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October 27, 2014

Global principles needed to underpin management accounting: CIMA

By Isabella Grotto

The Chartered Institute of Management Accountants (CIMA) launched the final version of its Global Management Accounting Principles, following an extensive consultation process.

The aim of CIMA’s principles is to improve decision-making processes within organisations struggling under data overload, dispersed workforces and rapidly changing environments.

CIMA and the American Institute of Chartered Public Accountants (AICPA) jointly commissioned research into these challenges, interviewing 1,100 senior executives from 35 countries across the world.

Among the respondents, only 36% felt they could easily guarantee consistent quality decisions at all levels of their organisation, while 91% expressed the desire for a decision process allowing them to gain greater insight from available financial and non-financial data.

Moreover, 73% of executives believed successful companies would increasingly empower workers to make autonomous decisions and 89% said better management in the future would be helped by a stronger partnership with their businesses’ finance departments.

Speaking to The Accountant, CIMA executive director of education Noel Tagoe said the decision to publish the principles was grounded in feedback from the institute’s members.

"One of the things we kept hearing was the fact that, whereas other aspects of accounting had standards and other guidelines that underpinned practice, the practice of management accounting didn’t have any such thing at all," he explained.

An effective management accounting function is key to business performance, Tagoe said: "You need competent people, butcompetent people aren’t enough: you need principles that underpin the practice and are there to help organisations manage their performance well."

"What we then began to hear from executives is that managing and decision making became a lot more difficult than it was and was indeed putting in danger the ability of the organisations to be able to plan ahead and to make decisions regarding their future."

In terms of implementation, he said the first step has to be to increase awareness in order to "generate a demand for organisations now to use the principles in various ways."

DiagnosisOn top of this, he added companies need a diagnostic tool in order to allow them to "start asking themselves questions about how they are applying the principles in two fundamental areas of practice: in their performance management systems and in their normal practice areas as accountants."

This project is already ongoing, he explained: "We are developing and close to finishing a diagnostic tool that we will very likely launch at the end of the first quarter of 2015." According to Tagoe, the tool can be used by all manner of people internal and external to the organisation "to be able to evaluate the quality and health of the financial system in the organisation."

In terms of implementation and monitoring, a primary objective for CIMA is to "encourage organisations to self-report their use of the principles." According to Tagoe, it is this self-reporting that will allow CIMA to gauge the take-up among businesses.

While "there is a danger in the credibility of the self-reporting", he admitted, this issue can be alleviated with the help of assurance: "this is where the internal audit functions of organisations and even external auditors are able to assure that this is being done," he explained.

Looking to the future, he said: "One of my wishes is for auditors to adopt in particular the diagnostic tools as a means by which they can cross-check the soundness of the financial system in order to determine the extent to which they rely on it for audit work," and then take steps accordingly.


Related story:

Interview: CIMA launches a consultation "of principle"

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