The Differences Between Financial Accounting and Management Accounting

Introduction

Financial accounting and management accounting both prepare and analyze financial data. However, certain aspects of these two fields are very different. This article discusses the various differences between financial accounting and management accounting. The differing characteristics to be discussed include the users of information, the types of information, regulatory oversight, and frequency of reporting.

Users of Information

Financial accounting and management accounting provide information to two different user groups. Financial accounting primarily provides information for external users of accounting data, such as investors and creditors. On the other hand, management accounting provides information for internal users of accounting data. Internal users include employees, managers, and executives of the company.

Types of Information

The type of information required by the different user groups also differs. External users primarily rely on financial information about the company. They analyze this information in conjunction with general economic information, such as information about the industry in which the company operates. External users focus on broad information that reveals the overall performance of the company as a whole. In addition, financial accounting only reports information on financial transactions that have occurred in the past.

Internal users need to review financial information about the company, such as financial statement information. They also use non-financial information about the company, such as customer satisfaction levels and competitor data. Internal users focus on detailed information that reveals the performance of particular subunits of the company, such as divisions or departments. In addition, management accounting concentrates on past and present information, as well as the forecasting of future financial transactions.

Regulatory Oversight

In order to protect public interest, financial accounting is regulated by the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the Public Company Accounting Oversight Board (PCAOB). In contrast, management accounting is not regulated by any specific agencies. This is because the information provided by management accounting is intended for internal users only and is not available to the public. Therefore, since there is no public interest, there is no need to protect public interest regarding this information.

Frequency of Reporting

The focus of financial accounting is reporting on historical information. The information is reported periodically. It is often broken down into monthly, quarterly, and annual reporting periods. At a minimum, financial accounting information must be reported annually.

On the contrary, management accounting information is reported continually. Internal users need to evaluate past, present, and potential future information in order to make decisions. Therefore, these users continuously need information in order to make the appropriate decisions.

Melissa Bushman has published additional articles at Associated Content. Please click her name at the top of this page to view her other work.

References

Edmonds, C., Edmonds, T., Olds, P., & Schneider, N. (2006). "Fundamental Managerial Accounting Concepts." 3rd ed. New York: McGraw-Hill Irwin.