Businesses, no matter how big or small, all want to make high quality, impactful business decisions. In order to be able to do so, the business must be equipped with accurate, fact-based and timely data. This is where management accounting comes in.
The need for Global Management Accounting Principles
Management accounting lies at the heart of the organisation, combining businesses’ two most crucial elements: finance and management. A study reveals that 47% of CFOs currently working in Asia acknowledge the challenges and consequences cause by overwhelming data volume. By 2020, the number of online business transactions is estimated to surpass 450 billion per day.
Management accounting empowers the stakeholders to make impactful decisions on the business' future with value and insights instead of randomly compiled figures.
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However, each organisation has their own way of manoeuvring around the management accounting software. Therefore, the American Institute of CPAs (AICPA) and Chartered Institute of Management Accountants (CIMA) proposed the four core principles for management accounting which can be applied to any business regardless of size, and regardless of geographical location.
What’s the purpose of the Global Management Accounting Principles?
The Global Management Principles are created to guide CFOs, CEOs and the boards of directors in their management accounting practice, to help them respond faster to risks, to protect their market value, and of course, to make better decisions.
In order to pinpoint the factors that make up the Principles, CIMA and the AICPA conducted an intensive research that span across 20 countries in 5 continents. More than 400 participant had joined the 90-day consultation period. These participants were representing all sorts of businesses and industries; this is to ensure the universal applicability of the Principles.
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Let’s talk Principles
In order for the management accounting to function effectively, it requires skilled and competent personnel. These professionals would apply the Principles into their daily operations with the purpose of maintaining the integrity of the businesses whilst utilising the insights provided to nurture growth.
Management accounting takes notes of the decision-makers’ needs, thus, drives communications that can be tailored to the decision-makers' styles, the processes being used, or the audience's financial knowledge.
Robust and insightful discussion among the decision-makers can ultimately eliminate any silo. This means that only the most relevant information can be sourced and analysed, which in turns makes management accounting influential.
Information-based decision-making provides a 360-degree view of the organisation's past performance, current position as well as a look into the future. Any thinking, discussion or report should always be based on concrete, reliable, transparent sources that guarantee to make an impact on the firm.
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For the management accounting to provide influential insights, first and foremost, the information needs to be relevant. But to what extent?
Many think that historical data does not provide any real insight. However, if we are able to tell what did well and what did not do well in the past, that old piece is still applicable. A piece of information is only irrelevant when it includes things like sunk or committed costs.
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Management accounting scans the best available resources to take out only the most relevant pieces of information that fit well with the current context and making it ready for analysis through sorting and filtering.
The relevant information (as defined in the previous Principle) is used to develop scenario models to analyse the impact of opportunities and risks, and their effect on the business outcomes. These scenarios represent the trade-offs between each action; assessing the scenarios requires a thorough understanding of the business model and the wider macroeconomic.
Logics concluded from the scenario models can be used to feed in the management accounting to prioritise actions based on values instead of cost, enables the stakeholder to justify their targets and needs. The results from the analysis allow the decision-makers to make quality decisions whether to exploit or to mitigate the opportunities or the risks.
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Trust is the foundation for any relationship; it plays an even more critical role in the business world. Management accounting professionals are trusted, ethical, transparent individuals. They also have in their hands the power to affect any stakeholder’s decision.
It is the management accounting professional’s top priority to ensure every business activities and decisions are in accordance with the laws and the local Accounting code of conduct. By ensuring the integrity and morale of all business’ actions, they are in better positions to protect the organisation's values, governance requirements and social responsibilities.
The Global Management Accounting Principles are applicable to all management accountants. For more information on these canonical four principles, visit the Chartered Global Management Accounting’s website.