Financial Accounting and Management Accounting - Essay Example

Financial Accounting has become increasingly standardized and harmonized across organizations in different industries, while Management Accounting continues to be highly variable. Introduction Introduction to financial accounts There subsist two most important types of accounting information: (1) The Financial Accounts, as well as (2) The Management Accounts The Definition of Financial Accounts The concept of Financial accounts are apprehensive amid categorizing, calculating in addition to recording the dealings of a business. By the end of an interlude (which is in most of the cases usually a year), the subsequent financial statements are primed in order to illustrate the act as well as the place of the business: Profit and Loss Account : Describing the trading performance of the business over the accounting period Financial accounts are specifically designed for the purpose of accounting information. In order to be able to retort their requirements, the financial accountants then tend to portray the profit along with the loss account, the balance sheet along with cash flow statement for the company as a whole in order for users to answer questions such as: Is a certain investment worth investing Is a certain business worth lending money to – Company Law Requirements for Financial Accounts Each corporation that is registered under the Companies Act faces a requisite to prepare a set of accounts that would present an accurate as well as reasonable view of its profit otherwise loss for the specific year along with that of its conditions almost by the end of each year . It is noticeable that the Annual accounts for Companies Act rationales by and large consist of the following elements: - A Report written by the Director - An appraisal report - Profit and loss account - Balance sheet - Proclamation of overall renowned profits as well as losses - Cash flow statement - Comments in regards to the accounts But the as long as the conglomerate is a "parent company", in other words, the company that furthermore owns additional companies - auxiliary then "merged accounts" have got to also be primed. Yet again there are certain prevailing exceptions to this prerequisite. The proportional figures ought to also be specified for more or less each and every one of the substance as well as scrutiny specified within a year end of financial statements. There are certain exceptions to this rule which are shown specifically. For illustration, there is no prerequisite to offer proportional figures for the notes detailing the arrangements during the year upon fixed positive characteristic otherwise reserves balances. (Melissa Bushman) Why Do We Need Accounting?             Posing that query of an accountant is similar to enquiring a cultivator what possible need would rainfall fulfill? There is no doubt that accounting element is required in order to assess and support the progressive development of any specific business. And thus it would not be wrong to deem it as the actual supportive wall the actual backbone of the financial accounting structure. The country of Italy has come out after years of research as the foremost recorded resource for accounting entries, in addition to being the initial published accounting toil during 1494 was through a Venetian monk.  So it is not too hard to perceive this conceptual element of accounting as a well thought-out method for recordkeeping has been around more or less as long as the trade along with business industries.  an additional attention-grabbing actuality is the acquaintance as well as the morality upon which the foremost accounting practices were recognized, these have noticeable not altered , and even if they have been its very little during the many hundreds of years that accounting concept is being utilized .  The perceptions in terms of the chattels, the responsibility, along with the revenue in addition to the requirement of bringing together these locales is at rest and the foundation for each and every one of the accounting functions in the present day. The procedure for recording those dealings, as well as the numerous reports engenders by the anthology of that information has progressed over the last two hundred years. It is in recognition to the conception of computers, that countless of the bookkeeping functions that are very imperative to accounting, however to some extent monotonous are carried out by data entry clerks, in addition to the information that is generated come from the IS Department.  The closing stages effect is silently the same: that accounting offers us the financial picture that we require in order to formulate rock-solid business pronouncements with reference to the present status or else predictable future health of the industries. There are two fundamental groupings within accounting: the primary one being the financial accounting in addition to the later being the managerial accounting.  Financial accounting one hand entails information that the corporations create and make it accessible to the general public: who are usually the   stockholders, the creditors, the clientele, and the dealers, in addition to the authoritarian commissions.  On the hand Managerial accounting contracts most importantly the information which is not publicly declared.  Furthermore, the Information such as the remuneration costs, the Cost of goods fashioned, the revenue targets, as well as the substance managing information.  