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  • Monique Huizar

Managerial Accountants are Superior to CPA's - Part 1

In this paper I outline, in a nutshell, the core concepts of accounting that serve as the basis for my argument that management accountants are superior to public accountants.

The first SMA (Statement on Management Accounting) issued in 1981 by the Institute of Management Accountants presents a comprehensive definition of “management accounting” referring to those who work in industry and government as follows:


Management accounting is the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholder’s, creditors, regulatory agencies and tax agencies.


Depending on the size of the organization, management accountants can be divided into various areas such as cost, systems, tax, financial, and auditing. The role of a management accountant is not to be confused with the function’s public accountant, or CPA’s. The primary purpose of CPA’s is to certify the work of a management accountant for the public to use as an independent check on the reporting business. They are less concerned with financial accuracy then they are with financial material thresholds. Thus, a management accountant is much more valuable than a public accountant.


Management assertions: (AU 326):

Assertions are representations by management that are embodied in financial statement components. They can be either explicit or implicit and can be classified according to the following five broad categories:

1. Existence and occurrence

2. Completeness

3. Valuation and allocation

4. Presentation and disclosure

5. Rights and obligations


The purpose of management representation is to:

· Confirm oral representations given to the auditor

· Indicate and document the continuing appropriateness of such representations

· Reduce the possibility of misunderstanding concerning the matters that are the subject of the representations

· Correlate with financial statements the operational completeness, proper recognition, measurement, and disclosures (Generally Accepted Accounting Principles)


Management Representations (AU 333):

An auditor should obtain written representations from management as a part of an audit of financial statements performed in accordance with Generally Accepted Auditing Standards.

The internal control structure is the policies and procedures established to provide a reasonable level of assurance that the organization’s specific objectives will be achieved.

Audit risk is the probability that an auditor unknowingly fails to modify their conclusive opinion about the financial health of the business under question. It consists of three factors:

Inherent Risk, also called Business Risk: it’s the susceptibility of the financial statements due to macroeconomic, industry-wide, and entity-wide activities.

Control Risk, also known as Information Risk: It’s the susceptibility of the financial statements to a material misstatement that client’s controls will not detect on a timely basis.

Detection Risk: The probability that the audit procedures fail to detect material misstatement in the financial statement.


Internal Control includes the processes and procedures implemented by the business to provide reasonable assurance that control objectives are achieved with regards to:

o Effectiveness and efficiency of operations

o Reliability of financial reporting

o Compliance with applicable laws and regulations


In order to integrate the function of internal controls with proper accounting methods, the conceptual framework underlying financial accounting, generally accounting principles (GAAP), provides three levels as follows:

(1) Basic objectives

- Informatory in nature, both with regards to hindsight analysis and future forecasts

(2) Fundamental concepts

- Qualitative and quantitative attributes bridging broad and detailed reporting objectives

(3) Recognition and measurement

- Comprised of three basic categories: assumptions, principles, and constraints

Each of these framework points can be further explored into greater detail.


In brief, the value of an accountant with hands-on experience is more valuable than a public accountant.


The public accountant, as an outsider, relies on in-house staff. A management accountant sets out to practice their ethical propeller in an industrial capacity and is vested in the success of the business whereas the motive of a public accountant is to bypass job escalation, degrading those with vaster and richer experience. The management accountant can’t hide behind the curtain of public accountants the way public accountants thrive on.

For these and many reasons (overlooked fraudulent activity at Enron, Countrywide, etc., perhaps due to conflicts of interest), let’s all do our part at holding each other accountable: talent matters. I’m happily employed when I’m transparent and instructional even without my CPA license!

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