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WHITE PAPER: GLOBAL

MANAGEMENT ACCOUNTING

PRINCIPLES

Improving decisions and building successful

organisations

An outline of the rationale, research approach, and consultation process

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WHITE PAPER: GLOBAL MANAGEMENT

ACCOUNTING PRINCIPLES

Improving decisions and building successful organisations

BACKGROUND

CIMA and the AICPA together power a joint venture with a mission to promote the science of

management accounting on the global stage1. Consequently, our two organisations collaborated

to produce the Global Management Accounting Principles2, which we hope will form the

standard by which management accounting is performed across all organisations.

In order to ensure the continued relevance of our profession to the needs of employers globally,

the Chartered Institute of Management Accountants (CIMA) regularly reviews and updates the

syllabus of its Professional Qualification, as well as the examinations and assessment of the

syllabus. During the research phase for the update of the 2010 syllabus, it became clear to the

CIMA research team that the approach to, and quality of management accounting, varied

significantly between and even within organisations.

Unlike financial accounting, which has long had standards and legislative requirements to direct

its practice, management accounting has largely been without similar guidance. A significant

number of the organisations we spoke to during our syllabus research, expressed interest in the

development of a simple set of key principles to guide good management accounting practice.

Few wanted more regulation. While standards are externally compelling, principles are internally

motivating, and provide broad guidance. Consequently we embarked on the development of

principles that are intended to help organisations succeed, by unlocking the value that an

effective management accounting function can provide.

RESEARCH METHODOLOGY

In 2010 CIMA adopted a new approach to updating its syllabus using a global engagement

strategy. CIMA reached out and consulted with a wide selection of stakeholders which included

senior finance and non-finance executives, global employers, and CIMA’s international

membership base. The syllabus research was undertaken in three phases – face to face

interviews, roundtables and an online questionnaire. We conducted face to face interviews with

67 organisations across Malaysia, South Africa, the UK and the USA and hosted roundtables in

thirteen countries. While this research methodology enabled CIMA to create a new competency

based syllabus which was designed to meet the expressed needs and qualification desires of

these global employers and members, this process also highlighted a strong need for a set of

universally applicable management accounting principles.

1 http://www.cgma.org/AboutUs/OurMission/Pages/default.aspx

2 www.cgma.org/principles

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The Principles research used the syllabus work and its research methodology as its basis and

this approach was further developed.

The following engagement approach was adopted:

This staged approach was founded on the aim of engaging with practitioner management

accountants, academics, leading companies and the wider economic and regulatory

environment in which management accountancy operates. In the spirit of improving quality as

well as of transparency and scrutiny of our process, a public consultation was included.

Commencing with intensive desk based research, we began by reading relevant literature that

included: Berle and Means (1932); Burnham (1941); Van der Merwe (2007); Bromwich and

Bhimani (1989, 1995 and 2009); Zott and Amit (2010); Simons (2010) and Ahrens and

Chapman (2006). Simons focused our thinking on the customer need, both the internal and

external customer of management accounting. Ahrens and Chapman expressed the unique role

that management control practices play in connecting diverse activities across organisations,

which led us to consider the position of management accounting as lying at the crossroads

between finance and management.

For internal consultation phase, we convened an advisory panel3 of senior finance professionals

and academics at organisations in the UK, USA, China, Hong Kong, Japan, India and Australia.

This global approach was to ensure representation across the world’s key markets; a range of

industries; both the public and private sectors; practice and academia.

The research team then created an initial framework for the Principles and what followed was

an iterative process between staff, the advisory panel and the governance committees of CIMA4

and AICPA5. During this phase staff also conducted face-to-face interviews to test initial thinking

with a range of leading organisations including Accenture, Bank of America, Deutsche Bank,

Fidelity Investments, IBM, JP Morgan, Mars, Ropes & Gray, and Wrigley’s as well as academics

at the 2013 Global Management Accounting Research Symposium. The research Team also

held a series of workshops with members of the Advisory Panel and representatives from

CIMA’s Technical Committee, from which the public consultation document was developed. It

contained ten questions, to help respondents structure their feedback.

3 http://www.cimaglobal.com/About-us/The-Global-Management-Accounting-Principles/The-Global-Management-Accounting-

Principles-Advisory-Panel/ 4 CIMA’s Technical Committee 2012-2014

5 AICPA’s Business and Industry Executive Committee 2012-2014

1. Desk based

research

2. Internal Consultation

3. Refine 4. External

Consultation 5. Refine

6. Final fatal flaw review

7. Launch

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Universal relevance of the Principles was paramount, so an external, public consultation was

deemed necessary. The consultation draft of the Management Accounting Principles was made

available on our website and we invited public responses. The consultation ran for 90 days from

20 February to 20 May 2014.

CONSULTATION APPROACH

Prior to the consultation, we undertook stakeholder mapping, to identify the key groups who

would provide the most valuable feedback. Key stakeholders groups included the Consultative

Committee of Accounting Bodies, the International Federation of Accountants, major regulators

and relevant government departments globally, the Confederation of British Industry, the

Financial Conduct Authority, the International Integrated Reporting Council, the Big 4

accountancy practices, major employers, small and medium sized organisations, the Federation

of Small Businesses, and investors including the World Bank. These stakeholders received

tailored invitations to participate in the consultation.

