Statements on Management Accounting

Statements on Management Accounting (SMA) are promulgated (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 has a membership of more than 100,000.

HISTORY

One of the chief activities of the IMA is to conduct and sponsor research in management accounting. In 1969 the IMA (at that time operating using the name "National Association of Accountants"ame changed effective July 1, 1991, and is hereafter referred to as the "IMA") created the Management Accounting Practices (MAP) Committee to serve as its senior technical committee. This committee was, and is currently, charged with the task of promulgating statements on management accounting that reflect the views of the IMA. The MAP Committee membership includes twelve representatives appointed by the IMA president from corporate and public accounting as well as education. These representatives are widely considered to be expert authorities in accounting. Past members have included members of other prominent accounting regulatory groups such as the Financial Accounting Standards Board (FASB).

PURPOSE

The purpose of the MAP 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 Financial Accounting Standards Board, 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 MAP Committee 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 (GAAP) (Schiff and Penino, 1990). As of 1999, such authority has not been granted. There is some support for this position. The American Institute of Certified Public Accountants (AICPA) Statement of Accounting Standards (SAS) No. 5 has defined these issuances as "pronouncements of bodies composed of expert accountants." Also, they are issued only after "a due process procedure, including broad distribution" and SMAs describe existing practices that are "generally accepted" (AICPA, 1982, p. 9).

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 is also expanding. 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.

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 types of data 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 uses a "Subcommittee on SMA Promulgation." Generally, each subcommittee member oversees the process of promulgating a particular SMA. After it is drafted, each statement is subjected to a rigorous exposure process whereby input is solicited from other members of the accounting profession in the form of two advisory panels. One panel is composed of a sample of IMA chapter presidents or other individual chapter representatives. (The IMA has more than 400 local chapters organized geographically in cities across America.) The other panel is composed of representatives nominated from other accounting or accounting-related organizations, including the American Institute of Certified Public Accountants, the Financial Executives Institute, the American Accounting Association, and the Society of Management Accountants of Canada.

Once the two advisory panels' comments have been reviewed by the subcommittee and appropriate modifications to a draft have been made, a proposed SMA is submitted to the MAP Committee for approval. The committee will 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. SMAs are published only after completion of this review process and final approval requiring a two-thirds majority vote by the IMA's Management Accounting Practices Committee.

CONTENT

The SMA subcommittee is guided by a framework for management accounting that considers 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 (Institute of Management Accountants, 1981):

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.

The majority of issued Statements on Management Accounting 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 Statements on Management Accounting ranges from fundamental issues, such as SMA No. 1A, "Definition of Management Accounting," to very specific accounting practice techniques, such as the (1999) SMA No. 4FF, "Implementing Target Costing." The following list comprises all Statements issued to date. [Those marked * are, as of 1999, currently being reviewed for revision.]

• 1. Objectives
• 1A* "Definition of Management Accounting" (1981)
• 1B* "Objectives of Management Accounting" (1982)
• 1C "Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management" (1997)
• 1D* "The Common Body of Knowledge of Management Accountants"(1986)
• 1E* "Education for Careers in Management Accounting" (1987)
• 2. Terminology
• 2A "Management Accounting Glossary" (1990)
• 4. Practices and Techniques
• 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)
• 4O "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)
• 5. Management of Accounting Activities
• 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)