1. Why is management accounting more suitable for internal reporting than
financial accounting?
The term ‘internal reporting’ refers to the communication of a firms’ current
and futurewell-being, to the relevant managers within a firm. This is done
through the analysis of its costing, budgeting and investments, this information
is not made public as with financial accounts which are published externally for
all stakeholders to view. The nature of internal reporting lends itself to
management accounting more suitably as the primary function of a
management accountant is to provideinformation to aid managers in their
running of the firm, helping them to efficiently meet their objectives. Financial
accountants are less suited as their role is to documentthe currentfinancial
position, this means they can only provideinformation fromwhat has already
occurred, leaving their data incorrect after even one more day of business.
Management accounting is about looking at how a firm can improve its self in
the long run, with shortand long-term planning, most commonly quantified by
improving profitability. Functions of management accounts such as product
pricing, outsourcing and product mix have a huge influence on a firms profits,
therefore a management accountant is instantly more suited to internal
reporting than a financial accountantwho is not heavily involved in the
products or their pricing. Management accountants have access to the
information regarding the direct and indirect costs/overheads of a firm,
minimising these can be the biggest factor when aiming to improvea firm’s
profitability.
Internalreporting can also consistof a lot of performanceanalysis/
measurement, this can be to find which departments are more efficient and
how those that are perhaps less efficient can be improved or ‘streamlined’. A
financial accountant has limited access to the measurement of output from
each department, but rather a broad over view of whatis being sold and what
is being received in return for those sales. Management accountants however
have access to such things as periodic performancereports, which allow them
to analyse the performanceof a firm as a whole or departmentally, therefore

2. increasing their ability to report back possibleinefficiencies and help managers
to decide on the most efficient formof improving the departments.
Another reason management accountants are moresuited to internal
reporting than financial accountants is because some financial accountants
work externally fromthe firm, especially in small to medium sized businesses.
Some firms will send their invoices and ledgers away to a firm of financial
accountants who do their accounts for them, these people may have no
emotional connection with a particular firm and perhaps be less inclined to
enhance it as say a management accountantwho is also employed by the firm
but works internally on a day to day basis, as opposed to whenever the ledgers
are received and need to be collated in a statement of financial position or
income statement. A management accountcould be seen to be more
passionateabout expanding and helping a business grow than an external
financial accountant. Not to mention the possible risks of sabotageby an
external accountantbeing privy to futuremarketing and costing plans which in
the hands of competitors could reducetheir opportunity of improving profits
all together.
Therefore it is clear to see that an internal management accountant is more
suited to the role of internal reporting than a financial accountant as they have
access to more of the information needed to make educated businesses
decisions on a firms future direction, with access to performancereports as
well as productcosting and the analysis of outsourcing which could reduce
direct costs as well as overheads therefore increasing profitability. The access
to marketing research on the types of products/services being produced
would also provebeneficial in deciding product mix for quality and task as well
as those that should be discontinued, as the managers of Lamborghinidecided
the Gallardo should be. This information is much more valuable to future
planning however the insight of a financial accountant, who knows thefirms
levels of cash flow, is also invaluable as without this information a
management accountant would perhaps not be able to implement any of the
changes needed to improveprofitability or providea comprehensiveinternal
report.