The information supplied via managerial accounting is intended for the exploitation of the subdivision heads, the dissection managers, along with the administrators in order to lend a hand to them so they would be able to make enhanced decisions about the day-to-day operations of the business.             At this moment, what a propos the “liability” division of the accounting process?  Why do we require that as well as how do we insist on it?  Businesses could do with the element of being apprehended and thus liable for the techniques they use to scuttle a business for the reason that the prospective for ravenousness, larceny, as well as fraudulence subsist within each business.  It is a fact that one would merely need to read the contemporary events division of the tabloid to comprehend how widespread communal exploitation is within business in the present day.  There are dedicated locales of accounting that when in the approved manner enforce, eradicate the leeway in support of scam.  The Auditing in addition to income taxation, when applied in the right manner, compel business to explanation for all business income, dealings, along with transports, furthermore then to pay their flaxen share of the tax lumber.  The grab hold of here is that the main beliefs ought to be in the approved manner enforced. Accounting is the cognizant of the business world.  When griped with concern as well as with admiration, it executes as probable.  When exploitation occurs, and the scheme is circumvented otherwise superseded for the reason that of deceitfulness as well as gluttony, this though does not really come out right in any case. Accounting is a lot like other organizations within place, they are only as high-quality as the people using them. (MoneyInstructor, 2002-2005) Implementing accounting education change: bringing accounting graduates into the management mainstream Inside nearly all organizations, accounting has conventionally been a stand-alone restraint with diminutive endeavor to incorporate accountants keen on the tactical aspects of management. Additional serviceable regions within a compact over and over again inspected accountants at the same time as manufacturers of dated as well as inappropriate information. The accounting occupation, in scrupulous the education segment, has renowned the amplified consequence of the field within the management process. On the other hand, in the reed to the present structure of the majority of accounting programmes, former students within accounting are over and over again are not outfitted to presume a responsibility within tactical decision making. Given this deficiency, constructive changes are being made to the accounting curricula. The Main Argument: While the minute peek into the lines above gives us, a review of how vital accountancy is, how the element of financial accounting has tended to remain standardized while being applied to so many different organization and businesses even in the modern world of today. On the other hand, we are able to see how the element of Managerial Accounting, is in a mode of flux. We aim to analyze, somehow, as to what seemingly seems to be the reason or the rationale behind the Issue. Now, it is an undeniable fact that in the world of today, organizations and their structure are in constant habits of flux, which in turns equips these organizations and businesses with the ability to run the lap to success. We also need to consider the fact because the financial accounting element is intended with the internal workings and dealings of the organization. And that it functions under a set rule book, there tends to raise such a situation in regards to financial accounting that it the tends represent a more standardized procedure and detail action. These rules do not vary with the changing modes of businesses. Or administrations. This is why we tend to observe, that Financial Accounting has become increasingly standardized and harmonized across organizations in different industries. Also because the basic frame or structuring of organizations, from the inside are some what similar since the past so many years. Managers, Frontline managers, sales manager, marketing managers all etc tend to be similar in structure of course variable in their roles. The financial accounting elements are the same even now, after so many years of further additions and developments within the accounting field. On the other hand the managerial accounting element though similar in some structure tends to vary greatly, why? Mostly because it tends to deal with the external elements of an organization or a business. And these elements tend to change or alter even, after a few periods of evaluation of any business. These external limits can be different in terms of the locality, the placement, the package, the kind of people they tend to come into contact with. And so these differ. Thus these can’t be harmonized or they cannot be followed in terms of a standardized accounting procedure. Only because of the fact both of these accounting procedures are a branch to the same Accounting term, they tend to be one family but differ greatly 8in terms of the actual definition along with the implication. In the fast pace industrial world of today the market scenario represents a dual relationship, which exists amongst the partners, employees, and decision makers. A management accounting is also deemed as the control theory, which subsists with the fact that management accounting tends to perform the act of controlling the operational acts of a company. If we tend to compare and contrast these two modes of Accounting : We would be able to comprehend the fact that, the objective behind the use of the management accounting concept is formerly in dealing workings