STATEMENTS ON MANAGEMENT ACCOUNTING

Statements on Management Accounting (SMAs) are produced, issued, and implemented to reflect official positions of the Institute of Management Accountants (IMA), the largest and most prominent management accounting organization in the world. The IMA is an organization of accounting professionals that had a membership of approximately 70,000 members in 2005.

HISTORY

One of the chief activities of the IMA is to conduct and sponsor research in management accounting. In 1969 the IMA (which at the time was called the National Association of Accountants) created the Management Accounting Practices (MAP) Committee to serve as its senior technical committee. This committee was charged with the task of promulgating statements on management accounting that reflect the views of the IMA. The MAP Committee membership included twelve representatives—from corporate and public accounting as well as education—appointed by the IMA president. These representatives were widely considered expert authorities in accounting. Past members have included members of other prominent accounting regulatory groups such as the Financial Accounting Standards Board (FASB).

The IMA has merged the MAP Committee with the Foundation for Applied Research (FAR) creating the MAC/FAR Committee. Currently, SMAs are maintained by this MAC/FAR group. This board is comprised of trustees and operates similarly to the MAP Committee in supporting SMA maintenance and other research initiatives.

PURPOSE

The purpose of the MAC/FAR Committee in issuing SMAs is generally twofold: (1) to express the official position of the IMA on accounting and business reporting issues raised by other standard-setting groups, and (2) to provide broad guidance to IMA members and to the wider business community on management accounting concepts, policies, and practices. Regarding the first stated purpose, other standard-setting groups include those such as the FASB, the Governmental Accounting Standards Board, the International Accounting Standards Committee, and government agencies such as the Securities and Exchange Commission. Regarding the second purpose, the work of the MAC/FAR trustees is seen as an effective method of summarizing the wide range of activities that define management accounting.

Some accountants believe that SMAs should be accorded the same considerable authority as generally accepted accounting principles. As of 2005, such authority had not been granted. There is some support for this position. The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) in the Statement of Accounting Standards (SAS) No. 5 (later revised as SAS No. 69 in 2005, with amendments in SAS No. 93) stated that principles that are "pronouncements of bodies composed of expert accountants," and are issued only after "a due process procedure, including broad distribution," are authoritative and are to be applied where relevant (American Institute of Certified Public Accountants, 2005, p. 716).

The usefulness of authoritative statements to guide management accounting practice is apparent given the diversity of industries and accounting practices within industries. In addition, the business environment is becoming increasingly complex as technological advances make practices of the past obsolete. The role of external business reporting has expanded. In 1994 the AICPA's Special Committee on Financial Reporting (sometimes referred to as the Jenkins Committee) recommended significant changes in the current financial reporting model to include expanded coverage of both nonfinancial or operating data and more forward-looking or future-oriented data. As of mid-2005, these types of changes were still being recommended, but implementation problems had not been resolved. Problems primarily stem from the reluctance of corporate organizations to reveal what they regard to be proprietary data in the areas of nonfinancial and forward-looking information.

The recommendations of the AICPA Special Committee reflect the needs and desires of investors and other business report users to have increasing amounts of information and information of a nontraditional nature. Obtaining nonfinancial and predictive data requires access to previously nondisclosed or proprietary items traditionally used by management accountants within their companies. Thus the IMA, through their SMA promulgation mechanism, may be in a good position to produce suggestions in these areas of recommended increased disclosure.

While investors and others strive to obtain increased amounts and different types of business information, companies with reporting responsibility are concerned with safeguarding information for which disclosure may affect their competitive position. Recommendations are needed for the control of what information should be released in many cases. This issue is one that will likely be addressed by a convergence of several professional accounting groups. If accounting organizations though SMA promulgation or other means are unable to achieve a satisfactory resolution on demands for increased disclosure, the judicial system may ultimately have to establish these boundaries.

PROCESS

In promulgating statements, the MAP committee historically used a Subcommittee on SMA Promulgation. Generally, each subcommittee member oversaw the process of promulgating a particular SMA. After a proposed statement was drafted, there followed a rigorous exposure process whereby input was solicited from other members of the accounting profession through the selection of two advisory panels.

