Functions of Management Accounting: Understanding the 6 Key Functions and Their Impact

The corporate landscape would be very different without management accounting.

Companies would lack the expertise to create strategic decisions based on sound financial planning and performance measurement. Businesses would suffer due to poor projections and a lack of efficient budgeting. There would be a lot of guesswork, bad business calls and a low capacity for innovation. It’s almost a dystopian image, right?

Thankfully, we live in a world where management accounting exists and helps organisations generate high revenue while lowering internal costs. Management accountants are the silent heroes, working diligently in the background to ensure optimal financial management. It’s a well-structured and organised field that uses specific tools, industry skills and financial prowess to deliver long-term success.

To understand why this field is revered across multiple industries, an expert could explain the functions of management accounting — or you could simply keep reading. These functions listed below help accountants fulfil key responsibilities that enable businesses to improve profitability and productivity.

Also Read- What is Management Accounting? A Complete Guide to Understanding Management Accounting

6 main functions of management accounting

Companies rely on management accounting as the backbone of their organisational and financial structure. Management accountants provide valuable insights, sound strategies and accurate financial analysis that help corporations make secure business decisions that align with their future goals. How do they do it? Here are the details that explain the functions of management accounting.

1. Forecasting and Strategic Planning

Management accounting is a lot like chess. You have to think several steps ahead before you make your next move. Accountants have a similar plan of action. They analyse financial data, market trends and economic conditions to make an intelligent prediction for the company’s future. This forecast plays a key role in shaping the objectives of the organisation. The company can make proactive decisions and set its business goals. It also requires strategic planning. Management accountants create a blueprint by combining various factors such as budget allocation, risk management and performance evaluation. When you merge forecasting with strategic planning, you set companies on a successful course where they stand to gain a competitive edge in the market.

2. Risk Management

A significant function of management accounting, risk management helps companies manage financial and operational risks that threaten their stability and profitability. Accountants first identify the potential threats by analysing financial data. These risks could include cost overruns, market fluctuations, economic recessions or poor utilisation of resources. Next, they evaluate the impending consequences of these risks and develop strategies to contain their impact with minimal loss. Professionals will continue to assess and monitor these risks to ensure they don’t hamper the company’s financial goals.

3. Performance Variances

Another key function of management accounting is to use variance analyses to find and analyse discrepancies between the company’s budgeted numbers and the actual financial figures. Accountants use various types of variances, such as revenue variance, cost variance and profit variance. These methods help them determine the extent of differences in the actual and predicted numbers while identifying the reasons. Following that, management accountants can make modifications based on the data analysis. It helps companies recover quickly, optimise costs and continue on the path of sustainable growth.

4. Decision Support

Many experts view decision support as one of the most relevant functions of management accounting. Companies constantly make strategic choices about the direction of the business. Bring in the management accountant. This professional will analyse economic data, study current market trends, review company performance, and create calculated insights that influence operational, financial and strategic decisions. How do they achieve all this? Management accountants will use forecasting, budgeting, risk assessment and cost-benefit analysis to arrive at a logical conclusion.

5. Financial Analysis

Financial analysis is a core function of management accounting, playing a critical role in a company’s success. Qualified accountants can evaluate key ratios, performance metrics and financial statements using various analytical techniques, such as variance or ratio analysis. They can pinpoint the strengths and weaknesses within the company, offering insights to utilise the strengths more efficiently and improve the weak points. Financial analysis also supports other accounting areas, such as budgeting, cost management and investment strategies. It helps organisations make informed decisions that positively affect the stability and success of the business.

6. Communicating financial information

When presenting insights, reports, or recommendations, management accountants need to be eloquent and clear. They must interpret complex data and simplify it for a layperson. These reports represent the company’s financial status and are reviewed by executives, upper management, department heads, and stakeholders. To successfully persuade a company to implement your strategies or financial plan, you need this function of management accounting.

Also Read- The Importance of Management Accounting: Why Learning It Can Boost Your Career Prospects

Key industries that benefit from management accounting

Multiple sectors have profited by incorporating the many functions of management accounting. Qualified professionals have helped companies optimise costs, enhance decision-making processes and minimise financial risks. Let’s explore how management accounting has enhanced operations across various industries.

1. Manufacturing

• Monitor production expenses, raw materials and labour costs to control expenses and maintain budgets.
• Enhance resource allocation through forecasting.
• Assist with inventory management to improve the supply chain process.
• Recommend accurate product prices that maintain a balance between profitability and market value.
• Companies: Toyota, Tata Steel, ITC, Samsung, Biocon, Welspun, etc.

