Question

There are few types of accounting with different function like management, cost and financial
accounting. How can you differentiate between accounting in creating financial statement for
external stakeholders and accounting for internal processing used?

Answer 1

Accounting for external stakeholders are to be done as per Generally Accepted accounting principles in line with the various regulations and law enacted by the government and any regulatory authority, the accounting in that case is aimed to be transparent so as to provide the external stakeholders a true and fair view of the business of the firm.

In case of accounting for internal processing, the accounts can be made for specific process required which can use accounting principles different from those required by the regulatory organizations, the accounting in that case be more detailed or less detailed as specifically required for the internal processes.

Also there are fines and penalties associated with accounting for external stakeholders if the accounting is not in line with the legal requirements, although no such penalties are associated with internal processing.

Further there can be requirement of audit and other statutory obligations in accounting for external stakeholders whereas audit can be done on accounting for internal stakeholders although it is not statutory.