Management
accounting principles (MAP) were developed to serve the core needs of internal business managers to improve decision
support objectives, internal business processes,
resource application, customer value, and capacity utilization needed to achieve corporate goals in an optimal manner.
Another term often used for management accounting principles for these
purposes is managerial costing principles.
The
two management accounting principles are:
1)
Principle of Causality (i.e., the
need for cause and effect insights) - the
relation between a managerial
objective's quantitative output and the input quantities that must be, or must
have been, consumed if the output is to be achieved. Principle of Causality
enables modeling the organization's costs based on the relationship between the
inputs and outputs of the resources
involved in the production of products and services it provides. Often this is straightforward when
dealing with strong causal relationships (i.e. raw materials to make product A). However, where weaker causal
relationships exist, costs need to be
attributed according to the concept of attributability, which maintains the integrity of causality.
2) Principle of Analogy (i.e., the application of causal insights by managers in
their activities) -- the use of causal insights to infer past or future
outcomes. Principle o1' Analogy
go~erns the user of management accounting information's ability to apply the knowledge or insights gained from the causal
relationships modeled (e.g., in
planniny~. control, what-if analysis) using inductive and deductive
reasoning about past and future outcomes for
continuous optimization efforts.
These
two principles serve the management accounting community and its customers -
the managers of businesses. The above
principles are incorporated into the Managerial Costing Conceptual Framework (MCCF) along with concepts and constraints
to help govern the management
accounting practice. The framework ends decades of confusion surrounding
management accounting approaches, tools and techniques and their capabilities.
The framework of principles,
concepts, and constraints will drive the classification of management accounting practices in the profession
to "enable a better understanding both
inside the profession and outside, of the compromises that result from inappropriate principles". Without
foundational principles, managers and accounting professionals have no consistent footing on which to challenge or
evaluate new theories of methods for
managerial costing.
In contrast,
management accounting principles have been overlooked from both a conceptual
and a standards point of view and, for the most part, overshadowed by financial accounting standards.
Generally accepted accounting principles applies strictly to financial accounting because it was either the only
guidance they had at the time, or did not
know what else to do.