Business Finance Report: Differences Between FA and MA and Importance

This report provides a comparative analysis of Financial Accounting (FA) and Management Accounting (MA). It details the key differences between them, including their basis, scope, and application. FA focuses on recording and reporting financial information for external users, adhering to specific standards, while MA supports internal decision-making with a broader scope. The report also emphasizes the importance of financial information to various stakeholders, such as investors, management, creditors, employees, and the government, highlighting how financial statements influence their decisions and actions. The document is a solution to a business finance assignment, offering a clear understanding of both accounting methods and their significance in the business environment.

Business Finance

TABLE OF CONTENT
Difference b/w FA & MA............................................................................................................3
Importance of financial information to its users..........................................................................4
REFERENCES................................................................................................................................7

Difference b/w FA & MA
Basis Financial accounting Management accounting
Meaning It classifies records, assesses and
summarizes financial affairs of
an entity.
It helps in making for effective
decisions regarding the business
operations in terms of routine
activities of the business.
Application FA is done for preparing the final
accounts in order to show or
reflect accuracy and the true
picture of the financial affairs.
However, MA helps the
management in taking
appropriate steps and the
strategies within the business.
Scope The scope of FA is seen as
pervasive but not more as
compared to the management
accounting (Schmidt, 2017).
On other note, the scope of MA
deemed as broader as it includes
all the activities of the business.
Measuring grid Under FA, only the quantitative
aspects are been measured in an
adequate manner and it ignores
he qualitative aspects of an
entity.
It includes an assessment of both
quantitative and the qualitative
information as it takes into
account each and every prospect
of the company.
Dependence FA is not dependant on the
management accounting.
However, MA requires help from
the financial accounting for
making the right decisions at
right time.
Basis of the decision making Under this the historic
information is taken as the base
for the decision making.
Conversely, it considers
predictive and the historic
information is kept as the basis of
the decision making.
Statutory needs It is stated as legal compulsion in
framing the financial accounts of
all types of the companies.
Contrary to it, MA does not
contain any statutory
requirements.
Format FA has the particular format with
respect t presenting and in
recording for the financial
However, it does not have any set
format in order to present
information to the internal

information as provided under
IFRS.
management.
purpose It is been used for the purpose of
reporting the financial results and
performance to the external
users.
On other state, it is only been
used aiming for guiding or
directing to internal parties
present within an enterprise
(Hlaciuc and et.al., 2017).
Rules Under this the financial
statements are prepared based on
the standards or rules stated by
IFRS or GAAP.
Under this no rules are specified
for framing the reports.
Verifiable It presents verifiable and
appropriate information to the
stakeholders in form of the final
reports.
In this the information
represented is found as predictive
and could not be verified on an
immediate basis.
Thus, both the accounting tools are indicated as the great or crucial tools for running the
business smoothly. MA is mainly devoted for serving the management related decisions,
however, without FA, its functioning tend to be narrower and limited (Graybeal, Franklin and
Cooper, 2018). On contrary, FA is depicted as the statutory need and is required to formulate the
final reports for every accounting period that is around 1 year because it is legally mandatory for
all the organization to disclose the right and accurate information to potential and the existing
investors along with the government.
Importance of financial information to its users
The financial statements of a company affect the performance of other parties in several
manners which makes them interested in these statements and it includes the company’s
shareholders, investors, government, creditors and employees. They are also known as the
stakeholders of the company because they are interested in company’s financial statement,
performance and its overall profitability. Its importance to its users is as follows:
Investors: An investor is an individual or a party that provides capital to the business so
that it can survive and expand its operations to achieve high profitability. The investors give

funds to the business in exchange of equity ownership so that it can achieve long term gains from
the profits earned by the organization. It is very important for them to know about the financial
performance of the company because it helps in determining whether it is feasible to continue,
improve or exit the firm with its share of capital.
Management: Management includes the owners, directors and managers that make
strategic decision to ensure company’s balanced growth and that it achieves its desired goals and
objectives effectively and efficiently (Azar, Zakaria and Sulaiman, 2019). It is imperative for
management to know about financial statements like cash flow analysis, balance sheet and
income statement to analyze whether the business has enough liquidity and also to make several
comparisons regarding the financial performance of the company with previous years and then
make important decisions.
Creditors: Creditors involve the parties that lend goods or money on credit to a business
and they are most interested in interpreting the financial statements to understand the soundness
of business and to check whether the company has the capacity to repay its debt or not. The
financial soundness of a business can be identified through an understanding of Income
statement and Balance sheet.
Employees: It is imperative for employees to know about the company’s financial
stability and total profitability. The financial information about the company plays a
psychological impact on the minds of employees and labors therefore it is advisable for business
to provide sufficient salary/wages and bonus to its employees if high profits are earned. It
increases their motivation to work and the desire to achieve goals and objectives effectively and
efficient.
Consumers: The main objective of customers is to purchase the goods and services are a
reduced price which means that systematic accounting control will make sure that the company
is going to reduce its cost of production and the customers will have to pay fewer prices for the
similar products and services.
Government: The governments keeps a regular check on the on the operations of
company that earn a good amount of profits and thus it is interested in the financial statements of
that business for the purpose of taxation (Cascino and et.al., 2019). With the help of these

statements, government can easily identify the defaulters and take legal action against them.
Also, it is the duty of every company to maintain full transparency with the government to
ensure smooth functioning of the business and to avoid legal trouble.

REFERENCES
Books and journal
Azar, N., Zakaria, Z. and Sulaiman, N. A., 2019. The Quality of Accounting Information:
Relevance or Value-Relevance?. Asian Journal of Accounting Perspectives. 12(1). pp.1-
21.
Cascino, S. and et.al., 2019. The usefulness of financial accounting information: Evidence from
the field. Available at SSRN 3008083.
Graybeal, P., Franklin, M. and Cooper, D., 2018. Distinguish between Financial and Managerial
Accounting. Principles of Accounting, Volume 2: Managerial Accounting.
Hlaciuc, E. and et.al., 2017. The interface between financial and management accounting. The
USV Annals of Economics and Public Administration. 17(2 (26)). pp.103-110.
Schmidt, M., 2017. Aligning financial and management accounting policies: what drives
integration?–Empirical evidence from German IFRS 8 segment reports. Advances in
Management Accounting. 28. pp.155-189.