We received 157 written responses from organisations across the Americas, Europe, Africa, the

Middle East, Far East and Australasia. A range of industries were represented, including

construction, mining, energy, utilities, education and manufacturing. 107 of respondents (61%)

were from the profit sector, 25 from the not-for-profit sector and 25 from the public sector. 54 of

the responses (34%) came from organisations with more than 1,000 employees. The responses

can be viewed on our website6.

Total Americas Africa Asia Australasia Europe Middle East

Unknown Practitioner Academic Unknown

Written Responses

157 17 36 25 6 66 3 4 136

11 10

Roundtable Attendees

247 31 52 100 4 53 7

- 216 31 -

404 48 (12%)

88 (22%)

125 (31%)

10 (2.5%)

119 (29%)

10 (2.5%)

4 (1%)

352 (87%)

42 (10%)

10 (3%)

The consultation phase also included proactive data collection. During the 90-days we held

roundtables in Australia, China, Dubai, Ghana, India, Malaysia, Pakistan, Poland, Russia, South

Africa, Sri Lanka, the UK, the USA and Zambia.Each roundtable was facilitated by two members

of the research team, and at the majority of roundtables, a minimum of 8 organisations were

represented. In total, 247 people attended a roundtable of which 216 were practitioners and 31

were academics.

Prior to each roundtable, participants were sent a copy of the draft consultation document, as

well as a briefing note that detailed the main topics for discussion. Each roundtable was hosted

under Chatham House Rules and transcripts were recorded for research purposes only.7 The

sessions were structured in to three sections:

6 www.cgma.org/principles

7 When a meeting, or part thereof, is held under the Chatham House Rule, participants are free to use the information received, but

neither the identity nor the affiliation of the speaker(s), nor that of any other participant, may be revealed.

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1. The definition of management accounting and how might it be improved

2. The three suggested principles and others which should be considered

3. The approach to strategy development and execution, and the core practice areas of the

management accounting function.

Worksheets were also available for attendees to write down thoughts they either hadn’t raised

during the discussion or that they felt were sufficiently important for the research team to also

have in hard copy.

ANALYSIS AND RE-DRAFT

After the close of the consultation, the research team convened in London to compare feedback

from the roundtables and to begin analysing the written responses.

The following steps were involved in the research approach:

Collation of the written responses including worksheets from the roundtables

Collation of the notes from and recordings of the roundtables

Structuring of the responses by question

Analysis of the responses

o Identify common themes, both supportive and critical

o Prioritise suggestions for amendment

o Compare prioritised amendments against the draft document

o Select amendments and record justification [typically based on number of

respondents making a similar case or the importance of a particular responder

e.g. government body or regulator]

o Produce amendment

Amend the Principles document

Pilot the amendments with the Advisory Panel and governance committees

Amend again

Several themes emerged from our analysis of these multi-sourced responses:

Be bolder - Participants in the consultation almost unanimously responded that the document

should be bolder, less passive and should clearly demonstrate the role that management

accounting plays in generating and preserving value for organisations. The definition of

management accounting was deemed to be too long, too timid and lacking in a reference to

finance. Many respondents said that ‘getting the numbers right’ is the bedrock of their

contribution to the organisation and is the basis on which trust is built and influence achieved.

Tighten the narrative - Respondents requested a clear logic flow throughout the document. It

was felt to be too prescriptive with a focus on the how, rather than the why and that the updated

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version should place emphasis on what results achieve rather than the process of getting the

results.

Include the people element – A key consideration for respondents was the need to stress the

importance of the contribution of individuals, and the competencies and skills that they need to

be effective in their roles.

Be explicit about ethics, governance and sustainability – In both the written responses and

roundtable discussions, the increasing importance of stewardship in the management

accountant’s role was suggested for inclusion.

Allow for different approaches to strategic development – The consultation participants

were clear that many organisations have a more fluid approach to strategic development than

was described in the draft consultation document and there was some criticism that our

description of performance management did not sufficiently reflect more emergent approaches

to strategic development.

Simplify diagrams – Some of the diagrams were deemed too complicated. It was felt that

Figure 1 in particular required too much explanation and therefore didn’t work well as a

standalone diagram.

Taking account of these themes, the research team focused their attention on how to redraft the

Principles so that they became more relevant and appropriate to practice and supported the

ambition for the profession which had been strongly expressed in the responses received.