of an organizations management side which means that these reports can be generated any time of the year. Now , we also ned to comprehend and realise the fact that the eelemnt and structure of the financial Accounting tends to follow the GAAP principles , these are the generally accepted accounting set of principles , these are what are setup or organizaed by individuals within proper experienced bodies within each and every country . Managerial Accounting on our other hand would usually tend to utilize procedures and methods which are not actually designed by any standard bodies . Diverse alternative and options. Management accounting lends a hand you make decisions. It helps you to do the right thing. (agilemanagement.net) Financial Accounting Measurement: Instrumentation and Calibration Within its theoretical scaffold the Financial Accounting Standards Board (FASB) has not acknowledged the discernible phenomenon and also was not incapable of recognizing a particular measurement possession within financial accounting. Despite the fact that the distinguishing characteristics of the discernible phenomenon within financial accounting, the FASB has designated that there are five measurement attributes which are used within financial accounting as well as the end result tends to be a mixed-attributes representation. Deficient in the form of a significant fundamental theory, the FASBs theoretical scaffold is frail at unsurpassed into providing assistance for accounting dimension. Without considering the critical theory, the FASB tends to pay more attention to the element of forecast to a certain extent than the element of elucidation moreover, in this manner, has assumed an information point of view as divergent to a capacity standpoint designed for financial accounting standards. This circumstance has persuaded a very solemn level of apprehension for legislative accomplishment on the part of the US Congress. There is no doubt in the fact that the, investments add up to the observable phenomenon within financial accounting as well as the recoverable cost, which is stranded in dimension and not forecast, is the actual dimension property. This dimension property, which is associated to the investments as well along with the capital budgeting model, tends to endow with the commonsensical clarification of the perceptible diverse rules within financial accounting moreover ascertains a solitary characteristic replica. (Stanley, 1998) The Shareholders otherwise known as the stockholders tend to posses divisions or else shares of corporations. Within big conglomerates, the shareholders are inhabitants as well as organizations that merely endow money for future dividends as well as for the prospective augmented value of the shares they posses, while inside diminutive corporations they may be the inhabitants who recognized the business or who have a more private stake within it. When these shareholders purchase shares of companies, they take delivery of official documents that articulate how many shares are owned by them. The Owning shares of a corporation over and over again permit a shareholder to a fraction of the corporation’s earnings, which is emanated as a dividend. Also these , shareholders are characteristically presented a permanent disbursement per share if the corporation is bought out. for the reason that they are fractional owners of a corporation, the shareholders are permitted to cast their vote at shareholder meetings intended for definite corporation proceedings like the approval or refusal of a unification scheme, in order to review the corporation accounts, and take delivery of periodic reports scheduled corporation performance. If shareholders are unable to be present at annual meetings, they are allowed to vote by alternative by means of mailing in their vote. In addition, if a corporation makes a decision to issue more shares, the present shareholders have the alternative to pay money for shares prior to when they are offered to the public. Shareholders are at liberty to vote on a selection of subjects, even though the precise regions where shareholders have a say are indomitable by state laws in addition to corporate regulations. In general, shareholders have the right to sign up a corporate president, choose by ballot members to a board of directors, as well as vote on noteworthy changes within a conglomerate. These momentous alterations may contain change within the line of business, amendment of the corporation name, as well as corporation divestments, gaining, along with mergers. Boards of director’s act on behalf of the share-holders and, in performance , make most assertions such as conveying communal officers as well as appraising corporate rule, funds, as well as approaches. Shareholders usually tend to own two different kinds of stocks namely the common stock and preferred stock. The individuals who are the Owners of common stock tend to posses the very last claim to corporations earning s and possessions as well as they may take delivery of dividends at the prudence of a corporations discern of the meeting in addition to a discern of the program have got to be offered prior to board of directors. Conclusion As per our reading above and comprehension of the topic it would not be wrong of us to deduce that both financial and management accounting concepts are an essential to any organization, or business setup. The employers, the employees the board of directors, these are three manor characteristics of the whole scenario. in view of the fact that shareholders choose by ballot a company’s directors, they can make use of a noteworthy