Linkages and Differences: Managerial vs. Financial Accounting

Scheme 1.2: Linkages between organization, management and management accounting information

ORGANIZATION GOALS

STRATEGIC PLANNING

MANAGEMENT FUNCTIONS

EFFECTIVE

ACCOUNTING INFORMATION

MANAGEMENT

Management accounting information is compiled in summary form. This is done so that managers can quickly see where the problem is and where we need to allocate time to improve organizational effectiveness.

Comparison between Managerial Accounting and Financial Accounting

Several differences between managerial accounting and financial accounting can be identified as follows:

1. Managerial accounting focuses on providing data for internal uses by the manager.

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   Managerial Accounting provides data to be used by managers for internal purposes. The company's internal operations vary greatly from day to day, for example: future operating plans, solving different types of problems, making decisions that differ from one to another. For different purposes, different information is needed. Certain information can be relevant for one purpose but not relevant for another. Different from financial accounting. Financial accounting provides information in a standard format in accordance with financial accounting standards (SAK).

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   Financial accounting information is required by external parties who have different interests such as banks, shareholders, or the government.

2. Managerial accounting places more emphasis on the future. Managers need information as a basis for future planning and decision-making. Therefore, managers need estimation data, such as estimated costs if a decision is taken A and estimated cost if decision B is taken. This estimation data is a reflection of historical data. In contrast to financial accounting which compiles information about the company's past.

3. Managerial accounting emphasizes the relevance and flexibility of data.

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   Managers need only data that is relevant to the decision to be taken. The manager will not concentrate attention on other irrelevant data. Thus no data is needed for complete financial information about the company as a whole. Data does not need to be objective because it is more estimating but flexible to needs (read point 1). Different from financial accounting. Financial accounting requires the presentation of complete data regarding the company and objectives (provable truth).

4. Managerial accounting places less emphasis on precision and more emphasis on non-monetary data. The precision or accuracy of numbers is not emphasized in managerial accounting because what is more needed is good estimation or estimation of numbers. Timeliness of presentation is preferred. If it is too late, the information is no longer useful for the purpose of decision-making. Non-monetary information is also needed in decision making, such as customer needs, new products, and market conditions. Conversely, financial accounting places great emphasis on data accuracy (objective).

5. Managerial accounting emphasizes the segments of an organization, rather than just looking at the organization as a whole. Financial accounting reports overall business activity. In contrast, management accounting focuses more on the activities of a part or segment of a company. These segments can be product lines, sales areas, divisions or departments. Each segment has goals and problems that are different from other segments. Every goal and problem-solving within a segment requires different information compared to other segments.

6. Managerial accounting is not governed by generally accepted accounting principles. Management accounting is not governed by generally accepted accounting principles.

ETHICAL BEHAVIOR

The study of history, philosophy, and religion gives rise to a consensus about universal and eternal values in ethical life. The values are:

1. Honesty
2. Holding promises (promise keeping)
3. Fidelity
4. Justice (fairness)
5. Integrity
6. Caring for others
7. Respect for others
8. Responsible Citizenship
9. Achievement of perfection (pursuit of excellence)
10. Accountability

Professional Ethics

Standards of ethical behavior for management accountants include:

1. Competence
2. Confidentiality
3. Integrity
4. Objectivity

Competence

The management accountant has a responsibility to:

1. Maintain the required level of professional competence by continuously developing his knowledge and expertise.
2. Perform professional duties in accordance with laws, regulations, and the technical standard.
3. Prepare reports and recommendations that are complete and clear after carrying out the correct analysis with relevant and reliable information.

Confidentiality

The management accountant has a responsibility to:

1. Refrain from disclosing without permission confidential information regarding assignments duties unless legally required.
2. Tell subordinates as necessary the confidentiality of confidential information regarding their duties and monitor their activities to maintain that confidentiality.
3. Refrain from using confidential information relating to his duties for purposes unethical and unlawful either personally or through a third party.

Integrity

The management accountant has a responsibility to: