Statements on Management Accounting
Statement Number 1A March 19,1981
OBJECTIVES:
Definition of Management Accounting
McGRAW-HIU
In accordance with the charge to the Management Accounting Practices (MAP) Committee to issue statements on management accounting principles and practices. Statements on Management Accounting are promulgated to reflect official positions of the National Association of Accountants (NAA). The work of the MAP Committee is based on a framework for management accounting, whose principal categories are: 1. Objectives 2. Terminology 3. Concepts 4. Practices and Techniques 5. Management of Accounting Activities
Statements on Management Accounting
Statement Number 1A March 19, 1981
Objectives: Definition of Management Accounting
National Association of Accountants
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ISBN 0-07-172149-5
Preface
The "Definition of Management Accounting" contained in this publication represents the first of a new series of Statements on Management Accounting which are responsive ' to the Management Accounting Practices (MAP) Committee's charge to develop guidelines on management accounting concepts, policies, and practices.
Methodology
Principal responsibility for development of Statements on Management Accounting is assumed by the MAP Committee's Subcommittee on MAP Statement Promulgation (Subcommittee). The Subcommittee will identify the subjects to be explored and oversee the progress on each project from inception to completion. When the Subcommittee deems it appropriate, a project report will be recommended to the MAP Committee for approval. The MAP Committee and Subcommittee hope to utilize the expertise of the broad-based Association membership. To that end, an early announcement of a project's existence will be made in Management Accounting; readers will be encouraged to comment at that time. Upon consideration of these comments and the completion of the research, the Subcommittee will prepare a draft statement for circulation to two groups of about 20 persons each: 1. A panel selected by the Subcommittee on the basis of background and expertise in the business and financial community 2. A panel chosen from the NAA membership-at-large on a stratified random sampling basis When the comments from the members of the panels have been received and evaluated, the Subcommittee will consider modifications to its draft and recommend that the MAP Committee promulgate the revised version as a Statement on Management Accounting. The MAP Committee will review the proposed Statement and, if approved, will arrange for its distribution to the membership and the financial community. 1
Framework for Management Accounting
The MAP Committee concurred with the Subcommittee's conclusion that structuring a framework would be useful in comprehending the scope of management accounting and in determining specific subjects to be investigated. As envisioned, the framework will comprise principal categories, subcategories, and specific projects. At this time, only the principal categories have been resolved, and they are: 1. 2. 3. 4. 5. Objectives Terminology Concepts Practices and Techniques Management of Accounting Activities
This Statement, Definition of Management Accounting, is referenced to the framework as 1A—category 1 (Objectives) and subcategory A (Definition of Management Accounting).
MAP Committee Statement of Objectives
Preamble
The National Association of Accountants is an international accounting organization. Among its major purposes are: "(a) . . .develop through research, discussion and exchange of information a better understanding of the sources, types, purposes and uses of accounting and related data as applied to all types of economic endeavor. . . "
"(e) . . . provide opportunities for members to increase their knowledge of accounting practices and methods The Bylaws of the National Association of Accountants describe the Management Accounting Practices Committee as follows: "This committee shall consist of twelve members with three-year terms, with four to be appointed annually." "It shall be composed of members oriented toward industry, public accounting, and education, with a majority in the first category."
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"It shall have the responsibility for issuing authoritative statements on accounting principles and practices by such means and in such media as it shall determine, and establish policies in this respect and submit such policies to the Executive Committee for approval."
Principal Objectives
The principal objectives of the Management Accounting Practices Committee are: • To express the official position of NAA on relevant accounting matters to other professional groups, government bodies, the financial community, and the general public. • To provide guidelines to the membership of the Association and business management on management accounting concepts, policies, and practices. The impact of the Committee and, therefore, NAA as a whole will be determined by the quality of its work, the methods used to publicize such work, and the continued support of the Association and its leadership. The MAP Committee recognizes that its Statements will not carry the sanction of any outside official authority: therefore, their influence will be based solely on their intrinsic quality.
Definitions
Relevant accounting matters: For purposes of determining its scope, the Committee considers as relevant any accounting matter concerning the identification, measurement, accumulation, analysis, preparation, interpretation, and communication of historic or prospective information. Management accounting concepts: All concepts that relate to the processes or functions included in the definition of management accounting set forth in this pronouncement.
