Managerial and Financial Acounting

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Managerial and Financial Accounting Report

Week one paper

Chuck Youman

Finance 540

George Peterson

July 26, 2006

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Introduction

This report is intended to discuss the differences between financial accounting and managerial accounting. By discussing the differences in the types of reports that are generated by the two different accounting systems, this report will compare and contrast the types of decisions made using the information that the two types of accounting would use in a business setting.

Second this report will outline the Institute of Management Accountants, (IMA), and Standards of Ethical Conduct for Management accountants, in which the author will discuss its four major categories and give workplace examples that would show violations of each category discussed.

Differences between Financial and Managerial accounting.

Before the differences between the two types of accounting can be examine, it should be known exactly what financial and managerial accounting are. By definition financial accounting is: Financial accountancy (or financial accounting) is the branch of accountancy concerned with the preparation of financial statements for external decision makers, such as stockholders, suppliers, banks and government agencies. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agent's performance. The definition of managerial accounting:

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The branch of accounting that uses both historical and estimated data in providing information that management uses in conducting daily operations in planning future operations, and in developing overall business strategies.

Financial accounting is used to keep records of organization's monetary transactions, tracks its performance through

reports that reflect its current financial position, and shows the overall financial health of an organization. Versus Managerial accounting is "oriented more toward the future, places less emphasis on precision, emphasizes segments of an organization (rather than the organization as a whole), is not governed by generally accepted accounting principles, and is not mandatory". (Garrison, Noreen 2006)

"For financial reporting purposes, accounting information should be factual, objective, and comparable. However, for management accounting purposes, accounting information is tailored to further management's objectives. Accounting standards must be objective and verifiable in order to achieve comparability. However, management accountants sometimes view such standards as inappropriate restraints on flexibility, resulting in tension between the focus and purposes of management accounting and those of financial reporting. Some of the common financial management concerns facing companies include: 1. whether changes in accounting standards are actually needed, 2. how fast such changes should be implemented, 3. whether standards reflect

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economic reality, and 4. what the economic consequences of those changes will be. In setting standards, the Financial Accounting Standards Board tries to be sensitive to corporations' internal information needs by seeking comments and suggestions from corporate executives." (Brown 1987)

The IMA Standards of Ethical Conduct

The IMA Standards are as so: COMPETENCE

Practitioners of management accounting and financial management have a responsibility to:

Ð'* Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills.

Ð'* Perform their professional duties in accordance with relevant laws, regulations, and technical standards.

Ð'* Prepare complete and clear reports and recommendations after appropriate analyses of relevant and reliable information.

CONFIDENTIALITY

Practitioners of management accounting and financial management have a responsibility to:

Ð'* Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so.

Ð'* Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality.

Ð'* Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties.

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