Management accounting can sometimes be called “operations” accounting. This means that it deals with internal company issues rather than the external, cost and income issues of financial accounting. The basic distinction between managerial and financial accounting is that the former must deal with the internal financial health of the firm. It deals with such things as estimating future costs, analyzing department performance and the cost-effectiveness of management policy and procedure. All in all, the breadth of managerial accounting is far greater than the financial one.
The computer revolution has radically altered the nature of managerial accounting. The modern firm is based around a computerized, integrated information system that links all financial elements of a firm together, including financial accounting information, internal operations data, customer data, shareholder information and supply issues, in one system. This means that accounting data is available to everyone who knows use the system, removing, to some extent, the autonomy and specialization of operations accounting. Modern integrated software is removing management accounting’s exclusivity over information.
In an effort to cut costs, many firms, such as Toyota and Harley-Davidson, have adopted the production of just-in-time production. This is when the materials to assemble a product are delivered on the day of production, and those assembled products are shipped out to customers the same day. This eliminates inventory (a major area of managerial accounting) and greatly lessens the complexity of modern bookkeeping. Time management becomes the central area of management accounting in these firms, radically altering the traditional nature of the field.
The corporate scandals that plagued the period of 2000 to 2010 have forever altered the nature of managerial accounting. This field has been hit hard, since management accountants are in charge of the internal financial structure of the organization. Misleading the shareholders almost always requires the cooperation of management accountants. Schemes, like deflating the costs of creating a new product desired by management, overstating inventory stores, understating managerial salaries, inflating managerial accomplishments and other shady behaviors, have now come under intense scrutiny from the general public, shareholders and the government. Ethical issues are central to today’s operations accounting due to its vulnerability to fraud.
Total Quality Issues
As integrated information systems continue to link financial and operations accounting, the basic issues of “Total Quality Management” are linking them even more. The concept of “Total Quality Management” is precisely to integrate the external and internal ideas of the firm. The concept is to eliminate these distinctions so as to create a single, streamlined and integrated accounting system. It is not as if managerial accounting will no longer have its own specific areas of expertise, but rather that it must work closely with financial accounting in financing projects and evaluating internal practices.