Business Blog 40 – Management Accounting and Financial Accounting

I know this is not the most inspiring title, but please stay with me as what I have to say is important to the health of your business.

There are two broad streams of accounting in business, financial accounting and management accounting.

The most common and simplest form of accounting is financial accounting. Financial Accounting is your traditional ‘bean-counting’ or ‘scorekeeping’ role aimed at providing information to parties outside the organization such as regulators, ASIC, tax office etc. It tends to be very compliance focussed and is the core business of traditional accounting practices.

Management Accounting however is the more valuable and important form of accounting as it is solely aimed at providing information and helping managers/owners within the organization make informed decisions and run their businesses successfully.

I was reminded of the importance of management accounting at a one-day Institute of Certified Management Accounting (ICMA) conference I attended recently. I was pleased to hear the speakers remind us of the virtues of management accounting and the important role we have in partnering with business GM’s and Owners and business Management Teams in making a successful business.

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In my view, the key purpose of accounting is to provide the information needed on which sound informed business decision making can be based. Meeting the reporting requirements and obligations of the authorities are an important, but in my view, secondary priority to actually building a successful business.

Traditional accounting practices generally focus in on compliance based financial accounting and often don’t have the practical experience and skillset to provide meaningful management accounting services. How do you value Lean initiatives and track the impact of productivity improvement programs? How do you value strategic planning options and develop budgets, forecasts and an internal management reporting systems incorporating KPI’s and ratio analysis? These are the domain of management accountants.

 SUMMARY

Maybe you need to consider the services of a Management Accountant experienced in your industry to provide value-added advisory services, rather than the traditional bookkeeping financial accounting services you may be used to getting?

Ross – Billson Advisory (your outsourced/part-time Management Accountant)

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