Both management accounting and financial accounting assist decision makers by identifying, measuring, and processing relevant information and communicating this information through reports. Both provide managers with key measures of a company’s performance and with cost information for valuing inventories on the balance sheet. Despite the overlap in their functions, management accounting and financial accounting differ in number of ways.
The primary users of management accounting information are people inside the organization, whereas financial accounting takes the actual results of management decisions about operating, investing, and financing activities and prepares financial statements for parties outside the organization—owners or stockholders, lenders, customers, and governmental agencies. Although these reports are prepared primarily for external use, managers also rely on them in evaluating an organization’s performance.
Because management accounting reports are for internal use; their format can be flexible, driven by the user’s needs. They may report either historical or future oriented information without any formal guidelines or restrictions. In contrast, financial accounting reports, which focus on past performance, must follow generally accepted accounting principles as specified by the Securities and Exchange Commission (SEC).
The information in management accounting reports may be objective and verifiable, expressed in monetary terms or in physical measures of time or objects; the information may be based on estimates and in such cases, it will be more subjective. In contrast, the statements that financial accounting provides must be based on objective and verifiable information, which is generally historical in nature and measured in monetary terms. Management accounting reports are prepared as often as needed—annually, quarterly, monthly, or even daily. Financial statements, on the other hand, are prepared and distributed periodically, usually on a quarterly and annual basis.
Source: Managerial Accounting (9th Edition) by Needles and Crosson