Week 1 Discussion Question

Identify some of the major differences between the fields of financial and managerial accounting. Compare and contrast these differences in terms of usefulness to managers for decision making. How do organisations cope with managers who have little knowledge of accounting?

Introduction

All accounting information is of importance of the managers. However, the financial accounting information is of much importance as it offers the manager s wider perspective of the company’s performances. The financial accounting information can be used by both the internal stakeholder and the external stakeholders while the managerial accounting information is used only by the internal stakeholders. However, when it comes to decision making, managerial accounting offers the managers with timely information for internal decision making The main objectives of the accounting information is to satisfy the information needs of the users. The main differences between managerial accounting and financial accounting pertain to six main features. For example:

Duration or Fiscal period

Financial accounting mainly provides information about the company’s performances over specific fiscal period or trading period. On the other hand, management accounting is mainly concerned with the preparation of internal accounting information used within the company. The financial accountant records, plan, and control the activities of the organization based on the management accounting information produced with the company. Management accounting information can be produced at a one time and does not have to be after a fiscal period. For example, some companies analyze the stock levels and calculate the profit margins based on the management accounting information (Collis, Holt & Hussey, 2012).

Legal requirements

Financial accounting is a legal requirement under Companies Act 1989. Companies are required by law prepare and publish their financial reports. Companies must prepare their financial reports every fiscal years and the level of details provided by the company depends on the size of the company. However, there is no legal requirement for companies to prepare and publish their management accounts. It is also important to note that many companies usually operate without preparing the management accounts

Financial Reporting Standards

Financial accounts are prepared following a required format and this is usually determined by a number of regulatory elements. For example, company laws, accounting standards as well as stock exchange market determine the format followed. For example, there must meet the financial reporting standards, International Financial Reporting Standards (IFRS), Accounting Standards Codification, Financial Accounting Standards Board (FASB), Decision-Making Framework, Revenue Recognition, and International Accounting Standards. On the other hand, management accounts are not prepared following any predetermined format. Different managers can developed their own format that fits their organization (Weetman, 2013)

Scope

Financial accounting is mainly done in respective to the entire organization. The company prepares financial accounts for the entire organization and not for specific organizational components. The company’s sales reports does not look at a specific products, market segment or brand but the all the products sold by the organization. Management accounting is prepared to reflect specific products, market segment, or business activities. Therefore, the management accounts can be prepared to report on the performance of a specific products, shop, and division in order to make decision in respect to specific product, or market (Callahan, Stetz & Brooks, 2011).

Nature of information

Financial accounting information only present the financial information based on their monetary values. All assets, liabilities, capital and any other information presented there in must be of monetary nature. On the other hand, management accounts have freedom to include as much information as they can both monetary and non-financial information. Most of the management accounting reports includes employee information such as productivity, efficiency, and costs. Sales volume, sale turnover, and sale units. The management can also contain information on customer transaction such as the number of calls received (Drury, 2007, p. 7).

Perspectives

Finally, financial accounts mainly presents the historical perspective of the company’s financial performances on the other hand, management accountants usually analyze the historical performance s of the company to forecast the future performance. For example, budget, variances analysis, cash flow forecasts as well as other performance related information (Fields, 2011).

How organizations cope with managers who have little knowledge of accounting

Management accounting is very important to the management when it comes to decision making because it does not only focus on the entire organization but on specific products, segment, and division that enabling timely and effective decision making. Therefore, most organization trains their employees. These organizations have active human resource managers who can conducts training need assessment and develop an effective employee training and development programs. Most organization take their employee through an intensive training program and also pay for them to further their education to acquire necessary accounting knowledge as they are not cost centers but profit centers and assets to the organization.

Conclusion

While financial accounting is important in decision making and communication with both internal and external stockholders. The fact that management accounting reports are usually prepared whenever they are needed makes them more important in decision making. They are also very much detailed as such can play a pivotal role in decision making. Finally, the fact that they do not have to comply IFRS, IAS or any other regulation makes management accounting more informative and realistic in internal decision making, cost benefit analysis or forecasting.

References

Colin Drury (2007), “Differences between management accounting and financial accounting”, Management and Cost Accounting, p. 7,

Callahan, K., Stetz, G. and Brooks, L. (2011). Project management accounting. Hoboken, N.J.: Wiley.

Collis, J., Holt, A. and Hussey, R. (2012). Business accounting. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Collis, J., Holt, A. and Hussey, R. (2012). Business accounting. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Fields, E. (2011). The essentials of finance and accounting for nonfinancial managers. New York: American Management Association.

Weetman, P. (2013). Financial and management accounting. NY: Pearson; 6 edition.

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