Role of the Accountant + Managerial vs Financial Accounting

What is Accounting?

accounting is the process of recording, reporting, analyzing, interpreting and communicating financial information.

What is the role of the accountant?

to provide managers of the business with the necessary information they require to maximize the business’s financial performance.

Roles of the Accountant include:

• planning e.g., budgeting, strategic planning, taxations advice. 

• controlling e.g., performance reporting, auditing. 

• organizing e.g., financial accounting. 

• directing e.g., capital investment techniques. 

• motivating e.g., financial planning, costing, receivership. 

• decision making e.g., CVP analysis 

What are the functions of the Accountant?

= related to the tasks they perform. 

• selection or design and maintenance of appropriate financial system

• recording financial transactions 

• producing financial reports for the information of managers and external users 

• analyzing the reports, interpreting the data they contain and making decisions on appropriate course of action 

• internal auditing 

• cost accounting 

Users of Financial Information

Internal users/Managers (who are concerned with the day to day running of the firm), and External users/Investors (those with financial interest in the firm who wish to evaluate the business performance).

Financial Accounting 

• external users - investors, shareholders, lenders, creditors, employees etc. (assists them in making sound economic decisions)

• provides external reports - general purpose financial reports (GPFR) 

• provides information of the financial position, financial performance, changes in equity and cash flows of a company 

• information provided is required by regulatory bodies 

• must comply with accounting standards, auditing standards, taxation laws and Corporations Act 

• must be audited 

• based on double entry accounting system (every debit must have a corresponding credit/everything balances)

Management Accounting 

• assists internal users - managers, directors 

• provides specific information or reports 

• provides reports on areas such as costs, investments, finance, capital expenditures, budgets, incremental analysis, performance reports 

• doesn’t need to comply with accounting standards etc. 

• structure, content and requirements for reports is determined by management 

• reports not audited 

• information is on demand, up to date and timely 

External Reporting

• assists external users to assess liquidity, performance, position

• managers are accountable to external users for their decisions, need to show they comply with laws and other regulations

• External Reports include: statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows

• reports prepared annually, half-yearly

• regulated by the corporations act (through ASIC), accounting standards (through AASB), Australian Stock Exchange (ASX) listing requirements.

• Corporations act - companies must prepare general purpose financial reports, reports must be audited and comply with accounting standards

Internal Reporting

• supports management and the decisions they need to make 

• assists in achieving goals and improving performance 

• no legal obligations or accounting standards need to be met 

• flexible format + often future oriented content 

• Internal Reports include: budget reports, performance (variance) reports, capital investment analysis reports, cost reports 

Internal Audit

= the continual review of the procedures, policies and systems of a business to ensure they are being adhered to and working efficiently and effectively.

• detects and corrects errors and identifies deficiencies in business operations so improvements can be made

• monitors, examines and tests the effectiveness of established internal control systems