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What is management accounting?

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Last editedOct 20202 min read

Accounting is one of the world's most in-demand and reliable career choices, with various roles on offer, including management accounting. Find out more about the importance of management accounting for your company.

Why management accounting is so important

Management accounting is the name given to accounting on behalf of a business. Essentially, if you have a business, you need a management accountant to ensure your books are in order.

Management accounting requires different levels of experience and skill, depending on the business's needs. In some cases, a business's internal accountants can fulfil the role of a management accountant without qualifications and the added aid of management accounting software. Of course, these programs are still important even for fully qualified accountants, although their skillset is more varied.

Management accounting vs. financial accounting

Management accounting is similar to financial accounting in that they both share very similar skill sets, but the main difference is the tasks they apply these skills to. A management accounting professional will work within a business, and their primary goal is to manage and analyse the finances for the directors of said business. Essentially, management accounting reports are not intended to be viewed by anyone but those inside the company.

A financial accountant can have similar tasks but will look at a business's financial data for the use of external parties. This includes entities like investors, auditors, and other industry regulators. A financial accountant will need a deeper understanding of areas like compliance – management accounting reports can take any form the business likes as it's for their use only, but documents drafted by a financial accountant must adhere to strict external regulations.

Past vs. present

Another critical difference is the period that each type of accounting covers. Management accounting looks to the future to see how the business will perform based on past numbers and see how the organisation might best place its finances to grow and improve. Financial accounting is about analysing the past to create an accurate look at the company's financial status. Investors and other bodies need this past information – proof of performance rather than predictions – to decide if they wish to become involved in the business.

What are the benefits of management accounting?

Aside from having an in-house financial professional, which most businesses are sure to find beneficial in terms of accounts receivable and essential costs, management accounting also assists in the following:

Forecasting cash flow and spending
Helping understand the financial health of the business
Helping to find when the best time to invest, expand, etc.
Running internal audits
Working closely with stakeholders to help form the business' future operations

Unlike financial accounting, which is far stricter, management accounting professionals can think more creatively when it comes to how a business can approach its financial future. Organisations are always looking for new ways to be successful, and the accountant is key to finding financially viable options.

Management accounting principles can also be used in unexpected places. A hospital, for example, may use management accounting software to bill for private insurance. In this way, a management accountant must help create and monitor a company-wide system that meets all the company's needs. This flexibility is not something a financial accountant can apply to their own tasks.

What qualifications does a management accountant need?

Management accounting is a field that requires a certain level of qualification. There are two central awarding bodies in the UK:

CIMA: Chartered Institute of Management Accountants
ACCA: Association of Chartered Certified Accountants

While the CIMA and the ACCA are very similar in the level of knowledge they require, the CIMA is the world's largest professional body for management accounting, making it a more specialised option. For those who want a more rounded education before specialising in management accounting on an on-the-job basis, ACCA is also a strong choice.

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