Financial vs Managerial Accounting

• In financial accounting, the target audience is existing and potential investors, lenders and creditors (for protection of their investments)
• In managerial accounting, the target audience is managers (for planning, decision-making and risk management)
• In financial accounting, reports summarise past transactions.
• In managerial accounting, budgets and forecasts determine how businesses allocate their resources in the future.
• The scope of financial accounting is broad - reports consolidate the results of different departments to give external parties an understanding of the bigger picture.
• The scope of managerial accounting is narrow - the company is divided into cost centres with detailed reports for specific help that can include non-financial information like detailed commentaries and explanations.
• The priority of financial accounting is objectivity & precision to reflect a true and fair view of a business's affairs.
• The priority of managerial accounting is relevance & timeliness; there is more leeway for estimates and shortcuts that allow for the timely delivery of analyses.
• Financial accounting involves following strict regulations like GAAP or IFRS standards.
• There is no strict regulation in managerial accounting.
• The financial accounting reports are publicly available.
• The managerial accounting reports are confidential because the information is commercially sensitive.
• The financial accounting branch is essential once a business grows above a threshold (in the UK, this threshold is becoming a limited company).
• The managerial accounting branch is technically not required but is extremely valuable for decisions on future strategy.
• Modern financial reporting increasingly integrates information on strategy, business models, and KPIs, which are all pulled from management accounting. Therefore, the dividing line between management and financial accounting is becoming increasingly blurred.