Accounting generally seems to be two different threads, management and financial settlement. Management Accounting, which seeks to meet the needs of managers and financial accounting, and seeks to meet the accounting needs of all other users. The differences between the two accounting types reflect the different user groups that are addressed. In short, the main differences are:
- Nature of submitted reports. Financial accounting is generally a general purpose. That is, they contain financial information that will be useful to a wide range of users and decisions rather than specifically to the needs of a specific group or decision group. However, management accounting reports often serve a specific purpose. Designed with either a particular decision or a certain manager.
- Detail Level. Financial Reports provide users with a comprehensive overview of the performance and position of a business for a given period. As a result, information is collected and details are often lost. Management accounting reports, however, often give managers details of how to make specific operational decisions.
- Rules. Financial statements are for many companies subject to accounting standards that try to ensure that they are prepared in standard and standardized form. Laws and accounting rules prescribe these rules. As management accounting reports relate only to internal use, there are no external sources for the form and content of the reports. They can be designed to meet the needs of individual leaders
- Reporting interval. For most businesses, financial reports are produced annually, although many large companies produce half-yearly reports and produce some quarterly production. Management accounting reports can be produced with the frequency prescribed by the managers. In a number of businesses, managers receive reports on a monthly, weekly, or daily basis that allow them to frequently monitor progress. Additionally, special reports (for example, evaluation of a proposal to purchase a single machine) are produced if necessary.
- Time horizon. The financial statements reflect the performance and position of the business in the past. They look essentially backwards. However, management accounting reports often provide information on future performance and past performance. This is an overly simplified one, but it suggests that financial accounting reports never include prospects for the future. Businesses may provide predictable information to other users for the purpose of overcompending capital or unwanted takeover bids.
- Outline and Quality of Information. Financial Accounting Reports focus on information that can be expressed in cash. Management Accounting also prepares such reports, but is more likely to produce reports that include non-financial information such as inventory (stocks) and physical quantities of output. Financial accounting places greater emphasis on the use of objective and verifiable evidence in reporting. Management Accounting Reports may use less objective and verifiable information, but give managers the information they need.
It can be seen that management accounting is less restrictive than financial accounting. You can rely on different sources and use information that has varying degrees of reliability. The only real test that is to be used when assessing the value of information provided to managers is whether it improves the quality of decisions made.
The difference between the two domains reflects to some extent the financial information. Drivers can control much more about the form and content of the information they receive. Other users need to rely on how well managers are ready to provide or what financial reporting rules need to be provided. Although the scope of the financial statements increased over time, concerns about the loss of competitive advantage and the disregard of the user with regard to the reliability of the forecasted data prompted businesses to resist other users with detailed and extensive information provided to their managers.