5 important differences between management accounting and accounting

Issues discussed in the material:

• What is the difference between management accounting and accounting?
• Can management accounting completely replace accounting?
• Why is management accounting needed in an organization?
• What are the benefits of management accounting for an organization

In order to correctly generate reporting, employees of the financial department of any organization must know the difference between accounting and management accounting and how they are similar. Providing reliable reporting not only to the company’s management, but also to the tax authorities is possible only if these nuances are clearly understood.

Differences between accounting and management accounting: visual table

Since there are certain differences between accounting and management accounting, they should be classified in somewhat more detail.

Accountant and financial manager - four differences

Accountant and financial manager - four differences

Who serves as the financial manager in your company? Quite often, entrepreneurs answer this question in the same way: a person who was a former chief accountant. In fact, many companies, especially actively developing ones, faced with the need to have a financial manager, followed one path: they promoted chief accountants. And we encountered a problem: the manager still does not receive the full information required from the financial manager, and the latter is completely overloaded. In addition, he is constantly in a stressful situation, because he cannot provide the manager with what is expected of him. The problem arises mainly because entrepreneurs do not understand the differences between accounting and financial management. In fact, their work is closely interrelated, but, nevertheless, these are completely different functions, and they must be performed by completely different people.

A little history

By the way, the branching and increase in the scale of the functions of a financial manager occurred naturally following the development of the economy itself. Thus, until the 20s of the 20th century in the West, the function of a financial manager or director as such did not exist at all. There were financial and economic departments dealing with all matters related to finance. The separation of services: accounting, economic and financial began only in the 20s. At this time, the stock market began to actively develop and the main task of financiers was to work with securities.

The crisis of the 30s required new qualifications from financiers: people were needed who knew how to assess liquidity, the ability of enterprises to generate cash flows, and, of course, identify signs of bankruptcy of companies using a set of indicators.

In the 40s, the functions of planning, budgeting and cash flow assessment became in demand. Since America was at its best during this period (the country did not participate in the war and earned huge money by supplying goods to warring states), it needed evaluators of the investment attractiveness of enterprises, specialists capable of predicting the future potential of the company.

In the 50s, new tasks arose that required new abilities from financiers. The number one task is the optimal use of resources. Economic and mathematical methods for managing enterprise assets are beginning to develop, and the concept of the time value of money is becoming especially popular.

The 60-70s became the period of management accounting. Information about enterprises for the market has already been unified and standardized, the main coefficients for assessing the state of businesses have been identified, and the need has arisen to understand the economics within companies. Models for optimizing cash and material reserves are being developed.

The 80-90s were marked by a boom in investment markets. Accordingly, the functions of financial managers have expanded into this area. The area of ​​competence of financiers included the calculation and assessment of investment portfolios of enterprises.

Thus, a modern Western financial manager is a person who deals with all of the above issues. He plans future cash flows, assesses the liquidity and investment attractiveness of the enterprise, analyzes the situation in the financial and foreign exchange markets and stock exchanges.

We will go our own way.....

In Ukraine, due to historical characteristics, the development of the functions of a financial manager, as well as, in fact, the emergence of such a position, occurred in a slightly different way. For the first ten years of the country's functioning in a market economy, accountants dealt with all financial issues. The main task of these specialists was to pay taxes, everything else came second. But, since economic development required enterprises to perform a number of other tasks in a high-quality manner, specialists had to urgently master the entire ladder of functions that the West had traversed over 80 years. It cannot be said that there were no professional financiers at all at that time - in economic universities even in Soviet times there were departments of banking finance and enterprise finance. However, they did not provide the knowledge required from a specialist in a company operating in a market, rather than a planned, economy.

Ukraine actually skipped the period of the Western 20s, i.e., the stage of development of securities. Currently, only the corporate rights departments of banks, investment companies and securities issuing companies work with securities. Financial managers of other enterprises did not have to face this task, and those who perform functions related to securities implement them in a rather truncated form due to the underdevelopment of the Ukrainian stock market. The current trend in Ukrainian business is the retraining of accountants into financial managers or directors. Formally, it looks something like this: after some time, an accountant is promoted to chief accountant, and then to financial director. In practice, this means adding more and more new tasks to the latter’s track record. And this is where the problems begin.

Four differences

The financial activities of any enterprise can be divided into three main areas: accounting and taxes; management accounting and budgeting; analysis of the financial condition and financing of the enterprise. So, an accountant, by definition, cannot coordinate three areas at once. He has a different education, different tasks and even a different type of thinking. And this in no way can be blamed on the latter. It’s just that a financial manager and an accountant are different people, different positions and different functions. This is an axiom, which, due to the same historical features of the development of our country, required proof. Let's look at the differences between a financial manager and an accountant in detail.

