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Redefining Management Accounting REDEFINING MANAGEMENT ACCOUNTING Promoting the four pillars of our profession By Peter C. Brewer, CPA Last year I attended a conference where surprise, at least one attendee nodded one of the speakers discussed some of his “yes.” When the speaker asked why this concerns about the management member of the audience agreed with the accounting profession. To highlight one quote, the attendee replied that, after all is of his apprehensions, he shared with the said and done, “A debit is still a debit.” audience a quote from a high-ranking While I can’t refute the truism that a debit officer in a management accounting is still a debit, I believe that the financial professional organization (not IMA) who accounting-oriented mentality underlying claimed that the foundation of the audience member’s quote needs to be management accounting was Generally refuted. It shows that many people still Accepted Accounting Principles (GAAP). don’t understand the value-added role that As I read this quote on the speaker’s management accountants play (or should PowerPoint slide, I shared his frustration play) within organizations. that a highly visible person within our Financial reporting standards, auditing profession had such a misguided view of standards, tax laws, and Sarbanes-Oxley what management accountants do. The (SOX) legislation play a vital role in speaker then asked the audience if they ensuring that organizations remain agreed with the quote, and, to my 35 REDEFINING MANAGEMENT ACCOUNTING accountable to their stakeholders. Indeed, A NEW FRAMEWORK many management accountants who are Figure 1 summarizes this new management members of the Institute of Management accounting framework that suggests the Accountants (IMA®) have expertise in ultimate responsibility of management these facets of the accounting profession accountants is adding stakeholder value. that has enabled them to advance their This definition moves us away from narrow careers and add value to their terms like planning and control and toward organizations. Yet we need to overtly a more encompassing vision of recognize that rules-based, compliance- management accountants as key influencers oriented activities aren’t the focal point of in an organization’s efforts to satisfy the management accounting profession. stakeholder expectations. The framework Management accounting is first and also depicts how management accountants foremost about managing internal add stakeholder value—by providing operations to optimize organizational leadership, by supporting a company’s performance. strategic management efforts, by creating In doing my part to help advance our operational alignment throughout an profession, I’m introducing a new organization, and by facilitating continuous management accounting framework that learning and improvement. describes the full spectrum of skills that The remainder of the article serves two should be espoused by management purposes. First, it elaborates on the meaning accounting leaders in organizations and of the four management accounting pillars management accounting professors in the depicted in Figure 1. Second, it encourages classroom. The framework moves beyond you to consider the 25 questions in Tables the rules-based languages of accounting 1-4. These four sets of questions (each to properly emphasize the management based on a pillar of the management orientation of management accounting. It accounting framework) enable management also expands traditional definitions of accounting practitioners and professors to management accounting by introducing help assess the extent to which they are more inclusive terminology than the embracing the full spectrum of widely accepted adjectives of planning, management accounting competencies. If control, and decision making. While these you find yourself repeatedly providing concepts are vitally important to unsatisfactory answers to these questions, it management accounting, they don’t suggests two possible concerns. First, adequately capture the breadth of skills perhaps you’re spending too much time needed to build a successful career within performing or teaching financial our profession. For example, traditional accounting. Second, perhaps you need to definitions of management accounting expand your definition of management largely overlook leadership skills and accounting beyond traditional planning, business partnering skills—two critically control, and decision making to include important aspects of building a successful leadership, business partnering skills, and management accounting career. We need other competencies. a new definition of management accounting that better captures the LEADERSHIP richness of what management accountants While effective leadership undoubtedly stand for and what they do. emanates from the C-suite, large and small 36 ARTICLES OF MERIT the company’s mission solely to maximize decentralized organizations need additional shareholder wealth, or are there other leadership voices to reinforce key messages. stakeholders who need to be taken into As shown in Figure 1, management consideration? What are the ethical values accountants provide leadership voices that espoused by the organization? Is the help create shared beliefs, shared boundaries, commitment to these values made with effective decision-making processes, and sincere words backed by deeds, or does it effective change management processes. consist only of superficial sound bites? Are (The concept of belief systems and boundary employees viewed as intellectual assets to be systems was created by Robert Simons in his cultivated or as expenses to be minimized? 1994 book Levers of Control: How Management accounting leaders need to Managers Use Innovative Control Systems help shape and communicate answers to to Drive Strategic Renewal.) Infusing an these types of questions. They also need to organization with shared beliefs includes communicate and rigorously abide by shared reinforcing the company’s mission, ethical boundary systems such as corporate codes of tone, and attitude toward its employees. Is 37 REDEFINING MANAGEMENT ACCOUNTING conduct and whistle-blowing policies that To effectively support a company’s strategic clearly define unacceptable behavior. management efforts, management accountants need to be able to create Two other key elements of the leadership strategies that provide sustainable sources of pillar are understanding how to establish competitive advantage and to manage the effective decision-making processes and enterprise risks that threaten the attainment how to enable organizational change and of strategic objectives. Too often we innovation. Rather than focusing exclusively incorrectly assume that enterprise risk on crunching numbers, management management and financial reporting risk accounting leaders need to effectively management are synonymous. This manage the behavioral interactions of assumption is one of many examples of how culturally diverse human beings who we artificially bind ourselves with the ties of ultimately shape decision outcomes. financial accounting. We management Similarly, they need to be able to effectively accountants need to understand the manage the organizational resistance that dynamics of our industry and our company’s often emerges in response to organization- operations so that we can intelligently assess wide change initiatives such as enterprise the strategic, operational, internal reporting, system implementations, activity-based and compliance risks associated with costing (ABC) systems, balanced scorecards, particular courses of action. or Lean accounting systems. In short, quantitative analysis is less than half the Management accountants also need to use battle when it comes to influencing strategic measurement systems to aid coworkers’ attitudes toward change and organizations in assessing performance on effectively implementing new initiatives that three levels: enterprise performance, serve the greater good of the company. interorganizational performance, and Table 1 summarizes six questions that will benchmark performance. Our profession help practitioners and professors assess the has relied too heavily on short-run financial extent to which they are embracing the metrics to assess performance. We need to leadership aspects of management complement these types of admittedly accounting careers. Management accounting important measures with nonfinancial, is a leadership-oriented career path, and we process-oriented performance measures as need to start recognizing this fact when well as stakeholder-based measures of defining and promoting our profession. environmental and social performance, interorganizational performance measures STRATEGIC MANAGEMENT that motivate supply chain partners to work The second pillar of the framework relates to in harmony with one another, and how management accountants aid an benchmark measures that evaluate organization’s strategic management efforts. performance relative to key competitors or As shown in Figure 1, there are four aspects world-class standards. to this portion of the framework: formulating Finally, as Figure 1 shows, management and com-municating strategy, identifying accountants use strategic measurement and managing enterprise risks, developing systems to analyze decision alternatives. measurement systems that assess These alternatives come in three forms: organizational performance, and analyzing customer-related decisions, product- decision alternatives. /service-related decisions, and process-
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