The Management Accounting - Term Paper Example

The accounting professions is one of the oldest jobs whose history s back to 1340 in Genoa when the first double entry books; by 1494 the first published accounting works were written by Venetian monk Luca Pacioli (Msn, 2007). Accountants have contributed to business development for many centuries. Their job has always been essential since the accountants are the one that keep track of economic activity of first through the utilization of the accounting double entry journal system which provides a logical way to record transactions that follows the guidelines of the basic accounting equation: assets + liabilities = equity (Weygant, et. al. 2002). The contribution of accounting professional was very important during the industrial revolution since the amount of business activity multiplied itself at the turn of the 20th century. During this decade the accounting profession became of the most recognized and prestigious jobs titles a person could hold due to the importance of their job duties. In today’s business environment the accountant still serves an important function within an organization, but their role has changed. Since the start of the internet age in the 1990’s and the latter convergence age which started at the turn of the 21st century technological advances in information system has allowed companies to perform many traditional functions such as bookkeeping, basic taxes, payroll among functions without invention of the management accountant. The management accountant working in the corporate world no longer is responsible of such duties and clerks are now able to perform simple accounting functions in canned accounting software systems (Friedman, 2004). This report analyzes the changing role of managerial accounting during the last 15 years. The role of the managerial accountant has evolved into new more comprehensive business areas that have made these professionals more important than ever. Globalization has been a big part of the change since business transactions are more complex than ever. Organizations needs workers with great analytical abilities to help to provide support in their decision making, the managerial accountant has fill that necessity due to broad knowledge of all areas of business accountants possess. The types of analysis and work tasks the managerial now performs include: Managing IT systems Cost / Financial control Generation and creation of value Total quality management Economic value added propositions Interpreting operating information Planning and managing budgets Strategic planning and decision making Productivity improvements Implementation business strategies (Yazdifar, 2005). The wide array of business functions the new managerial accountant of the 21st century requires greater involvement of the accountant into operation decision which were once solely the responsibility of the general manager and the executive managerial staff. In essence the managerial accountant has now become part of the upper level management team since the person works closely with them. The managerial accountants are referred to in new way now a days, they are called hybrid accountants who aid in the integration process in many different projects due to their expertise in business processes, advanced mathematical abilities and their overall business logic which allows them obtain business solution other professionals cannot envision (Yazdifar, 2005). An information system is a set of interrelated subsystems that work together to collect, process, store, transform, and distribute information for planning, decision making and control which are necessary in companies in business in today’s business environment in order to be able to keep up with the vast amounts of internal and external information that affects decision making (Moscrove & Simkin & Bagranoff, 1999). Accounting information systems (AIS) are a module within the overall information system which the managerial accountant utilized as a tool to organize the accounting information of the company to prepare typical reports such as expense reports, sales output, payroll expenses and the financial statements of the company. Since the role of the managerial accountant has evolved, so has the necessity to have an accounting information system up to par with the new reality of the work requirements of the managerial accountant. The AIS used be a closed system that serves as a mechanical tool that even though it had the capability of manipulating data it had many constraints which limited the power of the data and could not integrate other information to create reports and output beyond the basic accounting scope. The manager accountant must ensure that IT people design AIS subsystems to broaden its capabilities toward integrating AIS into other aspects such as operating efficiencies and quality to achieve greater organizational effectiveness (Yasin & Bayes & Czychry, 2005). To make the change the first step is moving from accounting information systems from the traditional close system which was design for the internal needs of the accounting department into an open system that interact with the entire information system of a firm. The major philosophical change relates to switching from a transactional mode into a decision making support mode. The role of the managerial accountant and the tools they need go beyond the internal functioning of the firm and now includes external interaction with vendors and supplies. The customers as well as the suppliers are now key stakeholders which require attention of all department of a firm. The managerial accountant works close with suppliers in building long-term relationships which add value to the firm. Management accountants face in this new business era a wave of new regulations concerning corporate governance which placed a greater level of responsibility on them. A new regulation companies must comply with is the new operating and financial review (OFR) requirement mechanism (OFR ready to create new CIMA roles, 2005). The management accountant now must prepare a qualitative report alongside the financial statement to reveal non-financial information related to the operation that created the financial activity of the company. This is one of the newest regulations that came in recent years, the most influential and radical piece of legislation which affected the accounting profession and corporate America forever was the Sarbanes-Oxley Act of 2002. Prior to Sarbanes-Oxley the business world endured an explosion of fraudulent corporate activity related to the financial affairs of public companies which caused panic among the investment community. Due to accounting scandals industry leaders such as Enron in the energy industry and WorldCom which belong to the communication industry declared bankruptcy suddenly without any previous warning signings. Wall Street was outraged and the Congress of the United States in alliance with regulatory agencies such as the Securities and Exchange Commission work together to find a solution to the fraudulent activity called the Sarbanes-Oxley Act. The new role and requirement of the management accountant has sparked conversation among scholars regarding if colleges and universities are properly preparing students for the new challenges ahead within their professionals. Some college curriculums are still antiquated and overemphasis basic accounting principles and are not preparing the future professionals for the new challenges they will face in the workplace. Greater emphasis in the educational process must be given to areas such as extended core accounting, multidisciplinary business skills, accountancy issues, ethical implications as well as greater understanding international business affairs and the internal business processes (Robertson, 2004). It might be true that colleges that not be doing enough, but the corporate world are greatly responsible and must ensure their staff has the adequate skills to keep up with the business changes occurring every second of our existence. The managerial accountant is now