Following a series of review meetings, the research team performed thorough analysis of the

responses and roundtable transcripts and began making changes to the draft Principles.

MAJOR CHANGES POST CONSULTATION

The logic flow of the document has improved. There is now a clear narrative and stronger link to

improving decision-making.

The narrative is illustrated by a new Figure 1.

Narrative: Organisational success requires many things, but an effective

management accounting function is crucial. An effective management

accounting is one where competent people, apply principles to managing

the performance of the organisation through the practices they undertake.

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People

The role of people has been included more explicitly, and a closer link between the Principles

and competencies of management accounting professionals has been made.

The competency framework is discussed and a diagram that directly maps the Principles to the

changing role of management accountants, is now included (Figure 5).

At most roundtables, the importance of appropriately skilled people was raised as a necessary

precursor to the implementation of Principles. This is why the narrative of the document now

flows from competent people, applying the principles to improve the organisation’s performance

through their areas of practice, to helping the organisation achieve sustainable success.

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Principles

Three Principles, have become four. The triangle above was the Principles diagram in the

consultation document. The rectangle below is the Principles diagram in the post-consultation

document.

“People are the company’s most important non-financial value-creating factor”

“Just thinking about this conversation and the obvious gap around leadership, communication and

what skills do we need, which is not fully covered here”

“There might be something around to help position the type of people we're producing, so just

something around the skills, knowledge, attributes, the behaviours of people who deliver these

activities. This is about activities and the things that should be done. What is the type of well-

rounded individual we need?”

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The Principles themselves have been rewritten as statements to which the management

accounting function should aspire:

‘Preparing relevant information’ has become ‘Information is relevant’

‘Modelling value creation’ has become ‘Impact on value is analysed’

‘Communication with impact’ has become ‘Communication provides insight that is

influential’

The section on professional values was considered contrived, so the ‘PRIDE’ section about

values and behaviours has been replaced by the inclusion of a 4th Principle ‘Stewardship builds

trust’ which increases the focus on better business and ethical behaviour. It involves being alert

to potential conflicts of interest and not putting personal or short-term commercial

considerations before the longer-term interests of the organisation or its stakeholders.

The professional values are now covered by the competency framework section but are also

made much more explicit in the ‘Stewardship builds trust’ Principle, which articulates the

accountability, credibility, integrity and ethics of management accountants.

A significant number of roundtable attendees discussed how their roles are more frequently

requiring them to act as the conscience of the organisation. The Chief Finance Officer is

“In their present state they are activities, rather than underlying principles and we

recommend that they are expanded to make it clearer what is expected.”

“..might want to broaden this to define the management accountant as an active

participant in decision making.”

“Perhaps a bit passive –could also cover the management accountant’s role in achieving

organisational change.”

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increasingly regarded as the principal steward of the organisation’s assets, both tangible and

intangible. The written responses to the consultation also affirmed this, with a large number of

respondents mentioning the need for ethical behaviour to be made more prominent.

Another fundamental change that the consultation exercise drove was to our definition of

management accounting. This was the most answered question and led us to shorten the

definition and make it less passive.

This definition has been changed from:

“The integrity of the system and the person must be evident in any conceptual framework

even if it is more about process than the person. If the people responsible for the system

are unethical and unprofessional then the system itself is moot, and worse, misleading. So

when you focus on the member in industry, the management accountant, I think ethics

needs to be as prominent as the practice itself.”

“The values and ethics under the performance management cycle diagram and the

triangles of the principles need to be brought out much, much more.”

“include a section on acting ethically and with integrity”

“When one associates CIMA and fundamental principles, the ethical principles

immediately spring to mind. It does take a moment to consider that these are not replaced

by the Management Accounting Principles, but are in addition to them, and instead fall

under the CGMA umbrella. Is this distinction clear enough? Should the ethical principles be

incorporated into the GMAPs (Global Management Accounting Principles)?”

“Sustainability should also be taken into account as it is an essential ingredient for a

company's long-term success.”

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Management accounting creates values and ensures sustainable success by

contributing to sound decision making though the comprehensive analysis and provision

of information that enable and supports organisations to plan, implement and control the

execution of their strategy.

To: Management accounting is the sourcing, analysis, communication and use of

decision-relevant financial and non-financial information to generate and preserve

value for organisations.

Performance

The approach to strategy development and execution has been rewritten to incorporate a

“The definition should say more about what kind of comprehensive analysis is undertaken and also

indicate that it is both financial and non-financial information.”

“This is very well crafted definition although it may sound a bit passive.”

“It [the definition] is rather long-winded. I do not think that it can "ensure" sustainable success but it

can certainly help to facilitate it.”

“The Performance Management Cycle model is narrow. Expand to discuss/ define measuring and managing value

- then speak about the cycle.”

“Appears to be too rigid in its view of organizational strategy.”

