The question “why pursue management accounting” is an obvious one for anyone wishing to make a career in accounting. Accounting is one of the most important functions of any business. Whatever you do, whichever business you run, accounting is essential to the success of the business. Accounting has sub-functions, which are specific to certain areas of the business. For example, financial accounting pertains to preparing and showing the performance of a company and bringing it before the outside world. On the other hand, management accounting pertains to preparing reports and accounting for internal use, which aids the managers of the organization in arriving at short as well as long term decisions for the company and also assesses the performance of the company.
Now, if you have an interest in accounting and want to make a career in this field, you may want to choose a specialized field of accounting. However, to choose one specialization over others is not an easy task. You have to consider various factors like looking at career prospects in that field, the importance of the role in an organizational set-up, the fulfillment it can provide you, the level of success you can achieve, etc. Here, the obvious question arises that out of financial and management accounting, why pursue management accounting? This article will answer your question.
But before we dwell on this question, let us first understand what management accounting is.
Management accounting is about assisting management in decision making, formulation and implementation of strategies, and designing performance management systems for the organization, based on financial facts and accounting. It is more focused on the internal matters of the organization and provides insights through financial and statistical information that helps managers in analyzing the performance of the company and accordingly formulate policies. Another important aspect of management accounting is that it helps in deciding the pricing of the product by providing information about the cost, profitability, and other market factors.
Other functions of management accounting include, forecasting future business trends that help the management in making investment decisions like investing in new machinery or business or decision on diversification of business. Also, management accountants prepare budgets and provide insights on the trends which enable managers to understand the cash flow and allocate funds to various functions. Management accounting uses analytical tools to point out variations in performance. Managers use this information to build on positive variants and manage the negative ones.
So, we can clearly see that management accounting has a very important and critical role in the successful running of any organization. It is a myth that management accounting is relevant or useful only for big businesses. The fact is that management accounting benefits all businesses, whether big or small. The reason is every business needs to assess its performance regularly and in a clear cut manner. And without inputs from management accounting, it becomes difficult to make critical decisions.
Why pursue Management Accounting?
Management accounting is one of the most critical functions of any organization. Management accountants are involved in and are responsible for many important tasks like assisting in making investment decisions, analyzing financial reports, and the management risk, which are all keys to the successful implementation of any organization’s strategy. If we look deeply, there are many more good reasons to pursue management accounting, some of which have been listed below:
1) At entry-level, management accounting is your stepping stone to the business world. You will get a deep insight into how the businesses are run and this, in turn, increases your business acumen. You learn about corporate governance. This means you get to understand both the finance as well as the management side of the business, which in itself is a unique combination and gives you an added advantage in pursuit of your career goals.
The entry-level management accountant applies the knowledge acquired during the course of studying accounting and finance. You would be working under a manager and could be required to prepare budgets, internal financial reports, and statements, etc. You could also be working on receivables and payroll. For example, you may be asked to study and report the effect of alternative pricing. This means what will be the effect in the market if the price of a product is reduced, say by 6%, and the volume is increased by 20%. These kinds of reports are formulated by the management accountants.
2) Management accounting clearly helps in your career progression. It shows that you are not seeking to only report finances but are keen to get involved in the decision-making process. With your knowledge, you can move to the top of the corporate ladder. Designations like financial analyst, cost accountant, controller, Chief Finance Officer, or Chief Executive Officer can be had by management accountants as their career progresses. You can make a name for yourself in the business world. You get to work closely with the top management. This way you get to learn from their knowledge, experience, and collective wisdom. You gain from their problem solving and decision-making abilities.
3) Once you gain some experience, your knowledge and skills help the management in deciding the direction of the business. You act as a conduit between the finance and the management. The inputs and information provided by you greatly influence management decisions. You would be involved in budgetary exercises, analyzing the reports, get to work on tax compliance, etc. Along with this, you may be asked to manage a team of accountants. In short, you will have a greater responsibility than at the entry-level. You will not only be responsible for your own performance but for the performance of your team members also.
For example, you may be required to get product lines based reports made, describing in detail, the market performance of each, to help management to decide which products to continue, which to stop, and which ones to add.
4) As a professional, you will get to understand the whole gamut of activities in the industry in which you work. This is so because management accountants have to interact with cross-functional teams to not only gather information but to arrive at certain conclusions like costing and pricing. So you need to interact with various departments from production to marketing to purchase to planning. This further broadens your skill set.
5)You work not only with internal stakeholders but external ones too like regulators and supply chain partners. This further enhances your knowledge and skills giving you an advantage over other accountants.
6)A very critical component of any career, the earning potential and career advancement prospects of management accountants are better than other accountants. This is so because once you are directly or indirectly involved in the decision-making process, you automatically become a part of a very critical function of the organization.
7)And at the senior level, you may not only get to head the accounting and finance functions but will also have a far greater responsibility. You would be required to present a true picture of the financial health of the organization, analyzing the effectiveness of its strategies, and the efficiency of internal systems. Overall, you would be involved at the highest level of decision making. As a controller, you would be responsible to prepare reports indicating variance between actual and planned performance. You may be part of the senior management. For example, Micheal Lockerd is the Sr Vice President and CFO of K-VA-T Food stores inc. He is responsible for making financial policies, developing a tax plan for his organization, and approving the accounting procedures. And he manages a team to accomplish these goals.
You can see how management accounting is a good career choice. It is a way to achieve a progressive and satisfying career. It is not a routine affair like a regular accounting job but it is an exciting career option with the possibility of learning new things every day and utilizing them in advancing your career.