Question

Distinguish between managerial and financial accounting as to primary users of reports? What types and frequency of reports, and the content and purpose of reports? how does it effect a comapny

Answer 1

Users of management accounts is typically the internal management of the company. Management accounts are generally more detailed in terms of segment wise or product wise or location wise or cost code wise (and much more) information and data. The primary objective of this is to provide information to management to enable them to take critical business divisions. Management accounts typically contain lot more details and often, sensitive information, which may not be available to any external parties beyond the designated decision makers. Depending on the management of the company, typically, management accounts are drawn on a monthly basis. Inaccuracies may lead to wrong decision making

Financial accounts are typically drawn out for publishing to external parties. The entity needs to report its performance to various stakeholders like equity holders, creditors, bankers, etc. Further, the entity also needs to comply with regulatory requirements of the concerned stock exchanges and the relevant corporate laws. Therefore, primary objective of financial accounts is to reporting to external parties and statutoty compliances. These are generally used by tax authorities too. The contents are generally decided based on the regulatory requirements. Typically, financial accounts set will contain balance sheet, profit and loss account, cash flows, equity statement and notes to accounts. Financial accounts are generally drawn on an annual basis. This too, is often driven by regulatory requirements. Non compliance may invite regulatory and reputational implications

If the managememt accounts and financial accounts a very different from each other, the company ends up maintaining two sets of accounts for each purpose.

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