Are Management Accounts Produced by Accountants Actually Useful for the Business Owner and Other Key Stakeholders?

Date
11 October

Author
Jamie Allen

Following on from our previous blog where we discussed the production of Management Accounts by accountants, we are going to think in more detail about how useful these same Management Accounts are for the Business Owners and other key stakeholders in the business.

We had established that Management Accounts are typically financially focused and therefore most useful to the accountants preparing them as well as auditors, however, these should also be useful to the Business owner – especially where their accounts are outsourced, and they are paying for these to be produced.

In slightly larger organisations more in-depth information is likely to be required in addition to the Management Accounts for reporting to their Boards or Investors, as well as monitoring operational performance. This may include more operational data, KPI’s relative to the business or reports from specific departments to provide you with a global and more holistic view of the business and to use as part of wider business meetings to staff, higher management and/or shareholders. In some circumstances, these operational reports do not require the Management Accounts but are produced in isolation based on the underlying data by in-house finance teams, specific departments or financial analysts. 

This is particularly the case where data needs to be analysed at a more granular level to the standard Profit and Loss and Balance Sheets provided – for example analysing revenue/costs based on geographical region, product, department or contract.  In these examples is it therefore really essential for the business to pay for Management Accounts to be produced, especially in a world where there is a wealth of software offerings available which will automate the production of basic management accounts for you?

That is not to completely dismiss Management Accounts – when prepared well these can provide a very good foundation for building additional reports – for example by building in budgets to enable variance analysis, or by using the actual historic data to drive forward-looking forecasts for your business. And come audit time these can save a lot of time and costs in preparing the requisite tax and financial filings. That said it does raise the question as to what the optimal way to produce all the relevant reports in the business is, as well as where the responsibility for producing these lies. Is it reasonable for an outsourced accountant to produce all these reports, and would they want to? Would they have the industry-specific expertise required to do so and provide relevant insightful commentary?

If not, is it preferred this exercise is fully taken in-house? If so, this could be more expensive and also carries the risk of hiring an internal finance team and that those hired will not have the ability to prepare all these metrics and KPI’s for the Board Pack on a regular enough basis for the senior management and department heads to monitor the data effectively. This is also on the basis that the responsibility for preparing all internal reports would fall to them as financial professionals, rather than relying on reports prepared by those involved in operations or specific departments who might be closer to the data and have more specialist knowledge on how the business operates. 

All in all, it seems that the role of the accountant is changing as many have said before me. But also, I think the expectation of what is required by accountants and accounting practices in regard to reporting should (and already has) changed. I don’t believe that the traditional excel financial reporting pack add value anymore. I also don’t think that a basic Profit and Loss, Balance Sheet and Cash Flow sets the bar high enough and practices need to go beyond this, and paper printed packs, to truly add value to their clients. Do you agree?

In the next blog, we discuss this issue further and the need for true expertise.

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