1.5.1 The key differences between financial and management accounting
In the next activity you will have an opportunity to develop a better understanding of the difference between financial and management accounting.
Activity 4 Understanding the differences between financial and management accounting
In the list below, there are six aspects of accounting that are different for financial compared to management accounting. Using the information already given to you about the two types of accounting, try to fill in the boxes below. The first has been done for you. (Use a quick internet search if you find it helpful.)
Table 2 Filling in information on financial and management accounting
|Financial Accounting||Management Accounting|
|Chief purpose||The production of summarised financial statements by managers as a formal report of their management responsibility.||The production of detailed and up to date informal reports by managers to decide and plan activities and to control the business.|
|Viewpoint||Gives information about past performance. Only available several months after period end.||Gives comparative, up-to-date and forward-looking information about performance.|
|Timing of information||Normally annually, but depending on type of business may be every three or six months as well.||Normally prepared on a monthly basis, but can sometimes be required at very short notice.|
|Regulatory authority||Financial statements need to be presented according to the requirements of government and the appropriate accounting regulators.||Financial reports can be in any form needed.|
|Accuracy level||Need to be thoroughly checked in order to be as accurate as possible.||Accuracy, while always important, may need to be compromised in order that information is up to date and relevant.|
|Auditing requirement||Required for certain enterprises such as public companies and larger registered charities.||Not required.|
In Week 2 you will learn about the numerical skills required of all accountants irrespective of the financial information they need to provide.