This paper examines managerial accounting's emergence as a distinct discipline and its growing importance in modern business. The paper contrasts managerial accounting with financial accounting across six key dimensions, details how internal functions leverage cost accounting, cost management, activity management, and investment management for decision-making, and traces the evolution of managerial accounting in response to globalization, technological advancement, and service sector growth. Using Starbucks Corporation as a case study, the paper demonstrates how multinational organizations apply managerial accounting across store-level, regional, and international operations, illustrating the discipline's practical significance in complex business environments.
Managerial Accounting, also known as Management Accounting, is the field of accounting that provides economic and financial information to a business's managers and other internal users. Devised for internal use rather than public consumption, managerial accounting reports are not directly subject to GAAP standards. Managerial Accounting is a younger discipline than traditional Financial Accounting; consequently, its concepts and tools are also young and evolving to adapt to current and future business needs and to best assist management.
As the service sector grows, new industries emerge through scientific discoveries, advances are made in information technologies and communications, and businesses are increasingly challenged to compete in the global marketplace, the information provided through Managerial Accounting has evolved and become increasingly important for making vital business decisions. The most obvious example of Managerial Accounting's evolution and current importance is seen in multinational business. Here, a company is organized into operational units in at least two countries. While multinational business provides opportunities, it also poses significant challenges: the company must deal with external reporting rules, legal systems, and cultural norms for more than one nation; differing tax laws and rates must be accounted for in business decisions; differing monetary systems, fluctuating currency, and rates of exchange must be considered due to their impacts on business operations, goods, and contracts; customer value may be calculated differently in different countries of operation; and cross-functional teams that unite production, operations, marketing, purchasing, design, and quality management require agreement on management decisions and rely heavily on the information provided by managerial accountants.
Financial and Managerial Accounting are different in several ways, chiefly based on their functions. First, Financial Accounting is traditional accounting, while Managerial Accounting is relatively young. Secondly, Financial Accounting encompasses external reporting to the public and is therefore subject to GAAP rules, while Managerial Accounting is concerned with providing internal information for managerial decisions and is not subject to GAAP rules.
Third, while Financial Accounting is concerned with cost accounting, Managerial Accounting is concerned with cost accounting, cost management, activity management, and investment management because it ideally helps multidisciplinary teams cutting across an entire business make managerial decisions. Managerial Accounting's ability to identify, measure, analyze, interpret, and communicate information within an organization helps multidisciplinary teams make coordinated and mutually beneficial decisions rather than operate in isolated and perhaps conflicting ways.
Fourth, while both Financial and Managerial Accounting use some of the same data and reveal it in their reports and financial statements, Managerial Accounting reports and statements tend to be more detailed, more frequent, and more varied in format depending on how that information is being used for internal decision-making. Fifth, Financial Accounting is mandatory for publicly traded companies, while Managerial Accounting is voluntarily employed. Sixth, Financial Accounting is "historic" in that it gives past data, while Managerial Accounting is concerned with the future activities of a company.
Though there are a number of differences between the two types of accounting, if the differences had to be reduced to the fewest words, they would be: Financial Accounting = external; Managerial Accounting = internal.
The needs and uses of financial information for internal purposes are as varied as the company's internal functions. A business's internal functions typically include Production, which consists of Research and Development, Production, Quality Control, and Distribution/Logistics. Its internal functions can also include Selling, which consists of Sales, Marketing, Market Research, Advertising, and Public Relations. There are also a host of Supporting internal activities, including Computing, Buying/Purchasing, Human Resources, Management Accounting, Recruitment Consulting, Chartered Accountants, and Management Consulting. All those internal functions, as well as others, are pulled together and coordinated by Managerial Accounting's contributions to cost accounting, cost management, activity management, and investment management.
Cost Accounting focuses on a business's production costs by analyzing input costs at every production step and fixed costs, such as depreciation. By measuring and recording each of those costs individually, then comparing input to output, cost accounting assists management in measuring the company's financial performance.
Cost Management is budgetary planning and control, assisted by Managerial Accounting in that it helps management predict expenditures and adjust accordingly, provide necessary resources, and stay within budget. Activity Management focuses on finding and eliminating waste in order to continually improve activities and tasks performed by people within a company. Activity Management is concerned with the long-term best interests of the company rather than shortsightedly cutting costs to the company's ultimate detriment.
