Differentiation between financial accounting and managerial accounting.
Managerial and Financial
The knowledge area of accounting can be categorized into numerous diverse classes and areas. The fields of managerial and financial accounting are only two different groups of the large knowledge area of cost accounting system. Within the two diverse modules of accounting that is, managerial and financial, there are several similarities and dissimilarities (Ryan, 2004). This does not only lie in these two categories but the differences and the similarities lie even in their guidelines and principles and in terms of management information and reporting also. An important aspect in the two areas also lies in their certification requirements also, Certified Management Accountant (CMA) for the managerial area and Certified Public Accountant (CPA) for the financial module (Ryan, 2004).
Certified Management Accountant (CMA) and Certified Public Accountant (CPA)
In a nutshell, the managerial accounts can receive a certified accreditation. A Certified Management Accountant (CMA) is basically an accountant who has received a certified accreditation in the field of managerial accounting (Robinson et.al, 2014). On the other hand, financial accounts can also receive a certified accreditation. A Certified Public Accountant (CPA) is basically an accountant who has received a certified accreditation in the knowledge area of financial accounting. Vital to note here is that, both accreditations CPA and CMA need a qualifying training, skill in the related areas in addition to passing an exam to be recognized as a professional (Robinson et.al, 2014).
Managerial versus Financial
In summary, the field of managerial accounting is a section of a firm or organization’s admin information structure, which makes available information on accounting and other measurable information to managers at all departments within the firm (Corina et.al, 2010). This crucial information is then used by the managers for forecasting, directing, decision making and monitoring the firm’s operations. Financial accounting, on the other hand, is the use of pertinent accounting info for the purpose of reporting to stakeholders outside the organization (Corina et.al, 2010).
The information prepared in this area is mainly used for printed financial statements and other forms of financial statements. Based on information on these two areas, it is clear that managerial accounting focuses on the requirements of managers inside the organization instead of the people or groups external to the organization. In contrast, the main users of financial accounting info are the existing and future stakeholders, financiers and investment specialists. Therefore, it is correct to conclude that the key likeness between the two knowledge areas is that they depend on information from a company or firm’s basic accounting structure, primarily the cost accounting system.
Rules and Regulations
In trying to analyze the rules and regulations between the two areas, it is evident that managerial accounting does not need any regulations. This is because information is only intended for the managers inside the company only. However, the field of financial accounting calls for regulations. The financial accounting must entirely follow a set of generally acknowledged rules, principles, and processes widely referred to as the General Accepted Accounting Principles (GAAP). These rules (GAAP) are controlled by a body called the Financial Accounting Standards Board (FASB) along with the Securities and Exchange Commission (SEC). A final note here is that, generally, the guidelines for accountants highly rest on their individual professional principles along with their professional moral principles.
Management and Reporting
Accountants working in the managerial field and financial fields have the duty to operate in competency, discretion, honesty, and impartiality. Therefore, management accountant’s statements habitually concentrate on the subunits inside the company, for example, the different departments, sections, geographical sectors or the different product lines. Basically, these reports are usually centered on collective past data, approximations, and forecasts of upcoming events. These reports are normally and very detailed as the operations of the company may depend on them entirely. In summary, financial accounting reports mainly concentrate on the organization or the company in its entireness. These reports are established totally based on past transaction information.
Based on the vital aspect on time horizons, financial accounting is normally based on the past, that is, one financial year. On the other hand, for the managerial accounting, information is not based on any particular time horizon but the central emphasis here is on the future (efinance, 2016).
Relevance and Precision of Data
Information that is based on financial accounting is normally 100% viable and very specific. Essentially, all the information on financial accounting has proof to back it (efinance, 2016). In contrast, information on managerial accounting is not indeed 100% viable (efinance, 2016). In managerial accounting, the information is only required to be pertinent, appropriate and coherent to those who receive it. In summary, it is close to impossible for anyone to predict the sales perfectly.
In financial accounting, independent audit of statements is a compulsory procedure in a majority of countries. For example, in the United States, the body of Certified Public Accountants undertake the independent audits and while in a country such as India, the body of Chartered Accountants (CA) undertake the independent audits (efinance, 2016). In managerial accounting, there is no particular rule or obligation for conducting independent audits. The management, at its pleasure, can agree to take the resourcefulness to undertake an independent audit for the purposes of ensuring competent and efficient management (efinance, 2016).
While it is vital to focus on the system aspect of both financial accounting and managerial accounting, the financial accounting module does not concentrate on the general system that an enterprise has for making a profit, however, it focuses on its results only. In contrast, the managerial accounting module focuses entirely on the operations of the system. In this way, the managers will be able to monitor the different ways to increase returns by solving any system issues.
Looking at the valuation bit of accounting, financial accounting will habitually address the appropriate manner of valuating of properties and liabilities, and as such, financial accounting is involved with the damages, reassessments, and so on. Managerial accounting, on the other hand, does not concentrate on the valuation of either assets or liabilities, however, managerial accounting will only focus on the output part.
Generally, the knowledge area of accounting is an essential occupation especially inside an organization or company additionally, it is vital in the business world. Managerial accounting with a certification of CMA, financial accounting with a certification of CPA are two different areas in the world of accounting. Though there are some similarities, the differences in the use of the two fulfills both the inner and exterior needs of a company’s accounting system. Notably, there is also the view that more teaching is needed to be completely acquainted in the field of financial accounting.
Corina, D. et.al, (2010), Managerial accounting vs. financial accounting in the knowledge society. Retrieved on 11th March 2016 from http://fse.tibiscus.ro/anale/Lucrari2010/067.%20Ducu%20Corina.pdf
efinance, (2016), Difference between Financial Accounting and Management Accounting. Retrieved on 11th March 2016 from https://www.efinancemanagement.com/financial-accounting/difference-between-financial-accounting-and-management-accounting
Robinson, P. et.al, (2014), Contemporary Accounting PDF. Cengage Learning, Australia.
Ryan, B. (2004), Finance and Accounting for Business. Cengage Learning EMEA, Boston, United States.