“Management Accounting involves numerous short periods of execute / review - this is not captured in the

Performance Cycle Diagram. Execute/Modelling Value Creation - "Early warning indicators allow for quick

corrective action". This needs to be mentioned earlier in "Data Collection" or in the Principles.”

“Although the document does imply it a number of times - one crucial element of management accounting - is a

good understanding of the causal links that drive the business model. It is a fundamental in providing scenario

analysis and modelling value creation.”

“The strategic approach taken by an organisation defines the kind of business model that gets created. A business

model comprises of a series of repetitive value creating activities performed to obtain an output and outcome. Once

the business model comprising of inputs-activities-outputs-outcomes is finalised then efficiency standards can be

set up for the activities and outcomes of the business model or its components”.

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stronger focus on feedback loops, continuous improvement and causal learning.

Table 1 in the post-consultation document, provides a clear application of management

accounting principles to the performance management of organisations. It was also felt

important for us to stress the importance of the external environment as a starting point in

performance management, rather than strategic implementation. This is now illustrated in Figure

6.

Practices Fundamentally the global consultation exercise endorsed our approach of applying the

Principles to every practice area of management accountancy but in analysing the responses

and the transcripts of the round tables we concluded that there was a majority opinion in favour

“The section on strategy should place more emphasis on external information as a starting point.

This is often overlooked and management can become too internally focused.”

“One shortcoming that I noticed is the fact that the performance management cycle does not

address any remedy or resolution in respect of dealing with the external environment’s threats.

The 12 practice areas are specific elements of a management accountant’s functions which form

part of a self-governing exercise to help a business sustains its growth and survival. How can

these practice areas assist an organisation (if at all possible) to counteract any external threats

remain unclear”

“The strategic approach taken by an organisation defines the kind of business model that gets

created. A business model comprises of a series of repetitive value creating activities performed to

obtain an output and outcome. Once the business model comprising of inputs-activities-outputs-

outcomes is finalised then efficiency standards can be set up for the activities and outcomes of the

business model or its components."

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of creating two additional practice areas. Each of the four principles is applied to all the practice

areas, and these have been restructured so that the most strategic issues appear at the top of

each sub-section Therefore there are now 14 rather than 12 practice areas to which the

Principles are applied. Financial strategy and Internal Audit have been included. While Internal

Audit is, for reasons of objectivity, not a practice area of the management accounting function, a

significant number of respondents cited Internal Audit as an area which requires management

expertise, not least internal control and risk management.

The ‘Financial strategy’ area has been included following feedback at our roundtables, that

management accounting plays an increasingly strategic role in ensuring that corporate

objectives are appropriately funded.

“…an assurance function seems to be missing, whether it be Internal Audit, internal control or even

HSE”

“Management Accountants need to be seen as strategic instruments in meeting corporate

governance standards as a way to further compliment the functions of Internal Audit and Risk

Management.”

“Some explanation of what the interface and role is with Internal Audit will be helpful in guiding

Management Accountants asked to participate in cross functional workgroups with Internal Audit on

issues like Information Assurance and Security, Data Quality etc”

“There should also be reference to strategic financial management including balance street structure, cost of

capital, dividend and buyback decisions.”

“We are playing a bigger role in ensuring that the organisation has timely access to financial resources by

working with the respective programme teams to provide support for identifying and generating sources of

income/resources and ensure this will adequately fund our investment plans and internal resource

allocations.”

“investment appraisal” and “price and product decisions” should include modelling and strategic tax

management should include (financial) strategy.”

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Other practice areas have been renamed to more closely reflect their content, for instance

‘Budgeting’ and ‘Financial Controls’ have been incorporated in to ‘Internal control’ and

‘Management and budgetary control’.

CONCLUSIONS Participants in the development of the Principles were broadly very supportive and welcomed

the draft consultation document. Where content was criticised or challenged, respondents often

provided alternative wording and suggestions. We are very grateful to everyone who

contributed. The research approach and public consultation in particular, helped to increase the

relevance of the Global Management Accounting Principles to organisations across all

geographies, industries and sectors. Engagement with a diverse stakeholder base has

improved the quality and applicability of the Principles.

“Management Accountants should also play an important role in defining the internal controls in various

areas in organisation- revenue recognition, resource consumption and accounting, asset acquisition

and disposal, liability recognition and extinguishment including the definition of approval limits for

various levels of management in the organization”

“Should the core practice areas include "Internal Control"? The development, implementation, and

assessment of Internal Controls? Is Internal control part of Financial Controls? The areas that I am

familiar with seem to work very well. In the areas that I am not exposed to within my organization, it

could seem too prescriptive.”

“Another area of management accounting practice is financial controls. It appears that much of what is

now evolving as shared services would fall into this area. With so much happening in this area you

might want to consider breaking it out separately or possibly talking about it more specifically in the

document.”