Difference between Management Accounting and Financial Accounting

• Legal requirements. There is a statutory requirement for public limited companies to produce annual financial accounts regardless of whether or not management regards this information as usefuL Management accounting, by contrast, is entirely optional and information should he produced only if it is considered that the benefits from tlte use of the information by management exceed the cost of collecting it.
• Focus on individual parts or segments of the business. Financial accounting reports describe the whole of the business whereas management accounting focuses on small parts of the organization. for example the cost and profitability of products, services, customers and activities. ln addition, management accounting information measures the economic performance of decentralized operating units, such as divisions and departments.
• Generally accepted accounting principles. Financial accounting statements must be prepared to conform with the legal requirements and the generally accepted accounting principles established by the regulatory bodies such as the Financial Accounting Standards Board (FASB) in the USA the Accounting Standards Board (ASB) in the UK and the International Accounting Standards Board. These requirements are essential to ensure the uniformity and consistency that is needed for external financial statements. Outside users need assurance that external statements are prepared in accordance with generally accepted accounting principles so that the inter-company and historical comparisons are possible. Thus financial accounting data should be objective and verifiable. ln contrast, management accountants are not required to adhere to generally accepted accounting principles when providing managerial information for internal purposes. Instead, the focus is on the serving management's needs and providing information that is useful to managers relating to their decision-making, planning and control functions.
• Time dimension. financial accounting reports what has happened in the past in an organization, whereas management accounting is concerned with futtue information as well as past information. Decisions are concerned with future events and management therefore requires details of expected future costs and revenues.
• Report frequency. A detailed set of financial accounts is published annually and less detailed accounts are published semi-annually. Management requires information quickly if it is to act on it. Consequently management accounting reports on various activities may be prepared at daily, weekly or monthly intervals.