TRIDENT UNIVERSITY
ACC 202 MODULE 1 CASE
TIMOTHY DOUGLAS
21 APRIL 2013
In this first case study we will discuss the differences between financial accounting and
managerial accounting reports. Financial accounting reports are arranged for the use of outside
parties such as shareholders and creditors, where managerial accounting reports are prepared for
the managers inside specific organizations.
This contrast in basic final product results in a variety of major differences between financial and
managerial accounting, even when both financial and managerial accounting primarily rely on
the same financial data. In addition to the to the differences in who the reports are prepared for,
financial and managerial accounting also differ in their topic between the past and the future, in
the type of data provided to users.
Since planning has such a crucial role in the manager's job, managerial accounting has a primary
future focus. The opposite holds true for financial accounting which primarily provides
summaries of past financial transactions. These summaries can show trends of the past but
should only have a small affect on the planning process. Economic conditions are in such a
constant state of “controlled chaos”, as some would call it. With this all being said, a managers
planning should be based on the estimates of the future and not the trends of the past.
Financial accounting information is considered to be completely objective and verifiable. The
internal use for this information doesn’t need to be completely verifiable because the manager
wants the information or data to be relevant. The managerial accounting data structure should be
simple enough to provide whatever data is relevant for a particular decision. Financial
accounting requires a breakdown of profits and cost by major segments in external reports. In
managerial accounting segment reporting is the primary emphasis.
The managers who run the corporations daily routine are the primary users of the accounting
information. They are typically directly bought into the company and use managerial accounting
to determine financial strengths and weaknesses. Internal users would include management,
finance, marketing, and human resources.
Management in any company is simply just the internal decision makers that were employed by
the company’s because of specific traits that each person may have. These managers use the
internal accounting information for exclusive insights into the organizations and to share
information with external managers. This information sharing can directly affect all people that
the company outsources to. Thus if a manager knows that the product production rate is not
going to be as much from one month to the next then that information should be shared with the
producer of the product. This way the producer knows how to manage his people and thus
manage his profit margin.
Long-range plans, research and development results, capital budget details, and competitive
strategies usually kept close hold and are regarded as corporate secrets.
In companies, the title managerial accountant is not held by one singular person. This is a
position that has a special need to be spread out to many different people. This spreading of
responsibility basically keeps every one honest. Since the whole purpose of the managerial
accountants is to support competitive decision making by collecting, processing, and
communicating information that helps management plan, control, and evaluate business
processes and company strategy.
In larger companies the top accountant controls the multiple divisions under them. This creates
the leadership role in the accounting departments and thus the roles and responsibilities can be
divided into divisions. This creates a sense of checks and balances with one person at the head of
the table to report to the company/ organizations head directors. This is where a Chief Financial
Officer (CFO) comes into play. Everyone under the CFO is responsible for the information flow
of good accounting information that supports the planning, control, and evaluation work that
takes place within the organization.
The primary purpose of accounting in general is the depiction of data that reveals the past,
present, and future economic activities. With this purpose to improve the way everything is
cataloged and thus improves decision making at all levels. The accounting function has rarely
played a decisive role in the management of organizations and is not central to the operations of
many businesses. Managers should demand the information they need from the accounting
function. The bottom line for accounting, according is that managers of smaller entrepreneurial
organizations are not as sophisticated as professional mangers of the larger enterprises and they
do not consider managerial accounting as having significant value with the smaller companies.
Basically the bang is not worth the buck and managerial accountants cost to much for a smaller
business.
The Certified Management Accountant (CMA) designation provides corporate management and
individual members with an objective measure of knowledge and competence in the field of
management accounting. The CMA is a valuable credential for professional advancement and for
broadening professional skills.
Only the CMA certification requires the broad range of topics that are critical to management
performance and contribution to the companies. Ethics is the key focus area for every CMA.
Ethics has to be the basis of the exam in order to ensure that the companies aren’t putting all
their money with someone that is willing to rob them and alter the books to hide it. The four-
tiered CMA exam is designed to develop and measure critical thinking and decision-making
skills.
Professional certifications are the only way that anyone will take a corporation seriously.
Without certified CMA or CFO’s then the company’s financial records could be kept by an
under qualified person that doesn’t understand the significance of what a small calculation error
might have and doesn’t understand the financial accounting systems that have been standardized
for the private businesses around the world.