One panel was composed of a sample of IMA chapter presidents or other individual chapter representatives. (In 2005 the IMA had 250 local chapters organized geographically in cities across the United States and 9 chapters in other countries.) The other panel was composed of representatives nominated from other accounting or accounting-related organizations, including the AICPA, the Financial Executives International, the American Accounting Association, and the Society of Management Accountants of Canada. Although no new SMAs had been produced since the combination into the MAC/FAR group, the MAC/FAR Committee was reviewing the existing SMAs and discussing the prioritization of revisions based on a planned practice analysis that was to be completed in late 2005.

Historically, once the two advisory panels' comments were reviewed by the subcommittee and appropriate modifications to a draft made, a proposed SMA was submitted to the MAP Committee for approval. The committee would then take one of three possible actions: (1) approve the draft as recommended, (2) further modify and then approve the draft, or (3) return the draft to the subcommittee to be developed further. Historically, SMAs were published only after completion of this review process and final approval requiring a two-thirds majority vote by the MAP Committee.

CONTENT

The SMA subcommittee was guided by a framework for management accounting that considered five broad categories: (1) objectives, (2) terminology, (3) concepts, (4) practices and techniques, and (5) management of accounting activities. All SMAs are classified and numbered based on this five-element framework. For example, SMA No. 1A is included in the objectives classification. Dates of publication are indicated parenthetically after each title.

In addition to following the five-element framework, the IMA's approach to the content of future SMAs, as with past statements, is clearly based on, and fully consistent with, the MAP Committee's definition of management accounting as follows:

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 non-management groups such as shareholders, creditors, regulatory agencies, and tax authorities. (Management Accounting Practices Committee, 1981)

The majority of issued SMAs are written for use by accounting practitioners. This perspective is consistent with the fact that the greatest number of statements issued to date have been in the Practices and Techniques category. This is also consistent with the stated purpose of an SMA, which is to supply an in-depth understanding of a management accounting subject that would allow a practitioner to implement the concepts and techniques. Often the application of information included in an SMA is illustrated by studies of companies who have implemented the techniques.

The content of issued SMAs ranges from fundamental issues, such as SMA No. 1A, "Definition of Management Accounting," to restructuring the finance function. A review of titles of the statements reveals the range. Note that statements numbered 1A through 2A deal with fundamental aspects of the field of management accounting that guide the IMA. There are many that provide guidance for handling typical responsibilities of staff under the direction of the controller. A number of statements deal with emerging innovations such as benchmarking, activity-based costing, performance indicators, value-chain analysis, electronic commerce, and lean production. There are no statements related to the third category, Concepts. Since the IMA has not yet developed a conceptual framework for management accounting, this lack of statements related to the term concepts is not surprising.

The following list comprises all SMAs issued to date. Statements are revised from time to time. Furthermore, changes in business management and developments in technology affect management accounting in such ways that new statements are required to ensure sufficient guidance for practitioners. Many of these statements can be downloaded without fee by IMA members at the IMA Web site (http://www.imanet.org).

1A "Definition of Management Accounting" (1981). First in the series, SMA 1A sets forth the Framework for Management Accounting and the definition of management accounting that delineates the field.

1B "Objectives of Management Accounting" (1982)

1C "Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management" (1997). (Originally issued in 1983; revised in 1997, but number of original retained.)

