The differences between
management accounting and financial accounting include:
1.Management
accounting provides information to people within an organization while
financial accounting is mainly for those outside it, such as shareholders
2.Financial
accounting is required by law while management accounting is not. Specific
standards and formats may be required for statutory accounts such as in the
I.A.S International Accounting Standard within Europe.
3.Financial
accounting covers the entire organization while management accounting may be
concerned with particular products or cost centres.
Managerial accounting is used primarily by those within a company or organization. Reports can be generated for any period of time such as daily, weekly or monthly. Reports are considered to be "future looking" and have forecasting value to those within the company.
Financial
accounting is used primarily by those outside of a company or organization.
Financial reports are usually created for a set period of time, such as a
financial year or period. Financial reports are historically factual and have
predictive value to those who wish to make financial decisions or investments
in a company. Management Accounting is the branch of Accounting that deals
primarily with confidential financial reports for the exclusive use of top
management within an organization. These reports are prepared utilizing
scientific and statistical methods to arrive at certain monetary values which
are then used for decision making. Such reports may include:
·
Sales Forecasting reports
·
Budget analysis and comparative analysis
·
Feasibility studies
·
Merger and consolidation reports
Financial
Accounting, on the other hand, concentrates on the production of financial
reports, including the basic reporting requirements of profitability,
liquidity, solvency and stability. Reports of this nature can be accessed by
internal and external users such as the shareholders, the banks and the
creditors.
Regulation
and standardization
While financial
accountants follow Generally Accepted Accounting Principles set by professional
bodies in each country or International Financial Reporting Standards,
managerial accountants make use of procedures and processes that are not
regulated by standard-setting bodies.
Multinational
companies prefer to employ managerial accountants who have a widely recognized
certification such as CGMA, Chartered Global Management Accountant certified by
the AICPA and CIMA, ACMA certified by the Institute of Cost Accountants of
India, Chartered Management Accountant certified by the Chartered Institute of
Management Accountants, or CMA, Certified Management Accountant certified by
the Institute of Management Accountants.
Time Period
Managerial
Accounting provides top management with reports that are future-oriented, while
Financial Accounting provides reports based on historical information. There is
no time span for producing managerial accounting statements but financial
accounting statements are generally required to be produced for the period of
12 previous months.
Legal
differences in the United States
·
There is no legal requirement for an
organization to use management accounting, but publicly traded firms (limited
companies or whose shares are bought and sold on an open market) must, by law,
prepare financial account statements.
·
In management accounting systems there is no
requirement for an independent external review but financial accounting annual
statements must be audited by an independent CPA firm.
·
In management accounting systems, management may
be concerned about how reports will affect employee’s behavior whereas
financial management concerns are about the adequacy of disclosure in financial
statements.
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