Difference between Management Accounting and Financial Accounting

The difference between Management Accounting and Financial Accounting

Financial Accounting is the preparation and communication of financial information to outsiders such as creditors, bankers, government, customers and so on. Another objective of financial accounting is to give a complete picture of the enterprise to shareholders.

Management Accounting on the other hand aims at preparing and reporting the financial data to the management on a regular basis. Management is entrusted with the responsibility of taking appropriate decisions, planning, performance evaluation, control, management of costs, cost determination, etc.

For both financial accounting and management accounting the financial data is the same and the reports prepared in financial accounting are also used in management accounting but the following are major differences between Financial accounting and Management accounting.

Financial Accounting	Management Accounting
The primary users of financial accounting information are shareholders, creditors, government authorities, employees etc.	Top, middle and lower level managers use the information for planning and decision making.
Financial Accounting information is always expressed terms of money.	Management accounting may adopt any measurement unit like labor hours, machine hours or product units for the purpose of analysis.
Financial data is presented for a definite period; say one calendar/financial year or a quarter basis.	Reports are prepared on a continuous basis, monthly or weekly or even daily.
Financial accounting focuses on historical data.	Management accounting is oriented towards the future.
Financial accounting is a discipline by itself and has its own principles, policies and conventions.	Management accounting makes use of other disciplines like economics, management, information system, operation research etc.

Some other differences are as: -

• There is no legal requirement for an organization to use management accounting but publicly-traded firms (limited companies or whose shares are bought and sold on an open market) must, by law, prepare financial account statements.
• In management accounting systems there is no requirement for an independent external review but financial accounting annual statements must be audited by an independent CPA firm.
• With management accounting systems, management may be concerned about how reports will affect employee’s behavior whereas management concerns are about the adequacy of disclosure in financial statements.

While financial accountants follow Generally Accepted Accounting Principles [GAAP] set by professional bodies in each country, Managerial accountants make use of procedures and processes that are not regulated by a standard – setting bodies. However, multinational companies prefer to employ managerial accountants who have passed the Certified Management Accountant [CMA] certification. The CMA is an examination given by the Institute of Management Accountant, a professional organization of Accounting Professionals.