1D "The Common Body of Knowledge of Management Accountants" (1986)

1E "Education for Careers in Management Accounting" (1987)

2A "Management Accounting Glossary" (1990)

4A "Cost of Capital" (1984)

4B "Allocation of Service and Administrative Costs" (1985)

4C "Definition and Measurement of Direct Labor Cost" (1985)

4D "Measuring Entity Performance" (1986)

4E "Definition and Measurement of Direct Material Cost" (1986)

4F "Allocation of Information Systems Costs" (1986)

4G "Accounting for Indirect Production Costs" (1987)

4H "Uses of the Cost of Capital" (1988)

4I "Cost Management for Freight Transportation" (1989)

4J "Accounting for Property, Plant, and Equipment" (1989)

4K "Cost Management for Warehousing" (1989)

4L "Control of Property, Plant, and Equipment" (1990)

4M "Understanding Financial Instruments" (1990)

4N "Management of Working Capital: Cash Resources" (1990)

4-O "The Accounting Classification of Real Estate Occupancy Costs" (1991)

4P "Cost Management for Logistics" (1992)

4Q "Use and Control of Financial Instruments by Multinational Companies" (1992)

4R "Managing Quality Improvements" (1993)

4S "Internal Accounting and Classification of Risk Management Costs" (1993)

4T "Implementing Activity-Based Costing" (1993)

4U "Developing Comprehensive Performance Indicators" (1995)

4V "Effective Benchmarking" (1995)

4W "Implementing Corporate Environmental Strategies" (1995)

4X "Value Chain Analysis for Assessing Competitive Advantage" (1996)

4Y "Measuring the Cost of Capacity" (1996)

4Z "Tools and Techniques of Environmental Accounting for Business Decisions" (1996)

4AA "Measuring and Managing Shareholder Value Creation" (1997)

4BB "The Accounting Classification of Workpoint Costs" (1997)

4CC "Implementing Activity-Based Management: Avoiding the Pitfalls" (1998)

4DD "Tools and Techniques for Implementing Integrated Performance Management Systems" (1998)

4EE "Tools and Techniques for Implementing ABC/ABM" (1998)

4FF "Implementing Target Costing" (1999)

4GG "Tools and Techniques for Implementing Target Costing" (1998)

4HH "Theory of Constraints (TOC) Management System Fundamentals" (1999)

4II "Implementing Integrated Supply Chain Management for Competitive Advantage" (1999)

4JJ "Tools and Techniques for Implementing Integrated Supply Chain Management" (1999)

4KK "Implementing Lean Production Fundamentals" (2000)

4LL "Implementing Capacity Cost Management Systems" (2000)

4MM "Designing an Integrated Cost Management System for Driving Profit and Organizational Performance" (2000)

4NN "Implementing Process Management for Improving Products and Services" (2000)

4-OO "Understanding and Implementing Internet E-Commerce" (2000)

4PP "Implementing Automated Workflow Management" (2000)

5A "Evaluating Controllership Effectiveness" (1990)

5B "Fundamentals of Reporting Information to Managers" (1992)

5C "Managing Cross-Functional Teams" (1994)

5D "Developing Comprehensive Competitive Intelligence" (1996)

5E "Redesigning the Finance Function" (1997)

5F "Tools and Techniques for Redesigning the Finance Function" (1999)

5G "Implementing Shared Service Centers" (2000)

Those charged with the responsibility of developing new statements monitor developments in the field, including the IMA's initiatives in providing a conceptual framework for management accounting, as well as in business generally. Such monitoring assures the practitioners that timely guidance will be available. The results of the monitoring will lead to changes and extension of guidance.

see also Accounting ; Institute of Management Accountants

bibliography

Aldridge, C., and Colbert, J. (1997, July). We need better financial reporting. Management Accounting, pp. 32–36.

American Institute of Certified Public Accountants. (2005). Statement on auditing standards No. 69. AICPA Professional Standards. Vol. 1. New York: Author.

Institute of Management Accountants. (1991, June). [Editorial]. Management Accounting, p. 1.

Management Accounting Practices Committee. (1981). Definition of management accounting. Management Accounting Statements. Montvale, NJ: Institute of Management Accountants.

Schiff, Jonathan B., and Penino, Charles J. (1990, Winter). The emerging authority of statements on management accounting. The Journal of Applied Business Research, pp. 87–91.

Vangermeersch, Richard, and Jordan, Robert (1996). In M. Chatfield and Richard Vangermeersch (Eds.), The history of accounting. New York: Garland.

B. Douglas Clinton