Compare and Contrast Essay Sample on Management and Financial Accounting

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Wesleyan University
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Management and financial accounting are both business tools that serve different purposes. Any successful business must have these accounting tools in place to determine the financial position of the firm and make right business decisions. However, without these tools in place, no enterprise will conduct its business in a favorable manner. Instead, it will end up collapsing. In that regard, accounting tools are used by the company to oversee current business functions, review past performance, and determine future operational plans. Nevertheless financial and management accounting has different audiences such as managers and investors. Therefore, this topic will entirely cover differences between managerial and fiscal accounting, their various users, and how management accountants are affected by the (SOX) Sarbanes-Oxley Act.

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Management Accounting

Organizational managers use managerial accounting in making decisions about the daily operations of the business. Indeed management accounting is a tool for better decision-making of the firm. In that regard, any successful enterprise must have proper managerial accounting failure so that a company may end up in jeopardy (DRURY, 2013). Therefore, it is the responsibility of all organizational managers to ensure that proper books managerial accounting are recorded, monitored, and maintained as they act as the backbone of the business. Moreover, without this tool, the enterprise will no longer move. Managerial accounting assists managers to forecast trends and markets. In such terms, it is a tool that can be relied upon in determining business trends and markets. Also, managerial accounting does not focus on the past but the future unlike financial, which is based on the past.

Financial Accounting

On the other hand, financial accounting is a tool that is used by organizations to show the economic health of the business to its users. They include other investors, financial institutions, stockholders, the board of directors, and external stakeholders. As financial accounting is based on a particular period in the past, it enables its audiences to know the performance of the organization (Weil, & et al., 2013). This tool of accounting assists its users to understand when the business has made a profit or a loss and deciding whether to invest in it or not. Therefore, financial records must be filed per year to it easy for the audiences to observe the performance of the business for the whole year. No organization will conduct business and come out successful without this tool in place to determine when the company has incurred a loss and when it made a profit.

Financial accounting is prepared for external stakeholders, whereas management is presented internally. For managers to make better future and current financial decisions, it is a necessity to have management accounting in place even though financial management is more crucial to both potential and current investors (Saunders, & Cornett, 2014). Not only that, management accounting is based on estimates or guesses work whereas financial must adhere to GAAP Accepted Principles. In management accounting, the format is informal and is prepared as per the requirement of the company or department. As compared to financial accounting the format is formal and precise for comparisons with other organizations. In managerial accounting, its primary objective is to provide information to the management for planning, setting goals, and evaluating them. Unlike in financial accounting, its principal purpose is to disclose the economic condition, and results of the business at a particular date.


The SOX affects management accountants a lot as it established the board which is the public company oversight board to promulgate standards for them (Clinton, & et al.,2014). In such terms, it takes control of the occurrence of the conflict of interest and facilitates partner rotation of the first audit of the same company every five years. SOX is not enough to deter all unethical practices that are done in the company it needs to be supported by other auditing standards for efficiency and effectiveness. Therefore for the efficacy and survival of the business, each organization needs to have financial and managerial accounting in place.


Clinton, S. B., Pinello, A. S., & Skaife, H. A. (2014). The implications of ineffective internal control and SOX 404 reporting for financial analysts. Journal of Accounting and Public Policy, 33(4), 303-327.

DRURY, C. M. (2013). Management and cost accounting. Springer.Saunders, A., & Cornett, M. M. (2014). Financial institutions management. McGraw-Hill Education,

Weil, R. L., Schipper, K., & Francis, J. (2013). Financial accounting: an introduction to concepts, methods, and uses. Cengage Learning.

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