Use and usefulness of financial and managerial accounting information.
In the current financial era, accounting information has become a crucial component and widely used to describe all types of business action in any business undertaking. Usually accounting is a process of recording, reporting and analysis of financial transactions of an ongoing business, the person in charge of accounting is known as an accountant. Accounting information consists of terms such as sales revenue, cost, expenses, net revenue which has undoubtedly characterized meanings and all of these things are frequently used in business and hospitality-related communications. Accounting is divided into two, they are financial accounting information and managerial accounting information. Financial accounting is the information that is offered to external companies who have an interest in a company. Managerial accounting is the data which is internally used for management and others.
The accounting users which involve are internal users (people within the organization) and external users (people outside the organization). The internal users within the company will be the managers, sales staff, budget officers, internal auditors and so on, whereas the external users consists of leaders, shareholders, customers, external auditors and more. The responsibility of business accountant is supplying information to each of the groups relatively.
Internal users may consist of owners and management.
The owners are the people who contribute money into the business and are ultimately liable to take on all risk associated with the business. They are involved in the profitability of the business concern. In small businesses, owners control the affairs of the business directly, but in medium or large enterprises these responsibilities are left to the managers.
Management may contain a Board of Directors, Managers, and other officers of the business. They need the accounting information on cost of sales, profitability, and wealth of the business enterprise for planning, controlling and decision making.
External users have limited authority, ability and means to access the required information. They have to rely on the financial statements and annual reports, auditor’s report, and directors’ report etc. To obtain updated performance reports and decisions of the board of directors, external users can access the websites of companies.
On the basis of accounting information, customers can know the continued existence of the business and continued allocation of the products and services supplied by it.
The income of the employees indirectly differ upon the earnings of the enterprise. The amount of bonus to be granted to employees is also fixed after analysing the financial statements. The wealth of the business enterprise is a sign that the positions of employees are secure and chances of growth within the business are bright.
Several taxes and excise duties are collected by the government after examining the financial statements. Taxation authorities viz. Income Tax Department, Sales Tax Department and Customs and Excise analyse the financial statements to make sure that the financial statements are prepared according to the legal provision.
The International Accounting Standards Board (the IASB or the Board) issued the revised Conceptual Framework for Financial Reporting (the revised Conceptual Framework) on 29 March 2018. The revised version includes comprehensive changes to the previous Conceptual Framework, issued in 1989 and partly revised in 2010.
The previous Conceptual Framework (the 2010 Conceptual Framework) was criticised for its absence of simplicity, the elimination of certain important concepts and for being outdated in terms of the IASB’s current thinking.
In reviewing the Conceptual Framework, the Board was looking to strengthen high level concepts with necessary detail for it to set standards and to help others to better understand and interpret the standards.
In spite of limitations, financial accounting has value and is an important and abstractly rich area. Because of growing business complications and advances in awareness of human behaviour and decision processes, the methods of financial accounting are changing.
Unlike company management or internal users, external users of financial information are indirectly involved in running the business or organization. They are strangers to the business and only have restricted information about companies’ operations, financial position, and wellbeing. In other words, external users need financial information about companies in order to support their financial decisions.
The fundamental goal of financial accounting is to collect business transactions and other input documents like invoices and sales receipts in the form of general-purpose financial statements that can be understood by external users.
Management accounting systems are documented as the most vital source of formal information in an organization as it plays a vital role in helping the managers of complex and classified organizations by offering the information that enables them to plan, organize, and control the organizations. The purpose of this study is to enhance researchers’ knowledge on the evolution of management accounting and the changing roles of management accountants. This study aims to define management accounting system, describe the shortcoming of the traditional management accounting system, explain the strategic management accounting, and identify the changing role of management accountants. This study covers the evolution of management accounting and the changing roles of management accountants in parallel with the development of strategic management accounting.
By utilizing management accounting, you can calculate in detail which products and accounts are earning you the most money. Sales figures can help you to pin down whether your products are attracting a particular demographic and whether it’s advantageous to market particular products at specific times and at targeted places. This management accounting information gives you the means you need to target marketing efforts and determine your production numbers.
Management accounting aids you to pay your bills and keep your business afloat. By knowing how much money you have accessible and how much cash you can expect to have during upcoming periods, you can make tactical decisions about when to borrow money and when to make long-term investments. Planning these moves carefully can save you the stress of running out of working capital and it can save you money on interest and late fees.
Managerial accounting involves collecting, analysing, and reporting information about the operations and finances of a business. These reports are generally directed to the managers of a business, rather than to any external entities, such as shareholders or lenders.
Given the broad range of investigative and analysis activities noted above, we could state that managerial accountants act in an advisory role, to warn managers of impending issues and to direct their attention toward possibly profitable opportunities.
To explain the use of management accounts and management information systems in management, you only need to gather and assess data about employee productivity relative to hours or payroll. If you follow production and find that, typically, it takes about 15 minutes of labour to generate one unit you sell, you can use this information to assess outcomes when you change variables.
For example, if you acquire a new piece of labour-saving equipment, you can track productivity before and after you begin using it to decide how much effect it has on your payroll and your bottom line.
Management accounting encompasses any financial analysis that presents you with useful information about business operations. It generally concerns itself with internal data, or numbers that you collect in the course of your operations that reflect the ways your company has been earning and spending money. It is not uncommon for a business to have separate individuals or departments in charge of collecting this information and others responsible for analysing and evaluating it
In conclusion, the main objective of accounting is to provide useful information for every user. Other than that, accounting also let investors, managers and others user who have financial interest in an enterprise have a clear understanding regarding accounting terms and concepts and allows a company to analyse the financial performance of the business.
Therefore, reports from management and financial accounting provide the appropriate recipient with benefits that are unique to each format. Their differences make them important in different ways, but equal in significance.
Financial accounting reports provide the accuracy financial professionals need to measure the solidity of company. These reports are also used to do a company’s taxes, so the need for accuracy has to be top priority.
Management accounting reports provide estimates for what might occur in the future for a company. Companies need these projections and would rather use estimates on what will happen than reports on what has already happened, which benefits the future of the company. Investors and tax professionals need these numbers, so they can properly assess a company’s performance. Managers within the company must constantly be thinking about the future of the company, which makes management accounting crucial in planning ahead financially and thinking of ways to grow based on estimates of what will happen.
References
Zhu, B, and Niu, F (2016). Investor sentiment, accounting information and stock price: Evidence from china, pacific-basin finance journal, 38, pp. 125-134
McLaney, E, and Atrill, P. (2018) Accounting and fiancé: An introduction, 9th ed., Harlow: Financial Times Press [available in the library]