Differences Between Managerial and Financial Accounting - Essay Example

While financial accountants are primarily focused on what the enterprise has done and how it has performed, managerial accountants are also concerned with what is happening now and what may happen in the future. Because they have different roles and different audiences, they also have different reporting methods, statements, and standards.

Financial accounting has, as its basic goal, to provide clear and accurate information to external parties that will make decisions on credit and investment. Because this audience is wide and unknown to the preparer of the information, it is mandatory that the financial accountant follows traditional and acceptable conventions. The financial accountant will file income statements, balance sheets, cash flow, and earnings statements. To standardize the reporting process and give credibility to the reports, the financial accountant is required to follow Generally Accepted Accounting Procedures (GAAP). These reports are generated at set intervals, such as quarterly or yearly, and audited by independent auditors. These procedures ensure that the decision-makers will have a reference point with which to make an informed decision.

Managerial accountants, more focused on current and future business decisions, prepare statements to be used by internal decision-makers. These reports assess past performance as well as forecast the future direction of the enterprise. Because this information is used by management and directors to make daily decisions, it is focused on timeliness and centered on efficiency and return. The frequency with which these reports are generated is set by the internal needs of the enterprise and maybe daily or even on a real-time or as-needed basis. The reports are more apt to center on budgets, costs, forecasts, and efficiency than income or cash flow. An enterprise may have many custom statements and reports tailored to their requirements and because the information is only used internally, the only reporting standards that are required are sound economic principles and accurate data. These reports are audited internally to ensure that they are useful to the decision-makers that will be utilizing the reports.

Financial and managerial accounting have their roots in the same information and perform their function in similar ways. Yet, the widely different purpose of their reports dictates that they take differing approaches. The expectations that are placed on the financial accountant demand universal compliance to acceptable standards, while the managerial accountant may encounter a vast range of reports and reporting requirements. While the managerial accountant may be involved with making decisions on the future direction of the enterprise, the financial accountant is primarily concerned with historical data to gauge the present overall economic health of the enterprise