Is Financial Accounting Mandatory in All Organizations?
Financial accounting and managerial accounting hold great significance in a company because they lead to the creation of both external and internal reports that represent the overall financial health of the business.
There are several similarities between these types of accounting, but they are also quite different from each other in terms of accounting standards, compliance, and usage.
Managerial accounting can be defined as the accounting practice that involves the identification, measurement, analysis, and interpretation of financial information to managers within an organization.
Financial accounting deals with recording, summarizing, and reporting the company’s financial activities to the public, investors, and the regulations.
It can be argued that financial accounting is mandatory and more important than managerial accounting because it involves compliance with the legal rules and regulations and industry standards to prepare reliable financial reports.
Generally, accounting firms in Singapore provide both services so that companies can easily outsource their accounting services and rely on professionals to get the best results.
Purpose of Accounting
Managerial accounting is essential to provide information about the internal uses of the company. Business managers typically rely on managerial accounting processes to gather information about the market and the company’s existing condition to make smart business decisions and set realistic goals.
On the other hand, financial accounting mainly deals with information outside the company. It involves the creation of financial reports, like the income statement or the comprehensive financial statement, to disclose the company’s performance to the auditors, investors, regulations, and other relevant authorities.
It is important to note that financial accounting is totally dependent on the historical financial information collected in a set period of time. At the same time, managerial accounting involves evaluating past information to create business forecasts for strategic business planning.
When a company chooses to outsource accounting services in Singapore, it will share all financial information with the accounting firm to ensure the financial reports are being created efficiently.
There is no doubt that financial accounting is mandatory for all organizations to ensure compliance with the law.
Generally, the reports generated through managerial accounting practices do not hold any value in the eyes of the law because they are for the company’s internal usage.
On the other hand, financial accounting reports are regulated and hold great significance.
The authorities and auditors need income statements, balance sheets, and cash flow statements to evaluate the company’s compliance with the law.
In managerial accounting, companies have the liberty to design their own format and guidelines to prepare the internal report.
However, industry standards must be followed in financial accounting because the information is released to the public, so each and every calculation must be accurate and reliable.
A general yet prominent difference between financial and managerial accounting reports is that the former is much more concise and generalized than the managerial accounting reports.
On the other hand, managerial accounting reports are quite comprehensive and sometimes even include too much unnecessary information. They are also much more technical and experimental in nature.
The primary reason behind this is that the companies are always looking for new ways to be better than their competitors, so a wide range of information is analyzed in these reports.
It is also possible to use managerial accounting in a single part of the business, for instance, by considering the manufacturing process of a single product or specific production line. As a result, managerial accounting reports typically do not cover the entire operation of the business.
Companies usually do not disclose the internal working procedures, so the managerial accounting practices are unknown to the public.
In a Nutshell
The major difference between managerial accounting and financial accounting is related to the target audience of the reports generated by these types of accounting.
Managers rely on managerial accounting to ensure they make well-informed business decisions, while financial accounting provides essential financial information to people outside the company.
There are certain rules and regulations that must be followed in financial accounting to ensure the company does not run into any trouble with the legal authorities, auditors, and stakeholders.
As a result, companies should use the services of professional accounting firms in Singapore to implement the best accounting practices.
Ultimately, it is important for companies to focus on both financial and managerial accounting to ensure the best decisions are being taken for the business and it is progressing as per the expectations of the investors and the stakeholders.