Financial and Managerial accounting

by Howard Maclaren, June 2014

1200 words

4 pages


Doing business is not an easy task. It is associated with the process of making daily decisions, which are able to influence efficiency of this business. They are made by the different people – from a company’s managers to its clients. Obviously, in order to make these decisions effectively we need appropriate information basis. This basis can be provided by accounting and financial analysis.

In short, the main goal of accounting is to provide informational basis for making reasonable decisions by the different stakeholders of a company. “The purpose of accounting is to provide the information that is needed for sound economic decision making. The main purpose of financial accounting is to prepare financial reports that provide information about a firm's performance to external parties such as investors, creditors, and tax authorities” (Financial Accounting).

We can divide these stakeholders into two groups – internal and external ones. External stakeholders are a company’s clients, shareholders, partners, investors, creditors and regulative bodies. Internal stakeholders are a company’s managers and employees.

According to this division we are able to point two types of accounting – financial and managerial accounting. Financial accounting is for external users, while managerial accounting is for internal users to make needed decisions. This is the main difference between these two kinds of accounting. Respectively, these two types may be prepared by the different professionals. Financial accounting must be conducted by the professional accountants, while managerial accounting can be prepared by simple employees, since it does not require some particular knowledge.

Respectively, managerial accounting is not regulated by some strict principles or standards. It is usually done in form that is the most appropriate for the managers of a company. Financial accounting is regulated by the accounting standards, about which we are going to talk below. It caused by the fact that the main goal of financial accounting is to check a company’s reliability and transparency. It should be done to protect the interests of the mentioned groups of external stakeholders and society, in general.

Accounting standards are principles of accounting that are used to provide objectivity, transparency and efficiency of accounting procedures. These principles should be universal and standardized. A formal definition of the accounting standards is the following. “Accounting standards are rules according to which accounts have to be drawn up. They demand minimum levels of HYPERLINK "" disclosure , lay down fundamental principles, define the meanings of terms and specify how numbers should be calculated” (Accounting Standards).

Accounting standards are developed and implemented by the international and national institutions, for example, FASB. That is why we can talk about two levels of accounting standards – national and international levels. Nowadays more and more countries try to implement the international standards into national practice, because the modern business is becoming more globalized and it is important to have unified international institutional environment.

There are two main institutions that develop international accounting standards – The International Accounting Standards Board (IASB) and The Financial Accounting Standards Board (FASB).

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