(S.O. 1) Managerial accounting is a field of accounting that provides economic and financial information for managers and other internal users. Managerial accounting applies to all types of businesses—service, merchandising, and manufacturing—and to all forms of business organizations—proprietorships, partnerships and corporations. Managerial accounting is needed in not-for-profit entities as well as in profit-oriented enterprises.
Comparing Managerial and Financial Accounting
(S.O. 1.) There are both similarities and differences between managerial and financial accounting.
Both fields of accounting deal with the economic events of a business and require that the results of that company's economic events be quantified and communicated to interested parties.
The principal differences are the (1) primary users of reports, (2) types and frequency of reports, (3) purpose of reports, (4) content of reports, and (5) verification process.
Financial Accounting Managerial Accounting
• External users:shareholders, creditors, and regulator
Primary Users of Reports
• Internal users:officers and managers
• Finacial statements
Types of Reports
• Internal reports
• Quaterly and annually
Frequency of Reports
• As frequency as needed
Purpose of Reports
• Special-purpose for specific decisions
• Pertain to business as a whole
Conent of Reports
• Pertain to subunits of the business
• Highly aggregated (condensed) • Very detailed
• Limited to double-entry accounting and cost data • Extend beyond double-entry accounting to any relevant data
• In accordance with generally accepted accounting principles • Standard is relevance to decisions
• Audit by independent accountant
• No independent audits
Differences Between Finacial and Managerial Accounting
The role of the managerial accountant has changed in recent years. Where as in the past their primary concern used to be collecting and reporting costs to management, today they also evaluate how well the company is using its resources and providing information to cross-functional teams comprised of personnel from production, operations, marketing, engineering, and quality control.
Management Functions and Organizational Structure
(S.O. 2.) Management performs three broad functions within an organization:
Planning requires management to look ahead and to establish objectives.
Directing involves coordinating a company's various activities and human resources to produce a smooth-running operation.
Controlling is the process of keeping the firm's activities on track.
(S.O. 2. In order to assist in carrying out management functions, most companies prepare organization charts to show the interrelationships of activities and the delegation of authority and responsibility with the company.
Stockholders own the corporation but manage the company through a board of directors. The Chief Executive Officer (CEO) has overall responsibility for managing the business. The Chief Financial Officer (CFO) is responsible for all of the accounting and finance issues the company faces. The controller and the treasurer support the CFO.
(S.O. 3.) All employees are expected to act ethically in their business activities and an increasing number of organizations provide their employees with a code of business ethics.
Code of Ethical Standards
U.S. Congress enacted the Sarbanes-Oxley Act (SOX) of 2002 in response to corporate scandals. One result is that CEO's must certify that the financial statements give a fair presentation of the company's operating results and financial condition.
(S.O. 3 ) In Canada all three professional accounting organizations; the Society of Management Accountants of Canada (SMAC),…