Managerial And Financial Accounting
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Financial statements are a necessity when it comes to businesses. They are used by both internal managers as well as outside users and provide information about the entire company. Managerial accounting is primarily used by individuals within a company or organization. The main purpose of financial accounting is to prepare financial reports that provide information about an organization’s performance to external parties like creditors, investors and tax authorities (Hilton, 2006).
There are several key differences between both managerial and financial accounting. The first key difference is in the purpose of each method. For example, managerial accountings’ purpose is in decision making and the control of information while financial accountings’ purpose is more general, as it used to provide general information for credit and investment decisions. Another key difference between the two types of accounting is frequency of preparation. In managerial accounting, reports can be created for any period of time (i.e. — daily, weekly, monthly). Financial reports are usually generated for a set period of time, such as fiscal year. Managerial accounting reports are prepared utilizing scientific and statistical methods to arrive at monetary values (Financial, 2007). Examples of these reports include sales forecasting, budget analysis, and merger/consolidation reports. On the other hand, financial accounting focuses on the production of financial reports, including basic reporting on profitability (this is of specific interest to potential investors). The last key difference between managerial and financial accounting is the regulation and standardization of the two. Financial accountants follow GAAP (generally accepted accounting principles). These principles are set by a professional body. Managerial accountants utilize procedures that are not regulated by a standard-setting body. Both financial and managerial accounting is important to all organizations. Without managerial accounting, management would not be able to forecast and make sound decisions. It helps upper management evaluate, plan and control the operations of the organization. Financial accounting is equally as important to an organization in that it helps demonstrate an organization’s status to outside investors. The information provided in financial accounting helps prospective investors determine if a particular company is worth investing in.
Ethical perspectives have severely affected the corporate world and the outlook on the accounting field as a whole. The Institute of Management Accountants’ (IMA) “Standards of Ethical Conduct for Practitioners of Management Accounting and Financial Management” have communicated how ethical behavior should be practiced in the profession. The four major categories found in this Standard are competence, confidentiality, integrity, and objectivity. The first category, competence, relates to the fact that all professionals in the field of accounting should practice in alignment with the laws and standards (i.e. — GAAP). An example of violating this standard is destroying documents or files that are evidence in an official proceeding. For example, during the Enron investigation a few years ago, a court convicted one of the accountants with deleting files connected with the investigation (Haywood & Wygal, 2004). The second IMA Standard, confidentiality, discusses the importance of refraining from using confidential information as an advantage (either professional or personally). An example of violating this Standard is telling family members or friends to sell stock on a company that is doing poorly before the information is publicly stated. Integrity is the third category within the IMA Standards. It is important for accountants to avoid conflicts of interest and to be honest and fair. They shouldn’t accept