Financial and management accounting, their comparative...

Financial and management accounting, their comparative characteristics

In international practice, accounting is divided into financial and managerial.

Financial Accounting is a system for collecting and summarizing accounting information that provides accounting registration and registration of business transactions, as well as preparation of accounting (financial) reports.

Financial accounting covers a significant part of accounting, accumulating information about the organization's property - fixed assets, intangible assets, leased property, financial investments, cash and cash equivalents, other current assets, liabilities of the organization, capital, other sources of property formation and economic processes.

Financial accounting provides for obtaining information necessary for the preparation of financial statements.

The main objective of financial accounting is the reliability of accounting for financial performance of the enterprise, its property and financial condition.

Consumers of financial accounting are mainly external users: state tax authorities, banks, suppliers, buyers, potential investors. In some countries, for example, in the United States and Great Britain, the information generated in the financial accounting is primarily aimed at meeting the needs of investors and creditors, and the utility from the point of view of making economically sound management decisions is the most important criterion of its quality. This orientation of financial accounting in the US and the UK is typical for these countries for many years. Moreover, financial markets and securities exchanges were established in these countries. The result - the financial statements of companies are highly analytical, and the definition of profitability of economic activity as one of the characteristics of the performance of management personnel is the purpose of financial accounting.

In other countries, the role of accounting and the priorities developed within its methodology may be different. For example, it can be the provision of objective and reliable information on the proper implementation of the state tax policy. It is this purpose of accounting financial accounting that is recognized as fundamental in most countries in South America.

In some countries, the financial accounting system is implemented based on the priority of macroeconomic goals, for example, to achieve a given growth rate of the national economy.

In countries such as Germany, Switzerland, Japan, etc., financial policy is determined by a small number of very large banks that meet a significant part of the financial needs of the business. In this case, the reporting is aimed primarily at protecting the interests of creditor banks. For accounting practice, here are some features, in particular conservatism in the valuation of assets (understatement of their value), a certain overstatement of accounts payable, allowing in the event of financial difficulties to provide his bank some freedom to perform obligations.

In France and Sweden, accounting financial accounting has a slightly different orientation. The governments of these countries play a decisive role in the management of national resources, and enterprises are obliged to adhere to government economic policies. Governments not only control the financial capabilities of the business, and act as if necessary as an investor or creditor, if necessary. In these countries, accounting is primarily focused on the needs of government agencies.

Financial statements are not a trade secret, it is open to publication, as a rule, is certified by an audit firm.

Maintaining financial accounting and submitting forms of financial reporting is mandatory for all organizations.

Management accounting is an internal accounting system designed to provide the accounting information necessary to manage the production and decision making by the management in the near future.

The main objective of management accounting is:

1) the calculation of the actual cost of products (works, services) and deviations from established norms, standards and estimates;

2) determination of financial results for the sold products or product groups.

Management accounting is not mandatory. The administration of the enterprise itself determines whether to create or not create an internal accounting system.

Management accounting, in contrast to financial accounting is targeted at internal users. The manager uses internal information for planning, monitoring and analysis for both short-term and long-term purposes. For example, short-term (current) estimates, business plans are drawn up for the next year and are subsequently used to monitor and evaluate the effectiveness of management of the structural division of the enterprise.

The preparation of financial estimates (budgets) and analysis of their implementation has long been regarded as an important tool for management control of the company's activities and forecasting its financial results. Therefore, the purpose of these estimates is twofold. First, they clearly outline and detail the goals set for the company as a whole and its divisions, characterize the projected results and financial condition. Secondly, they are used in the operational, retrospective and prospective analysis to optimize subsequent transactions and operations.

The process of making managerial decisions will fail, if the information generated in the system is not directed at solving strategic tasks of the enterprise. As is known, the main issues of the business strategy are the development of production activities, financial policy, the search for additional spheres of capital application, the search for reserves of further growth of the enterprise, the organizational structure of management, etc.

Let's give an example as an illustration. A large company decided to cover one of its activities, for example, the production and technological line. Managerial accounting should help in answering a whole series of questions, since this production can be completely sold to another firm, redeveloped, allocated to an independent company in which the company will be only a co-owner, etc. It is necessary to calculate alternative variants of incomes and possible losses, use of production capacities and labor resources, changes in the market strategy of the business.

Management accounting, sometimes called production, or accounting for costs, allows the company to optimize the value of one of the most important economic indicators of the company - its costs. In addition, the solution of the tasks of management accounting allows the enterprise to optimize the ratio of such indicators as "Income - costs - profit."

Thus, we see that management decisions are developed primarily in the planning process. The planning itself is carried out by appropriate processing and analysis of the available information about the state of the control object. Therefore, the analysis of economic activity is an indispensable function of management. The analysis reveals deviations from the plan and ways to overcome them.

However, the analysis requires the orderly information about the state of the control object. Collection, processing and generalization of such information is carried out through financial accounting. Management is carried out on the basis of information received, most of which is financial accounting. This is the mutual relationship between financial and management accounting. Financial accounting helps to plan and evaluate results, providing all interested users with the information necessary for making managerial decisions.

In contrast to the standard organizational structure of the enterprise management that we have adopted, accounting in a Western firm takes full responsibility for the planning department and analytical services. This is achieved by the high qualification of accounting personnel, often occupying a very worthy place in business management structures. For example, in Australia, over 30% of board members of large companies are accountants for their basic education.

Consider the main differences between financial accounting and management accounting (Table 1.2).

Table 1.2

Comparative characteristics of financial and management accounting

Areas of Comparison

Financial Accounting

Management Accounting

1. Key consumers of information

Third-party organizations

Different levels of internal organization management

2. Degree of reliability

Objectivity is required

Depends on the objectives of the planning. If necessary, accurate data is used

3. Used meters

Monetary unit

Monetary or natural unit

4. The main accounting object

Organization as a whole

Individual structural units

5. Grouping costs

For cost elements

For costing articles

6. Periodicity of reporting

On a regular basis

As needed

7. Mandatory accounting

Strictly Required


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