Differences Between Managerial Accounting and Financial Accounting

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Managerial Accounting

What Does Managerial Accounting Mean?
- The process of identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals. This is also known as "cost accounting."

- 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

What Does Financial Accounting Mean?
- Reporting of the financial position and performance of a firm through financial statements issued to external users on a periodic basis.

- 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 fiscal 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.

Differences between managerial accounting and financial accounting

The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization, whereas managerial accounting information is aimed at helping managers within the organization make decisions

* Confidentiality and type of information

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 these 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 (GAAP) set by professional bodies in each country, managerial accountants make use of procedures and processes that are not regulated by a standard-setting bodies.

However, multinational companies prefer to employ managerial accountants who have passed the Certified Management Accountant (CMA) certification. The CMA is an examination given by the Institute of Management Accountant, a professional organization of Accounting professionals. This certification is different and distinct from the CPA or Chartered Accountant certificate.

* Time Period

Managerial Accounting provides top management with reports that are future-oriented, while Financial Accounting provides reports based on historical information. However, Management accountants based their reports on historical values, while employing statistical methods to arrive at future values.

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.

* Other differences

• There is no legal requirement for an organization to use management accounting but publicly-traded firms (limited companies or incorporated companies whose shares are bought and sold on a 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...
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