What is the Difference Between Financial Accounting and Management Accounting?
Often, those not involved in accounting do not realise that the field has four major branches, tax accounting, auditing, management accounting (also called managerial accounting) and financial accounting. Auditing and tax accounting are self-explanatory. However, there are significant differences between financial and management accounting which are worth mentioning. Our expert business accountants have laid out the differences below.
As a business person, you need to clearly understand the roles undertaken by everyone connected with your company. Learning the key differences between financial accounting and management marketing will simplify the accounting process and increase efficiency. At M2 Corporate, your success is our business, so you can relax knowing we have professionals who can bring the best solutions to your company.
What You Need to Know About Financial Accounting
- Financial accounting focuses on preparing reports about activity that has happened during a certain period. Preparing the statements involves a significant amount of meticulous recording of financial activity, the stream of transactions, and the economic activity occurring due to regular business operations.
- Once the reports are prepared, a financial accountant will share the information gathered with various public entities such as board members, industry regulators, and the public.
- Preparing financial statements, whether annually or quarterly, is a hallmark of the financial accountant’s job description. The reports are vital for investors and board members to ensure the company is progressing and growing.
- Financial Accountants also deliver the statements to those inside the company. The information is critical for assessing past successes and areas where optimal growth was not achieved.
- Creditors and industry regulators also require financial information to plan their actions and decisions.
- While financial accounting looks at a company’s historical record, it can be helpful to those involved with the planning. However, a financial statement must stick to the appointed timeline, and it may not contain any predictions regarding what could occur.
Key Points of Management Accounting
- Unlike financial accounting, management accounting focuses on bringing information to those who are primarily insiders in the company. The same degree of careful preparation is essential for management accountants as for financial accountants.
- Managerial accountants collect, measure, interpret, and analyse financial information to assist business owners and managers plan for the future. So, accurate assessment is vital.
- The data found in management accounting is not intended for those who are not company insiders. The information from managerial accountants will help in planning strategic changes and future organisational goals.
- Management accountants also provide information that can influence and improve how company resources are allocated.
Differences in Regulations
Even though the accountants are working for the same company, there are two very different sets of regulations that govern financial and managerial accountants.
- Management accounting focuses on sharing information within the company. This means individual businesses and even management accountants are free to create the formatting for their reports in whatever way serves the company best. The downside of this is that without a centralised and regulated way of managing reports, finding specific information is time-consuming
- Financial accounting operates within a strictly enforced perimeter. Uniformity is vital to generating the reports that will be a part of key decisions. Many (if not most) lenders and investors look at these financial records and nothing else when making decisions regarding investing money within the organisation or reducing their investment.
The regulations regarding financial accounting are quite specific, including when and in what order different reports can be made public. Maintaining consistency regarding financial statements is vital.
Differences in Reporting Findings
Financial and management accounting have diverse reporting methods based on who receives the reports.
- Financial accountants tend to make their reports concise and grouped in ways that reveal what is most vital without divulging too much detail. Of course, this makes sense considering the statements will be public, and few businesses want all of their details out for anyone to see.
- Management accountants report their findings in a very technical and specific language. Generally, the statements will also feature some educated predictions regarding the best ways for the company to gain a competitive advantage.
Regardless of your industry, it is likely that you will need the expertise of a managerial accountant as well as a financial accountant to maintain a balanced look at your company’s past and future. The professionals at M2 Corporate can help you manage your accounting and ensure every detail is in order. For more information about the many solutions, we bring to the table, feel free to contact us.