Comparison of Financial and Management Accounting in Business Finance

This report provides a comprehensive comparison between Financial Accounting (FA) and Management Accounting (MA). It details their differing objectives, audiences, reporting formats, and the rules governing each. FA is geared towards external users like investors and creditors, focusing on historical performance and adhering to standards such as GAAP and IFRS. MA, on the other hand, is tailored for internal use by managers, aiding in planning, decision-making, and controlling business operations. The report also identifies the key users of financial information, including customers, employees, governments, investors, lenders, management, rating agencies, and unions, explaining how each group utilizes this information for their specific needs and decision-making processes. The report concludes by emphasizing the importance of providing accurate and reliable financial data to these diverse stakeholders for informed decision-making.

Difference between Management and
financial accounts & the usefulness of
the financial information to users

TABLE OF CONTENT
Explaining the difference b/w FA & MA....................................................................................3
Users of financial information.....................................................................................................4
REFERENCES................................................................................................................................6

Explaining the difference b/w FA & MA
MA is the field of an accounting that assesses and facilitates the cost related information
to internal parties with an objective to plan, making decision and controlling. MA refers to the
accounting information that is been developed for the managers within the corporations. It is
defined as the practice of identifying, accumulating, measuring, preparing, analyzing,
interpreting and communicating information that is used by the management for planning,
evaluating and ensuring effective controlling within the firm & to ensure adequate use of
accountability for its own resources (Schmidt, 2017). It is concerned with providing information
to the managers for directing and handling the business operations. On the contrary, FA relates
with facilitating information to the stockholders, investors and creditors outside the organization.
MA provides an essential data for smooth functioning of the company while FA facilitates the
scorecard through the use of which an entity’s past year’s performance is been judged.
Point of contrast FA MA
Objectives The main aim of the financial
accounting is to disclose end
results relating to profits and
financial health of the company
on a specific date.
However, the main purpose of
MA I to enable the managers in
planning and setting up
appropriate goals with its
evaluation by providing them
with useful information.
Audience FA produces an information
which is been used by the
external parties like lenders and
the shareholders.
On other hand, MA produces
information which is used within
the company by the employees
and the managers (Bai, 2019).
Optional It is legally compulsory for the
firm to formulate financial
reports and presenting them to
the external users.
MA reports are not counted as
legal requirement so there is an
option with the managers to
prepare the MA reports or not.
Segment reporting It pertains to an overall
organization. Some figures might
be broken out for important units
of the business.
It looks to each and every
department along with an entire
organization.
Focus It emphasize on the history and On other note, it focuses on the

reports on the previous quarter on
yearly basis.
current condition and forecasts
for the future prospects.
Format Reporting of the financial
account is been done based on
the specific format so that several
types of the organization could
be compared easily.
Under this the format is seen as
informal and is made on per
company or department basis as
required.
Rules In FA, rules are been prescribed
by way of standards like GAAP
and IFRS. There exist legal needs
for an organization to follow the
standards provided by IFRS
under FA.
MA reports are only been used
by an internal management
within the company so they are
not considered as the legal
requirement.
Duration of reporting The time period of reporting
under FA is defined that is
annually, half-yearly and
quarterly.
It is prepared as per the need that
is daily, monthly or weekly.
Information It includes only that information
which can be expressed in
monetary value and verifiable.
However, it involves monetary as
well as non-monetary
information that drives goals of
the firm.
Users of financial information
Financial or accounting information is counted as useful for various types of users that are as
follows-
Customers- Financial information is considered as the most useful data for the customers
as it helps in reviewing stability of the company to operate as the long run supplier or it is having
sufficient funds for completing the major project on behalf of them.
Employees-They desire for reviewing the information to make the decisions regarding
whether the firm is the stable employer or not. Getting such information, employees can enhance
their interest level and more participation within the business.

Governments-It analyzes the final reports of the firm in order to determine that it is
paying its tax obligation within the particular time period with adequate percentage (Azar,
Zakaria and Sulaiman, 2019). This information also helps the government in knowing that the
firm is running its business in compliance with the standards and principles.
Investors- They wants to examine accounting information for making decisions in
relation to withdrawing or making further investment based on assessing an entity’s growth and
performance.
Lenders & the creditors- They require information as the part of their decisions
regarding whether to extend credit to business and the proportion of the amount. They would
continue to have interest in information over the time for the purpose of deciding whether their
borrowed funds are at the risk level.
Management team- Managers of the reporting enterprise requires the financial
information for making an operational and the financial decisions in relation to the manner in
which financial results, cash flows and the position of an enterprise can be enhanced.
Rating agencies-Such users’ needs to make close examination of the company’s
accounting information for the purpose of deriving credit rating to overall firm or its several
security issuances.
Unions-Any type of the labor unions who represents company’s employees desire for
seeing to firm’s financial type of information for setting a bargaining position which they believe
that the company could afford for paying.
Thus, a larger group of an individuals and the organization requires an access to the
financial information of the company and due to this the accounting information needs
presentation of the rich set of information both in a company’s final reports and related
disclosures (Cohen and Karatzimas, 2017). These are the main user of the financial information
for the business organization towards whom it needs to report its final reports in a true and fair
manner so that they could be able to take suitable decisions.

REFERENCES
Books and journal
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.
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.
Cohen, S. and Karatzimas, S., 2017. Accounting information quality and decision-usefulness of
governmental financial reporting. Meditari Accountancy Research.
Bai, X., 2019, September. The Organic Integration and Innovative Development of Financial
Accounting and Management Accounting. In 2019 3rd International Seminar on
Education, Management and Social Sciences (ISEMSS 2019). Atlantis Press.