responsible of working in alliance with human resources to prepare training & development initiatives in order to ensure the accounting staff is able to provide the services the company needs from them as far as being the internal consultant of the company in many business decision such as international expansion plans, merger & acquisitions deals, negotiations with corporate clients, regulatory affairs, product development among many other business aspects in which the advice of the accountant is essential for decision making purposes. Technology is the key variable that led to the internal changes in the way the finance function is now handled in business enterprises. The management accountant has seen his world do a 360 degree turn and radical change is the new order. In the accounting profession receipts and lots of paperwork were the bread and butter of an accountant to be able to perform their job duties. Imagine how much an accountant who worked in 1989 would be shocked if the person entered into a time machine and traveled to the year 2008 to see an office in which all accounting work is done in 100% paperless environment. The impact of the finance function has been dramatic due to developments in hardware, software, communications which are changing both the accounting profession and the entire traditional business organization (May, 2003). Management accountants who are responsible for both strategic decisions and ensuring the accounting staff gets the day to day number crunching done are now in a world in which is possible they may never hear the voice or see the face of one of their subordinates’ accountants. Telecommuting is a new work arrangement in which an accountant may work out of his home via the internet and enter data into the accounting information system of the company without ever stepping a foot inside corporate headquarters. The transformation in the accounting field is amazing, even accountant themselves do not longer feel they are actually working accounting and the connotation that their duties are basically accounting receivables, payables and journal entries is truly something that they do not want to be associated with anymore (Siegel, 2001). The profession has moved away from simple arithmetic calculation into all inclusive business decisions. The management accountant barely works directly with their accounting staff on traditional accounting work and actually utilizes the knowledge of the company’s accountant in departmental meetings to gain input from the staff on alternative solutions for different business proposals and projects the professional is work on. Accounting work has become very associated with the type of work which people who studied finance perform which is more proactive and forward looking. An accountant working at Abbott Laboratories expressed his role in the organization this way “the most common reason for using the term accountant is simply that only accountants have the training to understand financial information and the analytical skills to explicate the financial implications of alternative business initiatives” (Siegel, 2001). The management accountant is a person that represents a business partner, a consultant, a problem solver, a strategic voice, a negotiator, and a person that works alongside the decision makers of a firm to provide the financial and business insight needed to choose the best alternative business route. The more exposure an accountant entering into a new business environment obtain about the operational aspects of a company the more valuable their services becomes for a company since an accountant can decipher the financial implications of process without even looking at the numbers. These professionals have an innate sense of when something is simply not producing any results. For example a managerial accountant walks into a customer service center and notice there is huge line. This person immediately analyzes the amount of hours the center is open, the total employees, the time it takes the employee to serve a customer, the technology being used at the center, the size of the facilities among other costs or non-financial variables that may be causing the inefficiencies at this particular customer service center. The roles of the accountant may have changed over the last 15 years and the business industry recognizes these changes, but the internal perception within a corporation has not changed much. Interviews perform by researchers at Caterpillar Corporation in the year 2000 revealed that the general employees still visualize management accountants as number crunchers and as the same meticulous figures that keep telling everyone that the cost are too high and are the employees partly responsible when layoffs occur due to their cost cutting initiatives which include labor reductions; the accounting staff in this corporation feels they are the least respected group of professionals in the entire organization (Siegel, 2000). Accountants are true professional which are not really worried that the rest of the staff does not realize the value of their contribution, since they know their voice are well heard at the upper management level. Corporate culture influences and traditions are the primary reason why the internal perception of the accountant has not changed. The knowledge economy of which accountant are an integral part of the management change that is occurring at companies in America and at the international level imposed new responsibilities which the accounting profession gladly accepted since the new responsibilities recognized the academic preparation, experience and importance of management accountants for business organizations. A lot of management accountant working in the industry hold the title of Certified Management Accountants (CMA). Eve Mailhot became a CMA in 1988 at a time in which her certified status as a management accountant did not mean much since her job duties and her pay scale was similar to that of any other accountant since a differentiation between her role in the organization did not truly exist. Now a day Mrs. Mailhot, a consultant of Groupe Performance, sees the significance of her CMA in the organization since she is involved in projects in which she is the primary decision makers and is responsible for transmitting her decision to both the employees and the executive staff (Lewandowski, 2000). The job of management accountants moved towards analyzing and interpreting information to provide data that supports decision making of financial and non-financial matters within an organization. Management accountants are employees that had to adapt to the changes the fast pace business environment impose on them since the information age started to truly pick up speed during the last 15 years and enter into new territories. Accountants were able to easily adapt to the new requirement of their job duties that allowed them to work closer with other executives of a firm. Their role changed from being part of the typical accounting scheme of crunching numbers into a business partner and advisor of the management staff. Their expertise in financial matters became extremely important due to the expansion of business oversees which is another byproduct internationalization and the globalization movement. The corporate world is extremely happy to have allies such as management accountant protecting the best interest of companies around the world. The evolution of the accounting profession has allowed young accountants to aspire roles of greater responsibility in the future which has motivated many in this profession to seeker higher educational levels to be able to compete as a managerial accountant in the new business environment which requires more from these professionals. References Friedman, B. (2004). Accounting and Consulting: Paradigm Shift. Smart Business. Available from [Accessed 7 February 2008]. Lewandoski, R. Changing Roles. 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Weygandt, J. and Donald, K. and Paul K. (2002). Accounting Principles (6th). New York: John Wiley & Sons. Read More