.
  • Forecasting. Using past financial records to project future trends that may have an impact on a business is known as forecasting.
  • Valuation. Valuation is the act of determining the value of an asset (or business) based on its past, current, and potential future financial standing.
  • Margin Analysis. Margin analysis is a technique used to determine whether pursuing a business decision is advisable by comparing the potential costs and benefits of that decision.

What Is Management Accounting? Risk Management

According to the Chartered Institute of Management Accountants (CIMA), risk management is the process that organizations use to control risks associated with their business activities. To be effective at risk management, accounting managers must understand the following concepts:

  • Risk Assessment. The risk assessment process involves observing business operations to identify potential risks and begin planning how to address them.
  • Risk Evaluation. This process focuses on brainstorming potential ways that a risk factor can impact a business. The accountant uses his or her knowledge of finance to determine what gains or losses could be incurred if a risk is ignored or addressed.
  • Risk Treatment. Risk treatment is the phase of risk management that focuses on creating a plan of action to address a risk factor. There are several options that a management accountant might suggest, such as avoiding, improving, or retaining the risk. The risk treatment process also involves managing the selected method of intervention. Therefore, a management accountant may need to adapt the chosen risk treatment strategy to current circumstances.
  • Risk Reporting. Finally, the management accounting team will need to constantly monitor the potential risk after an action has been taken to treat it. The goal of risk reporting is to ensure that the risk is no longer of concern.

What Is Management Accounting? Strategic Management

According to CIMA, strategic management accounting involves obtaining and analyzing accounting data about a business’s competitors to inform its business strategy. Through management accounting classes, accounting professionals learn how to contribute to the process of creating a business strategy from an accounting perspective. This includes recognizing how external factors influence the organization and may affect the business strategy.

What Is Management Accounting? Performance Measurement

Once a business strategy is in place, management accountants are also responsible for monitoring the strategy to ensure that it is performing well. They record accounting data and verify that the results are meeting the stakeholders’ predetermined goals. This area of management accounting often focuses on financial metrics, such as profit, cash flow, and return on investment.

Management accounting helps business leaders create strategies that are less likely to fail. A management accountant can help an organization maximize its profitability and minimize the threat of financial risks. Expanding on this brief introduction to management accounting by earning a Master of Accountancy can help professionals find careers specializing in this field of business accounting.

Learn More

Find out more about how Ohio University’s online Master of Accountancy program strives to prepare students for success as financial professionals in today’s competitive landscape.

Recommended Readings

Ohio University Blog, “4 Career Opportunities with an Accounting Degree”
Ohio University Blog, “Understanding Accounting Position Titles and Department Hierarchies”

Sources

Investopedia, “Managerial Accounting”
Chartered Institute of Management Accountants, What Is Management Accounting
Chartered Institute of Management Accountants, “Risk and Management Accounting” (PDF)
Actuarial Standards Board, “Risk Evaluation in Enterprise Risk Management”
American Institute of CPA, “Risk Assessment Standards”
Chartered Institute of Management Accountants, Management Accounting in Support of the Strategic Management Process