amount of pressure on a corporation in addition to its plans, for the reason that directors recognize that they may be fired up if shareholders are not pleased with their performance as well as their verdicts. On the other hand, shareholders conventionally have been paying attention more often than not in return on investment furthermore hence they have not played a chief role within corporation operations otherwise ascendancy, which they have left to boards as well as management. On the other hand, during modern decades investors have at epoch purchased stocks to grab hold of control of corporation. The powerful shareholders are more often than not institutional shareholders who have possession of big quantities of a corporations stock as well as exert impartial power. Within distinction, personage investors have much less control in addition to and can thus pressure decisions merely by gathering great numbers of investors to sustain their arrangement. The famous Consumer advocate Ralph Nader pioneered this development—more than often known as the proxy fight, during the year 1969 in order to able to pressure General Motors policies towards public transportation, women, and minorities. On the other hand, the Securities along with Exchange Commission gave out a verdict during 1983 that lend a hand to put off shareholders purchasing stocks exclusively to pressure a corporation operation. Regardless of this verdict, the observe of purchasing stocks in order to grab hold of the directing act of a corporation is ordinary. When a corporation purchases an important share of stock of a different corporation for the most part to pressure its procedures alongside its will, forecasters refer to it as an antagonistic takeover. In order to be able to prevent hostile takeovers, the managers from time to time give over much endeavor to observance of the stock prices far above the ground in addition to other self-protective strategy, even though this approach has debilitated a number of companies at the end of the day. An individual modus operandi that the traditional and modern shareholders have exploited in order to cater to the top management as well as the shareholder objectives has been questioning the communal executives stock alternatives, which then consent to them to pay for stocks at some point during the potential at a pre-determined value. Proviso the stock price rises significantly over time (that is, well further than the predetermined level), these options can make available a considerable profit prospect for their holders. For that reason, if the stock costs increases, in cooperation of the top managers as well as the shareholders tend to do good to also, within theory, their welfare are more personally associated.(Beaver , 1999) The shareholders progress or advantage can be facilitated by the implementation of either the financial accounting or the management accounting element. They are in most cases half owners and can order the structure of policies and operations and thus can design their proceeds and benefits. References 1) Article By Melissa Bushman Published on May 07 , 2007 The differences between Financial Accounting and Management Accounting 2) Article at : MoneyInstructor,2002-2005 3) Article by : Mark E. Steadman, Ronald F. Green: Implementing accounting education change: bringing accounting graduates into the management mainstream, Managerial Auditing Journal Year: 1995 Volume: 10 Issue: 3 Page: 3 - 7 4) Article at: Agilemanagement.net Year: 1995 Volume: 10 Issue: 3 Page: 3 – 7. 5) Article by :Stanley .C.W.Salvary , Canisius College Department of Accounting , Accounting Enquiries , volume number 7 , no.2 Feburary 1998 6) Article by Anderson, C.D., and J.W. Blood. Investor Relations: The Company and Its Owners. New York, NY: American Management Association, 1963. Managerial Accounting FundamentalsSan Diego StateUniversitySchool of Accountancy Professor Phillip W. Gillet, Jr.San Diego State University School of Accountancy Professor Phillip W. Gillet, Jr. Basic Guide to Non-Profit Financial Management Written by Carter McNamara, MBA, PhD, Authenticity Consulting, LLC. Copyright 1997-2008. Article by Ahmed Riahi – Bel Kaoui , The new Foundations of Management Accounting . Article, by Alnoor Bihamni, Management Accounting in the Digital economy. Article, Accounting Education change commission (1990). Article Financial Accounting Standards Board ( 1987 ) Journal Article Pg 164-165 Article ,Gurber R Macur K (1994) Management Accounting USA Volume 75 # 10p-76. Article by , Karmon D Mc Gilsky D (1997) Journal of Accounting Education , Volume #15 , pg 133-34 Article by Kulesza Cs Siegal G (1995) Management Accounting USA Volume # 76 Page 99. Langerderfer H (1987) Journal of Accountancy Pg 302 -31 For Further reading : Beaver, W. "Is the Stakeholder Model Dead?" Business Horizons 42, no. 2 (March/April 1999): 8–12. Bebchuk, L.A. "The Case for Increasing Shareholder Power." Harvard Law Review 118, no. 3 (2005): 833–914. Black, A.P., P. Wright, and J.E. Bachman. In Search of Shareholder Value: Managing the Drivers of Performance. London: Pitman Publishing, 1998. Deakin, S. "The Coming Transformation of Shareholder Value." Corporate Governance 13, no. 1 (2005): 11–18. Donlon, J.P., and J. Gutfreund. "Good for the Company, Good for the Shareholder?" Chief Executive 132 (March 1998): 50–59. Hochhauser, M. "Smart Executives, Dumb Decisions." Risk Management 51, no. 9 (September 2004): 64. Letza, S., S. Xiuping, and J. Kirkbride. "Shareholding Versus Stakeholding: A Critical Review of Corporate Governance." Corporate Governance 12, no. 3 (2004): 242–262. Read More