Those who are new to the business of accounting, who might be just starting a degree to work on statements, cash flows, and reporting to get you certified with the CPA (Certified Public Accountants Australia) might not know these different types, nor how a tax system or accounting principles are often used as professional skills in the various jobs you do in the body of work your career covers.
Never fret though: there are plenty of accountants and many companies out there who can help you audit and write reports! Most of this knowledge is quite inherent, so their data management, professional records, and knowledge of tax and government principles as well as industry standards is to help you understand cost-saving and provide managerial and financial advice for businesses.
It goes so much further than just this though.
Accounting theory encompasses an entire school of thought, and the government even go so far as to apply forensic skills to help an organisation or government body, all while having a social impact that goes just beyond personal income and transactions.
A Certified Public Accountant (also CPA) will generally have understanding and skills that deal with professional internal reporting for a company, and know how to read and write reports based on data from public and professional statements as part of their services. This is because, like all accountants, they follow the universal principles of accounting, which generally underpin any services that deal with accounts, managerial, and financial management.
Don't be fooled though - there really is more than one type of accountant and even though they work with a similar system, their function and focus may be quite different.
CPA (Certified Public Accountants) and Chartered accountants would generally deal with the financial reports, audit systems, income and cash flow, cost-saving and tax management, and data entry and general reporting mentioned above.
However, more specialised kinds of accountants exist, and each of some the main types has a different set of skills and foci they employ:
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forensic accountants tend to work with financial analysis to detect fraud or financial misuse
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tax accountants generally work with a tax system and audit transactions for transparency
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auditors are even more meta - they audit the certified accountants to check they are divulging public information about a corporate body
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financial advisors tend to focus on a single problem, and will report on a specific event that they are most adept at
Most businesses though already have a latter such professional on hand in-company who does many jobs at once and deal with data and reporting consistently.
Both financial accountants and those who work with management accounting and associated systems differ from a public accountant in that they will use their skills and knowledge of standards to focus on a single company or entity.
Despite this fact though, they each have a distinct role to play in the financial system
This guide from Superprof is here to take you through some of the principles of accountancy go into the distinctions between these two specialised cash and data management, reporting, and auditing.
We highly recommend those who are studying an accounting degree to read on as this will help you choose which entry point to the world of work you want in your professional career after university.
An accounting tutor for your kids is also easily accessible.
Who Such Professionals Report To
The reporting chain of command for these two kinds of accounting professionals is only one of many differences, which also accentuate their similarities.
Simply put, a person who deals with financial accountancy takes an external focus, disseminating information to shareholders and creditors, investors and tax authorities.
Profitability and periodic growth reporting, as in quarterly or annually, is also within the remit of this kind of professional.
The obvious difference, as you can probably guess, with management accounting professionals is that they have a much stronger internal focus and report directly to the managerial executive.
There is an element of financial reporting that these people must engage with too, but it's strictly for inside the organisation, and not for the eyes of stake and shareholders per se.
What about those who have a hands on role, like on a production like? How much fiscal knowledge do they become involved in?
Given that there is a dependence on the physical output of a company when calculating income and costs, they do have some influence over what ends up on the statement sheet. If quotas aren't being made, costs might outweigh earnings, so whilst they might not have intimate accounting knowledge, the numbers on such a statement will be always in the back of their minds.
It would typically be the production line managers who would have the lowdown on the overall outputs and overheads, including costs and risk, as well as income, that the manufacturing is producing. These are the people who summarise and provide data for the executive to make decisions on.
It might be a surprise to learnt that it's not actually all top-down when it comes to decision making - if the accounting team don't show possibility in their financial statement, and if costs are shown to be too high, then a decision can not reasonably be justified.
The executive is simply there to approve and disseminate the budgets.
Makes sense why there is always in-house accounting teams now, eh?
Discover more about the role of the management accountant...
Their Function in the Grand Scheme
Whilst accounting is certainly never referred to as glamorous, the role of accountants can have a lasting impact. You're the one who provides concrete recommendations, regarding cornerstones of the private sector such as risk assessment and expansion proposals.
Their knowledge of the assets and liquidity of a company involves heavy scrutiny and only if the numbers add up will the executive body be able to put such recommendations into practice. You really get to be the green light on all concrete planning an organisation might require.
The above information refers to managerial accounting professionals - what about financial accountants?
Their role is slightly different given that they actually focus on the day to day, using the trial balance (i.e. do the credits total more than the debits on any given day?) to execute the necessary functions for that particular moment, given the rest of the plans for the company in the mid-term.
A financial accountants' responsibilities are more detailed than we can mention here, so take a look at the link in this line.
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The Industry Rules
Given the standardisation across the sector, accounting information systems are readily used in both of these kinds, but to different ends.
These are known as the GAAP (Generally Accepted Accounting Principles, which are also known as the IFRS for international standard rules elsewhere) and are in place Australia wide.
The IFRS (International Financial Reporting Standards) come into play if you're dealing with a multinational so as to maintain consistency and transparency across international settings, so the GAAP, given that it has to fit with the guidelines of the former, is heavily based on this.
Streamlining accounting principles is becoming the norm across many countries, so if you want to make yourself more competitive as a graduate hire, consider focussing on the IFRS then.
The accounting procedures involved in each of the two kinds differ also, for instance:
- A managerial accountant uses processes to provide financial analysis from which to make strategic decisions
- A financial accountant on the other hand deals with the accounting cycle which involves the recording of complete accounting events
The latter also tends to deal with accrual accounting, which involves reporting the exact transactions, sometimes before they even take place. This is very important in today's internationalised market since transparency reflects good business practices.
The GAAP also requires large companies to use the accrual method when preparing financial statements, so it really can't be avoided. All companies are also legally required to have financial accountants in the staff, so their role is indispensable.
Every aspect of a company is touched by these workers, including:
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Intra and sometimes extra-company audits
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Noting revenue and calculating profit
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Keeping a record of debits and credits
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Keeping track of risk and asset liabilities
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Maintaining up to date records for taxation purposes
These can be considered the worker bees if you will, who provide the nitty gritty information that management accountants can use to make assessments and pass information onto the executive.
So if you really want more of a wide-reaching social impact, or even to influence the economic future of a company, consider which of these roles would suit you more when choosing your specialty at university.
The benefits of both are that there are set hours and benefits, and given the focus on one organisation, you will really be able to have a tangible impact on many decisions.
So think about whether you want to be independent or part of a larger whole as you make your way through your degree also, since there might be benefits to being a contractor such as flexibility, but if long term gain and stability are your main goals, then set your sights on going in-house somewhere.
If you want a closer analysis of management versus financial accounting, be sure to check our other articl.e
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