Differences between managerial accounting

and financial accounting

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This article discusses the differences between managerial accounting and financial
accounting.

Contents
[hide]

• 1 Introduction
• 2 Differences
o 2.1 Confidentiality and type of information
o 2.2 Regulation and standardization
o 2.3 Time Period

o 2.4 Other differences

[edit] Introduction
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 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.

[edit] Differences
[edit] 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 this nature can be accessed by internal and external users such as the shareholders,
the banks and the creditors.

[edit] 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.

[edit] 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.

[edit] Other differences

• 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 employees behavior whereas management concerns are about the
adequacy of disclosure in financial statements. (BAC)

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challenged and removed. (May 2007)