Question

What are the main objectives of comparative analysis and why are they important to external users of the financial statements, such as investors?

What are the main differences in the role of financial accounting and managerial accounting?

Answer 1

What are the main objectives of comparative analysis and why are they important to external users of the financial statements, such as investors?

The main objectives of comparative analysis is to benchmark an organization performance with that of the industrial leader to determine whether the performance of the firm is moving towards the right direction.Also,it helps to compare the performance of rivals and that of the industry and this creates a sense of direction.

Comparative analysis are useful to user of financial statement such as investor since they establish whether the firm is worth the investment by determining whether the amount invested will earn meaningful returns.

Comparative analysis also,aids in helping the management and shareholders on which actions to take to improve performance.

the comparative analysis provides analysts with the trend of the firms performance and thus helps external users such as investors in making informed decisions of whether to invest in the company or not.

A near examination on a monetary explanation is utilized to recognize any new patterns for particular or various time allotment; utilized for straight crosswise over correlation. Benchmarking analyzes one organization's execution to another business, which enables proprietors and administrators to decide how well the organization works under the same monetary conditions. At the point when an organization is essentially behind its rivals, there is ordinarily a noteworthy issue close by. Near proportion investigation tends to strip away any bookkeeping approaches that change or modify an organization's profit, taking into account a one-tone survey on budgetary execution.

What are the main differences in the role of financial accounting and managerial accounting?

In general, financial accounting refers to the aggregation of accounting information into financial statements, while managerial accounting refers to the internal processes used to account for business transactions.The differences between financial and managerial accounting, are categorized as follows:

• Aggregation. Financial accounting reports on the results of an entire business. Managerial accounting almost always reports at a more detailed level, such as profits by product, product line, customer, and geographic region.
• Efficiency. Financial accounting reports on the profitability (and therefore the efficiency) of a business, whereas managerial accounting reports on specifically what is causing problems and how to fix them.
• Proven information. Financial accounting requires that records be kept with considerable precision, which is needed to prove that the financial statements are correct. Managerial accounting frequently deals with estimates, rather than proven and verifiable facts.
• Reporting focus. Financial accounting is oriented toward the creation of financial statements, which are distributed both within and outside of a company. Managerial accounting is more concerned with operational reports, which are only distributed within a company.
• Standards. Financial accounting must comply with various accounting standards, whereas managerial accounting does not have to comply with any standards when information is compiled for internal consumption.
• Systems. Financial accounting pays no attention to the overall system that a company has for generating a profit, only its outcome. Conversely, managerial accounting is interested in the location of bottleneck operations, and the various ways to enhance profits by resolving bottleneck issues.
• Time period. Financial accounting is concerned with the financial results that a business has already achieved, so it has a historical orientation. Managerial accounting may address budgets and forecasts, and so can have a future orientation.