2. Education

• Help educational institutions with financial planning.
• Allocate resources for infrastructure and various programs.
• Analyses expenses and income to preserve fiscal health.
• Companies: IITs, IIMs, Delhi University, JNU, Amity, etc.

3. Healthcare

• Look after cost management in hospitals, nursing homes and other healthcare institutions.
• Budget funds for staff, medical equipment, research, etc.
• Ensure compliance with financial regulations.
• Provide risk management services when dealing with critical and private financial data.
• Companies: Apollo Hospitals, Fortis, Cipla, Thyrocare, etc.

4. Retail

• Track sales, expenses and profit margins for retail companies.
• Help with inventory management.
• Create strategies for cost control and pricing to improve profits.
• Offer insights using market trend analysis.
• Companies: Reliance, Myntra, Future Group, DMart, Shopper’s Stop, etc.

5. Finance

• Assess financial data and make predictions about market trends.
• Help with investment analysis and financial decision-making.
• Work on budgeting, forecasting and financial reporting.
• Make assessments on loan and credit risk.
• Companies: SBI, JP Morgan, HSBC, HDFC, Barclays, etc.

6. IT

• Work on cost management for software development.
• Allocate budgets for research and innovation.
• Create financial plans for tech-based firms.
• Develop forecasts for new technology solutions.
• Companies: Google, Infosys, Apple, SAP, etc.

 

Also Read- How Management Accounting helps in Decision Making?

How can you work in management accounting?

A reputed accounting certification or degree will enable you to develop expertise in various key areas, such as the functions of management accounting. One or more of the following credentials can help you become a competent professional.

1. CMA US

Course topics: management accounting, financial planning, strategic decision-making, cost management, performance analysis, internal controls, and risk management.

Duration:

Working professionals: 6 to 9 months

Students: a year to 15 months

Job profiles: cost accountant, controller, FP&A manager, financial analyst, risk manager

2. CMA India

Course topics: taxation, cost control, internal auditing, regulatory compliance.

Duration: 3 to 4 years

Job profiles: Cost Accountant, Tax Consultant, Financial Controller, Internal Auditor

3. CIMA

Course topics: financial strategy, cost control, risk management, taxation, corporate finance, performance management, and decision-making.

Duration: 2 to 4 years

Job profiles: Business Analyst, Risk Manager, Finance Manager, Corporate Finance Analyst, Financial Controller

4. MBA/Masters in Accounting

Course topics: financial management, taxation, accounting principles, auditing and business strategy.

Duration: 2 years

Job profiles: Financial Controller, Accounting Manager, Tax Consultant, Corporate Finance Manager, Management Consultant

Also Read- Management Accounting Skills required for New-age Professionals

Learn management accounting with Proschool’s courses.

If you want to pursue the US CMA or CIMA course, you need a strong support team in your corner. Proschool is one of the top coaching institutes in India, offering a well-rounded and cohesive learning program that helps students successfully navigate complex and challenging syllabi. The professors are industry experts, engaging students with real-life scenarios and case studies. They simplify complex concepts and offer detailed explanations on various topics, including the functions of management accounting. Students are trained to ace the exams and take on exciting job positions in the industry.

Highlights of learning with Proschool:

• It is one of the only top institutes to offer classroom-based sessions as well as online classes in several cities.
• Multifaceted resources are available, such as full-length mock tests, practice papers, study plans, Q&A banks, etc.
• Students also receive doubt-clearing sessions, revision classes, personalised attention and career support.
• Proschool offers full-length mock interviews, resume building and soft skills development as part of the career guidance.

Conclusion

While we have listed the six main functions of management accounting, there are others to consider. A reputed certification will help you get a complete education in the various functions and explain the role of management accounting. So don’t waste any more time. Register with a top coaching institute like Proschool today and take the first step toward becoming a global management accountant. With the proper training and guidance, you will be ready to begin your career in the exciting world of finance and accounting.

FAQs

What is the main function of management accounting?

The primary purpose of management accounting is to analyse and present financial and non-financial data that directly impact how a company makes business decisions.

Why is communication considered a key function of management accounting?

Effective communication ensures that all information is analysed and shared with clarity and transparency. Management accountants must be able to communicate effectively and persuasively so that company leaders can make informed business decisions.

Does the US CMA syllabus cover the main functions of management accounting?

Yes, the US CMA syllabus covers relevant functions such as strategic planning, risk management, budgeting and decision-making. The course also delves deeper into other critical areas in management accounting and offers students a comprehensive learning experience.

How can I work in management accounting with top MNCs and global firms?

A globally acknowledged certification like an MBA, US CMA or CIMA is a surefire way to get hired by large multinational corporations. These courses help you gain industry knowledge and relevant skills for various accounting responsibilities.