In sports there are some legendary rivalries. In baseball, it’s the New York Yankees and the Boston Red Sox. In college football, University of Michigan and the Ohio State University. But how about that classic rivalry between financial accountants and managerial accountants?
Financial accountants, typically CPAs who produce or audit a company’s financial disclosure statements, may not even be aware of any rivalry. But they have the reputation of viewing managerial accountants, who mainly produce internal information for decision making, as minor league players. However, make no mistake: the managerial accountants resent their second-class status in the accounting community.
The animosity between the two may even be worse in academia. Financial accounting professors who teach or write about producing financial statements, compliance with the Sarbanes-Oxley law or how to approach organizational mergers and acquisitions view themselves well above faculty who teach cost accounting. As evidence, some universities have shifted managerial accounting courses from being required to being elective.
But here’s a switch: I think this pecking order is backwards. Let’s reverse the role rankings. Why? Let’s first consider how well the audit profession has been doing at preventing financial scandals and keeping perp walks by executives off the front page or the evening news. Not very! Enron is only one of many company names that people equate with financial disclosure failure.
When you step back for some perspective , financial accounting simply deals with valuation – what is an organization worth if you were to sell it? But managerial accounting is about creating value – contributing to management decisions that ultimately provide the basis for financial accounting. Which is more important?
Yes, I realize it matters that capital markets and the investment community have confidence in financial reporting. (See “If Only Internal Financial Transparency Were As Good As the US Government’s SEC Laws” ). But I think it is even more important for managers and employee teams to have reasonably accurate and relevant managerial accounting information to make better decisions with (“Do Accountants Lead or Mislead?”).
Managerial accounting is one the important components that constitute the various methodologies of the Performance Management framework. Its information is what can give an organization a superior and sustainable advantage to satisfy the needs of its investors and employees. If investors were given the choice of having only one, the astute investors would choose managerial accounting.
Gary Cokins
One Comment
However, this phenomenon is at least partly the fault of management accounting, and the firms that hire management accounts.
Public accounting firms are very organized on campuses. They are a highly concentrated source of jobs for accounting students, so they get students' attention. Years of coordinated efforts by accounting firms has gotten universities to organize their accounting degree programs to fit the needs of the public accounting profession and the CPA exam. Most accounting faculty have work experience in public accounting, and teach financial-accounting-oriented courses, so they push public accounting on students as the only way for smart /intelligent students to go.
At my university I am the only faculty with industry work experience (i.e., non-CPA-firm experience). Thus, I take it upon myself to tell students how rewarding it can be to be a value-adding member of such an organization.
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[...] response to my recent post, Does Financial Accounting Deserve Superiority Over Managerial Accounting?) I received a thoughtful e-mail from Jim Horsch, former chair of the Board of Regents of the [...]
[...] managerial accounting (i.e., internal reporting; for creating value). You can read more in my blog “Does financial accounting deserve superiority over managerial accounting?” I am predicting a reversal shift in importance of these two branches of accounting and possibly a [...]