Scope
Because "management accounting concepts" are also related to concepts useful to other users of accountancy and because "relevant accounting matters" are discussed universally, the Committee considers its purview to be very broad. Accordingly, it will be attuned to the developments occurring in all fields of accountancy. The Committee will maintain
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liaison with organizations throughout the world including the Financial Accounting Standards Board, the Securities and Exchange Commission, the International Accounting Standards Committee, and other appropriate agencies and committees. As part of this liaison, MAP will study their proposals and offer comments, suggestions, support, or criticism. The Committee also is obligated to develop and promulgate statements on management accounting. These statements will be made available to MAA members and others to improve management accounting.
The work of the Committee is premised on its conclusion that accounting is an integral part of the management process. In fulfilling its objectives, the Committee welcomes the advice and counsel of the MAA membership and other interested persons.
Definition of Management Accounting
Definition Management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for nonmanagement groups such as shareholders, creditors, regulatory agencies, and tax authorities.
To facilitate comprehension, the most significant terms used in the definition are defined as follows: Management Accounting is the process of: Identification—the recognition and evaluation of business transactions and other economic events for appropriate accounting action. 4
Measurement—the quantification, including estimates, of business transactions or other economic events that have occurred or may occur. Accumulation—the disciplined and consistent approach to recording and classifying appropriate business transactions and other economic events. Analysis—the determination of the reasons for, and the relationships of, the reported activity with other economic events and circumstances. Preparation and Interpretation—the meaningful coordination of accounting and/or planning data to satisfy a need for information, presented in a logical format, and, if appropriate, including the conclusions drawn from those data. Communication—the reporting of pertinent information to management and others for internal and external uses. Management Accounting is used by management to: Plan—to gain an understanding of expected business transactions and other economic events and their impact on the organization. Evaluate—to judge the implications of various past and/or future events. Control—to ensure the integrity of financial information concerning an organization's activities or its resources. /Assume accountability—to implement the system of reporting that is closely aligned to organizational responsibilities and that contributes to the effective measurement of management performance. Many of the activities constituting the field of management accounting are interrelated and thus must be coordinated, ranked, and implemented by the management accountant in such a fashion as to meet the objectives of the organization as perceived by him or her. A major function of the management accountant is that of tailoring the application of the process to the organization so that the organization's objectives are achieved effectively. 5
NATIONAL ASSOCIATION OF ACCOUNTANTS MANAGEMENT ACCOUNTING PRACTICES COMMITTEE 1980-81
Chairman Herbert H. Stiffen Assistant Treasurer
Johnson & Johnson
- New Brunswick, N.J.
John F. Chironna
Director of Accounting—U.S. Operations International Business Machines Corp. Armonk, N.Y. James Don Edwards J.M. Tail Professor of Accounting University of Georgia
School of Accounting
Hadley P. Schaefer Director— School of Accounting University of Florida Gainesville, Fla. Richard L. Snyder
Vice President and Controller
Philip Morris, Inc. New York, N.Y. Robert B. Sweeney Director, School of A ccounlancy University of Alabama University, Ala. Armin C. Tufer
Athens, Ga. Francis R. McAllister Controller ASARCO, Inc. New York, N.Y. Earl R. Milner Vice President and Controller A.O. Smith Corporation Milwaukee, Wis. Albert P. Roeper Vice President—finance and Treasurer
Thiokol Corp.
Partner Deloitte Haskins & Sells
Chicago, III. Robert S. Wealherly, Jr. President—Metals Division Vulcan Materials Co. Birmingham, Ala. Charles A. Werner
Newtown, Pa.
Partner Alexander Grant & Co.
Chicago, III.
SUBCOMMITTEE ON MAP STATEMENT PROMULGATION 1980-81
•Robert B. Sweeney, Chairman
•John F. Chironna
Herbert C. Knortz Executive Vice President
and Comptroller International Telephone & Telegraph Corporation New York, N.Y. Donald J. Trawicki
•Hadley P. Schaefer
•Also member of MAP Committee
Partner Touche Ross & Co. New York, N.Y.
NAA STAFF
Louis Bisgay, Manager, Management Accounting Practices Development James L. Mammone, Project Manager, MAP Development