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The Best Business Operations Run on Sound Managerial Accounting

This week, I am going to cover the area of management accounting (often referred as managerial accounting or cost accounting): a division of accounting that is given little to no consideration by most students majoring in accounting. Little attention is given to management accounting because most students equate their post bachelor accounting career to working as either auditors or tax accountants. However, the Institute of Management Accountants states “In fact, of the five million finance function professionals in the U.S., more than 90% work inside organizations as management accountants and finance professionals”. Indeed, only 35% of students graduating with a bachelor in accounting do end up in public accounting. The other 65% join the ranks of the private sector working in businesses accounting divisions or some other areas unrelated to accounting. I do however have some bad news for those of you who firmly believe that you will be among the 35% going to work in public accounting. Only 50% of those who start a career in public accounting will remain within the industry after five years.

I will devote one of my future posts to employment trends within the accounting profession and why is it only a small percentage of students with accounting degrees are able to achieve a successful career in public accounting. The point I am trying to make with all those statistics is that most students holding a bachelor in accounting will end up working in the private sector. This entails that management accounting is going to most likely come back haunt most of you unless you give it the respect that it deserves while you are in college. The Institute of Management Accountants(IMA) states: “Management accounting is the internal business building role of accounting and finance professionals who work inside organizations. These professionals are involved in designing and evaluating business processes, budgeting and forecasting, implementing and monitoring internal controls, and analyzing, synthesizing, and aggregating information—to help drive economic value.The role of management accounting differs from that of public accounting, since management accountants work at the “beginning” of the value chain, supporting decision making, planning and control, while audit and tax functions involve checking the work after the fact. Management accountants are valued business partners, directly supporting an organization’s strategic goals. With a renewed emphasis on good internal controls and sound financial reporting, the role of the management accountant is more important than ever.” I could not have have come up with a better explanation of the role of the management accountant and how it differs from that of a public accountant. In other words, you will need a specific set of skills if you wish to become an effective management accountant.

Indeed, depending on your level of experience you will be called upon to perform a variety of tasks including but not limited to variance analysis, buy vs. lease analysis, product profitability, cost analysis, sales management scorecard, sales and financial forecasting, capital budgeting, and annual budgeting. Because there is a lot of computing and analysis involved in management accounting, it does require more technical skills than financial accounting and reporting. Consequently, I would strongly advise any student majoring in accounting to wait for the last semester to schedule the management accounting (i.e cost accounting or managerial accounting) course. At some institutions it’s a two course sequence. If you happen to be in that situation, you should take the two classes in your last two semesters.

Since there is no way of telling how soon, if ever, you will go work in the private sector, taking management accounting last will make it easier for you to refresh your memory a few years after your graduation from college. Another advantage of saving management accounting for last is the added benefit of a smoother preparation for the CPA exam. Should you take management accounting sooner than you senior year, it is very likely that you will be laboring while reviewing for the CPA exam because management accounting is a very unique area of accounting. As a matter of fact, I like to think that courses such as auditing, business law, tax I, tax II, and management accounting must be taken in your senior year if you wish to maximize your chances of beating the CPA exam on your first two tries. No matter how good of a student you are, you must strive to always be able to hedge your bets. A good mastery of management accounting is certainly one proven way to ensure that you remain immune to the unwanted side effects of having to transition from public accounting to management accounting.

PS: Now proceed to the “Accounting Lecture Notes” page for some study aids related to management accounting.

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