Thesis on "Managerial Accounting"

Thesis 8 pages (2200 words) Sources: 8

[EXCERPT] . . . .

Managerial accounting has long been at the forefront of discussion about business management. Indeed, Managerial Accounting is vitally important to the success of any firm. Without this type of accounting, managers would not have the ability to make the proper decisions concerning business strategies. In addition, the most effective financial management can not occur if the proper accounting procedures are absent. The purpose of this discussion is to provide an analysis of the factors that lead to success for accountants.

Managerial Accounting and successful accountants

Managerial Accounting is defined as the "Process of preparing management accounts that provide accurate and timely key financial and statistical information required by managers to make day-to-day and short-term decisions ("Management Accounting")." It is important to make a distinction between managerial accounting and other types of accounting ("Management Accounting"). For instance, managerial accounting is different from financial accounting which is responsible for the creation of financial reports for external investors such as stockholders, lenders and creditors ("Management Accounting"). Instead managerial accounting is responsible for producing monthly or weekly reports for an internal audience including the chief executive officer and department managers ("Management Accounting"). The financial reports produced by managerial accountants explain accounting information related to the condition of accounts payable and accounts receivable, the sales revenue generated, amount of available cash, amount of orders in hand, outstanding debts, raw material and in-process inventory. The financial information that managerial accountants provide may also be inclusive of variance analysis, and trend charts ("Management Accounting"). Basically, Managerial accountants are responsible for providing internal parties with the financial information they need to develop and implement the appropriate business strategies.

Successful Accountants

The first step towards becoming a successful accountant is to receive the proper education. All accountants have at least a bachelor's degree in business with accounting as their concentration. While still a student many successful accountants' complete internships either with corporations or with accounting firms. Once school is completed accountants have to receive the proper certifications.

First the individual must become a Certified Public Accountant (CPA). This certification is required for all practicing accountant in the United States. In order to receive the certification a specialized test is taken and the individual must pass. This is a uniform certification that covers all the basic information that accountants must know in order to practice accounting.

Becoming a Certified management accountant (CMA) is important to having a successful career. According to the Institute of Management Accounting, "Businesses around the world rely on CMAs for accounting, finance and information management and most importantly, for the strategic planning and business solutions provided by these qualified professionals. Companies such as 3M, Boeing, DaimlerChrysler, DuPont, Hewlett-Packard, IBM, Johnson & Johnson, Milliken and Procter & Gamble recognize that employing CMAs helps to improve company performance in an aggressive global business arena ("Certification")."

Also, as it pertains to the ability of accounts to be successful, Scapens (2006) asserts that in order for accountants to enjoy success they must first understand management accounting practices. According to the author, "to make sense of diversity in management accounting practices we need to understand the complex mish-mash of inter-related influences which shape practices in individual organizations. It outlines the contribution which institutional theories can make to understanding this mish-mash of complexity (Scrapens 2006,)."

Indeed accounting is a highly specialized discipline. While general accounting practices exist and are universal, some accounting practices are unique to certain industries. Managerial accountants must be aware of these differences. In addition, successful accountants understand how to gear the information towards an internal audience. This gearing does not mean that the information they provide is inaccurate or just what the internal audience want to hear. Instead it means that the information presented is explained in a manner that is clear and succinct and takes into consideration that the internal audience is not composed solely of accountants.

One of the primary ways in which an accountant can master the craft is to learn the various theories associated with managerial accounting. According to Bhimani (2006) contract theory has been the most common analytical research model in managerial accounting. According to the author,

"It has informed the managerial accounting literature both directly and indirectly. In the former case, formal contract theory modeling of managerial accounting issues has provided important insights into the design and role of managerial accounting systems. In the latter case, many of the hypotheses tested in recent behavioral and empirical research in managerial accounting have been derived from informal reasoning based on contract theory (Bhimani,2006, 37)."

With this understood contract theory asserts that individuals in a group may be partial in ways that are in conflict. The theory also asserts that each member of the group will make decisions based on their own self-interest (Bhimani,2006). The theory also considers the manner in which the structure of the group's managerial accounting system and contracts developed by the group members can have some bearing on what is in each individual's self-interest, and as such alleviate the ineffectiveness that may come as a result of the underlying conflicts (Bhimani, 2006).

For instance, depending on how a department manager's performance is evaluated, it can be impacted in various ways by the amount of funding that is allocated to his or her department (Bhimani, 2006). Additionally, the department manager is usually privy to better information than corporate management concerning the rate of return that additional funding invested in that department could gross (Bhimani, 2006). Because this is the case, the department manager may have an impulse to lie about information throughout the capital budgeting process (Bhimani, 2006). This is done for the purpose of manipulating the amount of capital given to the department and, as such, his or her performance evaluation is also manipulated (Bhimani, 2006). The author explains that "This may result in an inefficient allocation of capital within the Wrm. Contract theory examines how the design of the capital budgeting process, managerial accounting system, and employment contracts can reduce this ineYcient allocation of capital (Bhimani, 2006)."

Understanding the dynamics of contract theory can assist accountants greatly in making the proper decisions. This includes the manner in which financial information that is provided to the internal audience. The particular theory is often used in managerial accounting because it incorporates some of the underlying problems that often exist as it pertains to the way information is presented and to whom.

Another important issue associated with accounting success is integrity in what is reported and how it is reported. In some ways this is related to contract theory in that is takes into account that accountants often face when presenting financial information to their superiors. It is essential that accountants do not compromise as it pertains to reporting the correct information.

The need for integrity has been reiterated with the much publicized demise of several large corporations including Enron. In these instances corporations were involved in accounting activities that were unethical. These unethical practices were taking palace in the areas of financial accounting and managerial accounting. As it pertains to managerial accounting it appears that those that were in positions of authority failed either to recognize the problem or to develop a strategy to remedy the problem. In part, the failure of managerial accountants led to the failure of these firms.

As such successful accountants must conduct themselves in ways that reflect integrity and ethical behavior (Waters & Chant, . Failure to do so not only affects the company but also stockholders who have invested in the company. In the case of Enron and other companies people lost billions of dollars as a result of the company's scrupulous activities. The entire economy is affected when large companies fail. Successful accountants will recognize the responsibilities that they have and make the appropriate decisions accordingly.

In fact the importance of ethics in management accounting is so important that many institutions of higher education have mandatory classes related to the subject. Bampton & Cowtown, 2002 report

"Although much accounting education and training is concerned with technical issues, in recent years there have been signs of increased interest in accounting ethics, which might have been translated into the university curriculum. For example, professional bodies have been investing in ethics codes and mechanisms (Bampton & Cowtown, 2002)."

Universities and businesses believe that some accountants lack ethics and integrity because they were never taught the importance of having these attributes. To this end classes have been established to instruct students on the importance of ethics in accounting. These courses are also designed to show the consequences associated with not operating ethically.

According to Johnstone & Biggs (1998) there are three primary things that successful accountants have to be able to do:

1. Establish the objectives of the task to which they are assigned- this means that accountants must have a grasp of the purpose of their jobs (Johnstone & Biggs, 1998). Understanding the purpose of the job allows accountants to utilize their knowledge and energy in a manner that is beneficial to the company (Johnstone & Biggs, 1998).… READ MORE

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