Similarities & Differences of Financial & Management Accounting and Finance

What are financial accounting, management accounting, and finance? How are they similar and different?

Financial accounting, management accounting and finance are all three concerned with making financial decisions in a business. Atrill and McLaney draw a distinction between financial and management accounting through this statement: "the differences between the two types of accounting reflect the different user groups that they address" (2006). Management accounting reports are targeted at fulfilling the information needs of managers within a business and are likely to be much more detailed, to contain information about other areas of he business too,
to be both backward and forward looking, and to be much more specific than generalised financial accounting reports. "Financial accounting is something performed to agreed standards designed to accurately report the true worth of a business...management accounting, on the other hand, is a mechanism for using a financial metric for making a decision about different choices" (Anderson, 2004). Perhaps the biggest difference between the two strands of accounting is that reports produced in financial accounting must meet the guidelines laid down by international bodies such as the International Accounting Standards Board, whereas management accounting reports can be produced in any format the management see fit - they are for internal consumption only.

Finance "is concerned with the ways in which funds for a business are raised andinvested" (Atrill & McLaney, 2006). It is similar to financial and management accounting in the sense that it is another source of information about the business. Finding concrete reasons on why the two disciplines are different is harder because no two authors seem to agree. Broadly speaking, the difference lies in the type of information that accounting and finance will seek to interpret. Management accounting could potentially gather information on any decision that had to be made within a business - for example, the merging of two staff departments, or the decision to upgrade all the desktop computers owned by the business. The information produced by financial reporting would be much narrower in its scope - looking at issues such as the type of investments that should be undertaken. A slightly different differentiation between finance and accounting is provided by Bonnie Coleman; "take stock of where you've been (accounting) and plan where you want to be (finance)" (2005). I disagree with her analogy though; the accountants working in my organisation play a key role in deciding where the organisation is heading and their influence is not restricted to money.

References:

Atrill, P. and McLaney, E. (2006) Accounting and Finance for Non - Specialists 5th Ed. Harlow, Essex: Pearson Education Ltd.

Anderson, D. J. (2004) Management vs Financial Accounting [Online]
Available from http://www.agilemanagement.net/Articles/Weblog/Managementvs.FinancialAcc.html (Accessed 13th Jan 2008)

Coleman, B. (2005) The Difference Between Accounting and Finance: A Plan New Mexico Business Journal, March, 2005 [Online]
Available from http://www.redw.com/_pdf/AccountingandFinance-APlan.pdf (Accessed 13th Jan 2008)