Financial Vs Managerial Accounting
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I will start this discussion by defining the role of accounting, which according to Atrill and McLaney (2009) involves the collection and analysis of financial information to help making informed financial decisions (p.13). In the business environment there are different groups who will show different needs for accounting information, from customers to suppliers, employees and managers. However, I will focus this discussion on the management side, for two reasons, first they are responsible for running the business, and second the business success is highly dependent on their decisions and actions.
With regards to managerial accounting, Atrill and McLaney (2009) argue that it is a form of service that provides economic information to managers and is also part of the businesss total information system. Many scholars have developed convincing arguments and provided sufficient evidence that managerial accounting information is extremely useful for decision making purposes (Collier, 2006), however one question arises: what is the impact of such information on the managers behaviour? To answer this question, I must highlight the key qualities of managerial accounting information, such as relevance (the ability to influence decisions), reliability (absent from significant errors), understandability (existence of clear management accounting reports) and comparability (possibility of identifying business changes and trends) (Atrill and McLaney, 2009), these are essential characteristics that turn managerial accounting into a useful tool for decision-making. For example, management accounting information can help managers developing appropriate objectives and strategies, and it also makes possible the comparison between different strategies. For decision making purposes, managerial accounting can help determining the costs and benefits of a particular course of action, such as developing a new product. It also enables managers to allocate resources more efficiently.
Overall, managerial accounting aims to provide information that impacts on the quality of decisions taken and more important that fulfils the business objectives. On the other hand, some of the criticism against managerial accounting regards the possibility of undermining other key areas that are not being measured (Atrill and McLaney, 2009).
Financial accounting is the other main strand in accounting, and differs from managerial accounting particularly in the user groups to whom it is intended. We have seen that managerial accounting seeks to help managers improving their decision-making capability, whereas financial accounting is more useful for other users, such as employees, customers, suppliers and even competitors (Atrill and McLaney, 2009). The difference between the two can be seen in different areas, for instance, in the level of detail: financial accounting reports tend to be more general and reflect the business status over a period of time, while management accounting reports are often specific and with a considerable amount of detail to help the manager with a particular decision (Atrill and McLaney, 2009).
In many cases, financial accounting is often subject to law regulations, and standard reports are produced to comply with these regulations. On the other hand, management accounting rarely suffer from external regulations and reports can be designed to meet the needs of a particular