Finally, Investment Management is the process of planning and deciding how to acquire and use the company's resources, whether in the form of technology, equipment, facilities, or human beings. Investment Management focuses on the effects investing or not investing would have on the entire company. In all these internal activities and management types, financial information plays a key role for managerial decision-making that will be most beneficial to the company.
Managerial Accounting is a relatively young subset of accounting. Though it has consistently aided internal managerial decisions by providing economic and financial information to managers and other internal users, its concepts and tools are still evolving. Growth of the service sector, emergence of new industries based on scientific discoveries, advancements in information technology and communications, and opportunities and challenges of the global marketplace have all spurred the evolution of Managerial Accounting to sharpen its contributions to decision-making.
Keeping pace with those developments and adequately informing a company's internal decision-makers for optimum decisions means that Management Accounting must take into account special factors of a large service sector, new business factors spurred by scientific invention, information technology and communications, and the variable opportunities and challenges posed by global business. Global business, in particular, provides obvious examples of Managerial Accounting's evolution, as companies doing multinational business must deal with external reporting rules, legal systems, and cultural norms for more than one nation; consider differing tax laws and rates; adjust for differing monetary systems, fluctuating currency, and rates of exchange; and adequately inform and unite their cross-functional teams in production, operations, marketing, purchasing, design, and quality management, among other vital business activities. In sum, today's Managerial Accounting assists companies in making forward-thinking decisions in the overall best interests of the company in view of the global market.
A Certified Management Accountant (CMA) is a specialist in Management Accounting who holds the basic equivalent of a CPA for public accounts. CMA designation is governed by the Institute of Management Accountants, which administers the CMA program. In order to become a CMA, one must have experience totaling two years of continuous professional experience in management accounting prior to or within seven years after passing the examination, and educational requirements of either a baccalaureate degree in any area from an accredited college or university or scoring at the 50th percentile or higher in the GMAT or GRE.
The examination consists of a four-part computerized, on-demand examination administered by Sylvan Testing Centers, containing 120 multiple-choice questions covering economics, finance and management, financial accounting and reporting, management reporting, analysis and behavioral issues, and decision analysis and information systems.
CMAs are obligated to act with competence through continuing education, legal practices, and diligence; confidentiality by keeping confidential information unless legally required to disclose it, monitoring and informing their subordinates about confidentiality requirements, and refraining from using or appearing to use confidential information for unethical or illegal advantage; integrity by avoiding conflicts of interest, refraining from any activities that might conflict with ethical duties, refusing gifts that might create or suggest impropriety, not undermining an organization's goals, communicating professional limitations that would impair performance, and generally not discrediting the profession; and objectivity by communicating information fairly and objectively and disclosing all relevant information.
Starbucks Corporation was chosen as a case study because the corporation is an international coffee company and chain that is outstanding in its industry. It grew from a small four-store business into an international giant with more than 20,000 stores in its 43-year history. Starbucks' management is also outstanding, including a CEO who has been with the company for 27 years, though in operations and marketing rather than finance. Starbucks also publicly reveals quite a bit of information about itself, allowing thorough analysis of the company.
Starbucks uses managerial accounting and accountants in numerous sectors. For example, it maintains a position for a senior financial analyst in its global supply chain. The position "contributes to Starbucks success by supporting, developing and improving the financial processes that enable sound planning and decision-making for assigned business unit(s) or department(s)." It also "facilitates the development of strategic and operating plans." Among other qualifications, the successful applicant must have "working knowledge of financial and management accounting principles." Though this speaks of only one position, Starbucks analyzes data on a store-by-store management basis, a district basis, a regional basis, a nationwide basis, a corporate level basis, and an international basis, all to support its mission of "To inspire and nurture the human spirit—one person, one cup and one neighborhood at a time."
Starbucks uses Managerial Accounting for its internal functions in Production, for research and development, production of its coffee and related products, quality control, and distribution. It also uses Managerial Accounting for its internal functions in Selling, including sales of its products, marketing, market research, advertising, and public relations. It also uses Managerial Accounting for Supporting activities, including Human Resources, computing, purchasing, Management Accounting, recruitment consulting, corporate governance, and management consulting. Starbucks also uses Managerial Accounting for its international business in its global supply chain, in other nations' external reporting rules, laws and cultures, in differing tax laws and rates, and in differing monetary systems. Managerial Accounting concepts and practices are vital to Starbucks' success.
"Starbucks versus Costco accounting complexity"
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