It is often thought that the role of a managerial accountant, or an accountant in general, involves only being involved at “tax time” and when all of the real business of the company is over. This could not be further from the truth. In fact, managerial accountants often wear many hats and are involved in many of the day-to-day operations of the business. Accountants help establish business plans, continuously measure performance, create ongoing profit and loss statements, and let others know when it is operationally sound to spend money, among various other responsibilities.
Bill Nicholson is a financial analyst for Chevron USA, Inc, which is third on the list of Forbe’s Fortune 500 list. (Fortune 500, 2009) He has been with the company for twenty years. Every year, Bill sits down with the leadership team of his specific area and they put together a rolling three-year business plan. The business plan will be adjusted according to current market conditions (i.e., cost per barrel of oil). The business plan will be used as a benchmark for all future production, revenue, operating expenses, capital expenses, etc. This is how performance will be measured. (Personal interview conducted January 15, 2009) Once this business plan is established, the fun does not stop there.
Every month, when the final numbers come in, Bill updates his spreadsheets with the previous month’s data. The data will then be used to calculate a scorecard where the metrics can be used to measure performance. With the price of oil being so high earlier in 2008, a lot of money was being poured into development, so production numbers were high, revenues were high, and so was spending. Everything was exceeding the original business plan! Then oil prices began to fall right after they put together the business plan for 2009, 2010, and 2011. Many revisions were needed to be made to this business plan because it was based off of oil being over $100 per barrel. Managerial accountants need to stay on top of market conditions which will affect their company, both positive and negative.
When Bill compiles this data on a monthly basis, he puts it together in a profit and loss statement (PLS). The PLS will show, as stated earlier, the production, revenues, operating expenses, and capital expenditures. However, it will also include depletion costs of the reservoir, which is not actual money paid out, but it is similar to how a business would include a loss in the depreciation of a company vehicle. As Chevron removes oil from the reservoir, the reservoir becomes depleted, thus there is a loss in value. The PLS will also include costs for taxes and credits. Under each heading, there will be subheadings for the various costs. An example would be for operational costs, where you would have subheadings for taxes & licenses, company labor, business related expenses, transportation, allocated systems, etc.
The managerial accountant is also responsible for letting the company know when it is time to spend or to save. When the price of oil shot up, Bill brought it to the attention of the leadership team that there was a lot of maintenance that needed to be done on the wells, which would not necessarily add revenue, but it would prevent higher costs down the road, and with the price of oil where it was, it was a great opportunity to spend the money now. The maintenance got completed, production equipment is in much greater shape, and the equipment will operate more efficiently and effectively through this period where oil has tumbled. Bill made a wise choice in bringing it to the attention of his superiors. Managerial accountants must ensure that they are keeping up on not only the company’s production, revenue, and expenses, but also outside elements which can affect these three things.
There are a variety of other responsibilities which managerial accountants must undertake. When engineers submit authorizations for expenses to Bill in order to have a cost element created for an upcoming job, he looks the documents over to ensure that the cost centers are correct, as each oil field has its own cost center, and he looks to make sure all other pertinent information is present. Bill is called upon to run various reports, create various spreadsheets, and is called upon by leadership when major business decisions are to be made.
It is clear that managerial accountants do more than just “the books.” According to Bill, it is true that around the time of the end of the fiscal year it usually is a bit more busy and hectic, he is still plenty busy keeping up with measuring performance and keeping an eye on the external forces which have an impact on the company. Bill states that one must have a love for numbers when considering a position in accounting. He went on to state that he even plays with numbers in his own free time, often calculating various scenarios come personal tax time or when playing around with retirement numbers. A managerial accountant does not just crunch numbers. He/she will be in a position to track performance, give advice, and play a key role in the business-decisions of the company.
References
Fortune 500. (2009). Retrieved from http://money.cnn.com/magazines/fortune/fortune500/2008/index.html
Nicholson, B. (2009). Personal interview with Bill Nicholson, Financial Analyst, Chevron USA, Inc. on January 15, 2009
