Question

Define how managerial accounting differs from financial accounting. Be sure to address the diverse users of managerial and of financial accounting and provide examples of how at least five users would utilize accounting information.

Illustrate how managerial accounting information assists managers in performing the roles of planning, directing, and controlling by providing an example of each.

Briefly explain how the Sarbanes-Oxley Act (SOX) affects management accountants specifically, and answer this question: In your opinion, is SOX enough to deter unethical accounting practices internally? Be specific and support your opinion with academic research.

Answer 1

Difference between Financial & Mangerial accounting:

Basis	Financial Accounting	Management Accounting
1. Users	Internal and external General-purpose financial statements can be used by external and internal users. However, they are prepared primarily for external users, such as the investors, lenders and creditors, and the government.	Internal The reports prepared in managerial accounting are strictly for use by internal users, i.e. the management.
2. Compliance with accounting standards	Required Financial accounting requires strict compliance with established accounting standards.	Not required Management accounting is not required to follow accounting standards since the only users are the members of the management.
3. Time orientation	Historical Financial accounting processes historical information and summarizes them in the preparation of financial statements.	Current and future Management accounting deals with current problems of the company. Also, management accounting involves the preparation of budgets and forecasts.
4. Emphasis	Reliability, verifiability, objectivity of financial information	Relevance and timeliness, to provide the maximum aid in management decisions
5. Necessity	Mandatory Financial accounting is required by law. Companies are mandated to furnish financial statements periodically.	Optional Management accounting is not mandatory. However, a company that does not use it will suffer great consequences.
6. Purpose of reports	General-purpose Financial statements provide general information, addressing the common needs of its users.	Special-purpose The financial reports in managerial accounting address a specific issue or concern.
7. Details of reports	Concise Financial statements present data in an summarized and concise way.	More detailed Financial reports carefully detail all information that the management should consider in making specific decisions.
8. Sources of data	Sources within the company, i.e. the accounting records of the company	Any source, both internal and external such as interest rates, political environment, economic and industry concerns, etc.
9. Frequency of reports	Financial statements are usually furnished monthly, quarterly, annually.	Financial reports in management accounting are prepared as the need arises.