Managerial and Financial Accounting Report

Managerial and Financial Accounting Repor

Managerial Accounting and Finance Foundations

FIN 540

February 27, 2006

Financial Accounting vs. Managerial Accounting

The key difference between financial and managerial accounting is that financial accounting is aimed at providing information to parties outside the organization. In contrast, managerial accounting information is aimed at helping managers within the organization make decisions. According to Kieso and Weygant, financial accounting is the process that culminates in the preparation of financial reports relative to an enterprise as a whole for use by parties both internal and external to the enterprise. In contrast, managerial accounting is the process of identification of financial information used by management to plan, evaluate, and control within an organization and to assure appropriate use of, and accountability for, its resources (p. 3). Below summarizes the difference between managerial and financial accounting:

Financial Accounting has been characterized as the branch of accounting that focuses on the general purpose reports of financial position and results of operations known as financial statements. These statements provide a continual history quantified in money terms of economic resources and obligations of business enterprise and of economic activities that change these resources and obligations. The following are the objectives of Financial Accounting/Reporting, to provide:

1. Information that is useful in investment and credit decisions.

2. Information that is useful in assessing cash flow prospects.

3. Information that about the enterprise resources; claims to those resources and changes in them.

Managerial accounting assists managers in carrying out their responsibilities, which include planning, directing and motivating, and controlling. Since managerial accounting is geared to the needs of the manager rather than to the needs of outsiders, it differs substantially from financial accounting (McGraw Hill, chapter 1).

Institute of Management Accountants (IMA) Standards of Ethical Conduct for Management Accountants

The Institute of Management Accountants (IMA) is the world's leading organization dedicated to empowering management accounting and finance professionals to drive business performance (www.imanet.org). Below are the standards set by IMA, failure to comply may result in disciplinary action.

Competence

1. Maintain an appropriate level of professional expertise by continually developing knowledge and skills. Continuing professional education (CPE) is required for the members (CMA's and CFMs) to maintain their certification. Members are encouraged to earn CPE credits in order to enhance the member's knowledge, advance their careers and add value to themselves and the organization in which they work. Most companies provide financial support to their employees for these reasons.

2. Perform professional duties in accordance with relevant laws, regulations, and technical standards. All companies have their own code of conduct and employees are required to perform their duties in accordance with the company's policy. The same way with the members of IMA, they have to adhere to the professional code of conduct and be law abiding citizens.

3. Provide decision support information and recommendations that are accurate, clear, concise, and timely. The members should exercise due care in making decisions. Decisions made should be based on valid information and should be timely to be effective and efficient.

4. Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. There are cases when a conflict of interest exists, accountants are well aware of proper separation of duties to strengthened internal controls. In cases when an accountant is facing a dilemma, he can call the IMA and an ethics counselor will assess situation