Effective management accounting practices can improve decision-making in organizations, which need solid fundamentals but also speed when deciding which strategic paths to take. In short, organizations need principles that can be applied to help produce favorable results.
The Global Principles of Management Accounting, released Wednesday, represent the first set of universal principles to guide the practice of managerial accounting.
The principles, prepared in a comprehensive report published by the AICPA and the Chartered Institute of Management Accountants (CIMA), are based on the ideas of a global cross-section of CEOs, CFOs, academics and other professionals.
The four principles, focused on four outcomes, aim to provide senior managers with strategic and financial oversight with a means to compare their management accounting processes and identify areas where the processes can be improved. The objective of the principles is to establish values, qualities and standards which represent the best practices of the profession.
The objective of the principles, in four key points, is to:
- Describe the core values ââand qualities that represent management accounting.
- Better understand the profession of management accountant.
- Increase recognition of the crucial role of management accounting in organizations and ensure that it is used at the highest levels.
- Enabling the realization of the potential of management accounting.
Need for change in decision making
A global survey commissioned by CIMA and AICPA and conducted in August by Longitude Research shows that organizations are rethinking their decision-making processes and hope to make better use of available information. But few (36%) said they can easily ensure consistent, quality decisions at all levels of the organization, and 89% said a stronger partnership with finance in decision-making would help them. to better manage their organizations in the future.
âWe work with a wide range of organizations around the world and may find that decision making becomes increasingly difficult as complex information flows much faster,â said CIMA Managing Director Charles Tilley , CGMA, in a press release. “Too often impulse replaces insight, and we need a dramatic improvement in the way decisions are made at all levels.”
The principles are intended to be applied at all levels and types of organizations: large or small, public or private. Barry Melancon, CPA, CGMA, President and CEO of AICPA, said the principles “will help structure chaotic complexity and strengthen evidence-based decision making that prioritizes long-term success over short-term gains â.
The four principles:
Communication provides insight that is influential.
Good management accounting begins and ends with conversations, allowing management to break through silos and create a path to integrated thinking.
The information is relevant. One of the central roles of management accounting is to provide decision-makers with the right information at the right time. If the needs of the decision maker are understood, then timely identification, collection, validation, preparation and storage of information can be done.
The impact on value is analyzed. This principle requires a thorough understanding of the economic model and the macroeconomic environment. Strong management accounting functions are able to transform information into insight by evaluating the impact of scenarios under consideration.
Stewardship builds trust. The principles require active management of relationships and resources âso that the financial and non-financial assets, reputation and value of the organization are protectedâ.
The principles provide guidance on the core competencies required of management accountants, which are detailed in the CGMA skills framework. The principles are intended to be applied in 14 practice areas of the management accounting function (see below).
âThe principles of management accounting bring a new dimension of value: understanding, identifying and capturing value accounting,â said Anant Nadkarni, member of the Global Management Accounting Principles Advisory Panel and former group vice president responsible for corporate social responsibility. and sustainability within the Tata group in India.
According to the report, three factors play a role in the effective application of the principles:
- Understand the need. First, top management needs to be aware of and appreciate the ability of management accounting to help the organization achieve lasting success. The test for each principle is its ability to contribute to organizational success.
- Tools and techniques. In the practical application of the principles, individuals should use appropriate tools and techniques which are refined as the objectives change.
- Diagnostic. People skills, principles, areas of practice, and performance management systems can help an organization assess the effectiveness of its management accounting function and identify areas for improvement.
âIt’s training for CEOs, COOs, the people who make most of the decisions related to strategy and developing a business plan. They need to understand the skills that finance brings to the table, âsaid Jim Blake, CPA, CGMA, another member of the Global Advisory Group. âIf they don’t and only allow them access to a certain element of the decision-making process, they’re really short-sighted. There is an educational process that has to take place.
Neil amato (
) is a JofA senior editor.
14 areas of practice
The Global Management Accounting Principles are intended to guide best practices. According to the report, a combination of skilled people, clear principles, well-managed performance and strong practices constitute an effective management accounting function. Here are the 14 areas of practice:
- Transformation and cost management
- External reports
- Financial strategy
- Internal control
- Investment valuation
- Budget management and control
- Decisions on prices, discounts and products
- Project management
- Regulatory compliance and compliance
- Resource management
- Risk management
- Strategic tax management
- Treasury and cash management
- Internal Audit
Regarding internal audit, the report states: âThis is not an area of ââpractice that falls under the management accounting function, but management accounting makes a significant contribution to the internal control system as tested. and evaluated by the internal audit function. “