As a result, the report will delve into how the functions complement and supplement each other in effective business management. By so doing, the report will outline the environmental factors catered for by the two forms of accounting. Financial management is function of management where performance is depicted in terms of dollar value. All the operations and functions of the organization are cost centers as well as revenue generators.
At the end of each period, the records of trading and revenue generation are displayed as financial statements. The contemporary financial controllers are basically supposed to display more than just financial results in the financial statement. At the end of each period, financial records are released to the stakeholders and this will hence enable them make decisions relating to investment among others.
Stakeholders have a right to know the performance of the organization to enable them make a better decision. The stakeholders should be mainly classified as the owners and creditors. Thus, the financial records have to serve this purpose owing to the fact that the stakeholders are the providers of the finances invested. Management accounts on the other hand are mandated by the need of the management to gauge the status of the organization.
As a result, management accounts are normally destined for top management, who has to keep planning and strategizing in order to achieve the objectives. Financial statements should be prepared using standard and stipulated procedures and formats whose design and content characteristics are populated by the authorities.
The main aim of standardizing financial records is to enable all the information necessary is included there in. Disclosure levels, as they are termed, are aimed at protecting both the management and stakeholders in case of any claims regarding the contents of the financial statements.
This fact necessitates accuracy, truth and fairness in the audited records that an organization publishes. Management accounts should not be necessarily presented in a standard form. The features of management accounts vary from organization to the other. The difference in parameters considered in preparation of management accounting in addition to the designation contributes to the difference in format.
The difference in format is complimentary in achievement of specific functions. Since the financial statements are destined for a wider base of individuals, it is imperative that industry norms be developed. The stakeholders would like to be able to compare the performance of different companies and decide the most appropriate. Stakeholders are drawn from a wide base of academic and professional orientations.
Financial accounts are a display of the culmination of the trading period. As a result, the information contained therein should be related to the whole organization. Functions that directly or indirectly affect the trading process are therefore indicated in the financial records as required by disclosure rules.
This enables all stakeholders to analyze the totality of characteristics of the organization before making any decisions. The accuracy of the information contained in the financial records is based on total disclosure thus no information is deemed unsuitable.
The management may request for information or analysis of one aspect of the environment for management accounting purposes whereas the financial records outline information regarding as many factors as possible.
The boundary to disclosure regarding financial records is privacy of information. Financial accounting is a mandatory and statutory function for each organization. Thus, without financial records, the operations of a company are bound to become subject of scrutiny by the regulatory authorities. Stakeholders also use these records to make decisions. Without any tangible information, it becomes challenging to come up with any decisions regarding the viability of the company.
However since the users of these records are the management, this information is actually necessitated by administrative reasons more than statutory.
An organization has to ensure that it avails financial statements in order to cater for statutory compliance and avail management accounts whose importance cannot be overemphasized. Moyer, et al, implied that financial accounts are prepared on an annual basis. Each organization has to file returns with the authorities as well as post performance levels with the stakeholders in order to achieve any strategic plans through fostering expansion plans.
As a result, the financial records of an organization are based on the performance of the company over the previous year. Dividend declaration, taxation and even expansion plans by an organization are carried out at the end of the year and all concerned individuals are fully aware of this Banjerjee, Thus, the authorities will not expect tax on profits to accrue to midyear. Some companies are fond of posting interim accounts as a means of keeping their stakeholders informed.
Quarterly or half-yearly results are only meant to account as representative since the financial statements at the end of the year will determine the picture painted in the eyes of the stakeholders.
As a result, it is possible that management accounts take the form of a monthly or quarterly affair and sometimes-weekly portions are requested. The importance of the information required necessitates regular updates to the management. The internal environment of the organization is the most predictable ad thus the management requires ample, if not perfect knowledge of the internal environment.
Without such information, it is impossible to be prepared to face the challenges posed by the external environment. Drury was of the view that the information relating to budgets changes on a frequent basis thus necessitating frequent input of variables to cater from seasonal fluctuations in demand and supply or economic conditions. Similarly, changes in legislation relating to certain factors of the organizations necessitate instantaneous action and implementation procedures that cannot be catered for by the financial accounts.
Thus, management accounts are favored owing to their flexibility of application while financial records are recognized for their universality. When a company releases its financial records, the stakeholders are not mandated to debate or comment on their accuracy or appropriateness. As a result, the feedback system regarding the financial accounts is non-existent. Dyreng Duke University email: For details, read the call: Widener, Clemson University, and Roland F.
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