So, professional competence

. An accountant is a specialist who works on an accounting system in accordance with current legislation. His tasks are to pay taxes on time and correctly and report to government agencies, clients and partners of the company, monitor the state of the company’s account and reduce the balance to a single indicator. This is far from an easy job. It requires serious professional training and high qualifications, especially in Ukrainian conditions, when legislation changes with enviable regularity. The financial manager, in turn, must manage the company’s working capital, plan the financial flows and budgets of the enterprise, and develop financial strategies. At the same time, constantly analyzing the real economic state of the enterprise, comparing it with the national and even international market situation, it must make certain financial decisions in a timely manner to optimize the situation. In addition to the above, the financial director is also required to provide the head of the company with reliable information about the current state of the enterprise, a forecast of the future state and an action plan for the further development of the enterprise. The accountant is simply unable to do this because he does not have the necessary information.

Information competence,

can probably be identified as a separate point of difference between an accountant and a financial manager. The first one generates accounting and tax reports based on available primary data and tax legislation. These figures are the results of the enterprise’s activities for the period. That is, yesterday's numbers. Forecasting the future financial condition of a company based on such data requires additional processing using a special analysis technique, the knowledge of which is not within the competence of an accountant.

The financial manager works with management accounting documents, that is, he has information about the cost result of the daily activities of the enterprise, about cash flow, sales, production and purchases, about the financial condition of the enterprise in the context of certain types of business, about the strategic position of the enterprise in the market and, most importantly, about the current value of the company for the founders and owners. This data forms the basis for forecasts, budgets and strategies of the enterprise. And it is this information that interests the head of the company most of all.

A simple example: from a certain instruction, an accountant knows that by a certain date the company is obliged to pay a certain amount - this is his main job, to know how much and when should be transferred so that the company does not have problems with the law. The financial director, in turn, has information about the current state of the enterprise, as well as about the company’s future plans, for example, to take out a loan. Based on this, he can decide whether it makes sense to pay the specified amount now, or whether there are options for extending the period to optimize the financial situation within the company. The latter, by the way, can also be attributed to the distinctive feature of the financial director: he is familiar with business law and can offer alternative options for working with financial reporting services, if necessary.

Naturally, a person working as an accountant at an enterprise can also take on the collection and analysis of management data. But, in this way, he will already be engaged in two large-scale and equally important types of activities. In addition to the need for new education, a person will also need a huge amount of additional time and energy. Specialists who cope with both functions equally well deserve respect, but, unfortunately, there are very few of them.

Goals

– the third distinctive feature of accountants and financial managers. The goal of the accountant is transparent and obvious - compliance of the financial activities of the enterprise with tax legislation. Modern financial management, in turn, sets itself one global task - maximizing the market (economic) value of the company by increasing the return on capital of the enterprise. The business environment of the post-Soviet space, due to many factors, has not yet fully faced the need to prioritize precisely this goal, but Western financial managers have been working in this direction for a long time. The development trend of the domestic economy also suggests that this goal of financiers’ work will come to the fore in the near future.

The difference in goals leads to another important point that distinguishes an accountant from a financial manager - the type of thinking

. A financial manager, as a person focused on financial results and maximizing the company's market value, is constantly faced with the need to evaluate alternative opportunities in the capital market. In order to direct the resources of an enterprise in the most profitable direction, it must make financial or investment decisions only taking into account all risks, while necessarily assessing the potential profitability of all alternative investment options.

An accountant does not need to evaluate alternatives. Rather, the qualities that are important for his work can be called pedantry and punctuality. The fact that an accountant does not have alternative thinking is in no way a “minus” of him. People performing different tasks think differently, which is completely normal.

Ideal scheme

So, the axiom is proven. The functions of a financial manager and an accountant in an enterprise operating in a dynamically developing market economy must be separated. One person can theoretically perform both jobs, but this will be associated with considerable difficulties for himself, and will not provide the manager with the opportunity to receive all the necessary information.

As mentioned earlier, the financial activities of an enterprise are divided into three areas. So, the following scheme for managing these areas can be called ideal: the chief accountant deals with accounting and taxes; planning, accounting and control are undertaken by the financial manager, and the financial director manages the funds of the entire enterprise based on the analysis of data provided by the accounting department and the manager. Often in companies the function of a financial manager is not distinguished - the financial director is engaged in two areas. This is not as important as the separation of the functions of an accountant and a financier.

The separation of the two functions, in addition to the needs of the enterprise itself, is also required by the market. The importance of the functions performed by the financial director is great enough to state that the company’s position in the market depends on the quality of their performance. That is why financial directors are, in fact, the only ones among all functional heads of departments of the enterprise who are usually included in the board of directors. And for a business owner who is not involved in managing the enterprise, the CFO is the main person responsible for the profitability of his company. Therefore, it is better for a person performing such important functions to do this exclusively.