Overview of roles of management and financial accountants
Discuss About The Management Accounting Practices And Role.
Accounting is the basic language of any type of business whether it is small or large as it provides significant information to the managers and other parties that are directly or indirectly associated with the business of the organization. Such information is collected, processed, analyzed and interpreted by the professionals called accountants of the company. These accountants can be of various types. An organization may have primarily two types of accountants. One is management accountant and other financial accountant. Both of these accountants prepare various reports in respect of various aspects of the business of the organization and deliver these reports to the interested user groups so as to help them in making sound economic and other decisions.
The role of management accountant as well as financial accountant is quite important for the success and growth of the organization. Management accountants performs the functions like long run and short run planning, developing necessary management information system, participation in management of business etc. financial accountants involves in the financial reporting functions of the company and they also assess the financial performance of the firm. They help the managers in providing tax and other financial consultancy services.
Management accountants help the internal parties of the organization such as managers and employees in undertaking the managerial activities such as strategy formulation and policy definition in relation to the business carried by such organization. Management accountant helps the organization in preparation of several budgets and forecasts so as to carry out the organizational business smoothly and successfully (Horngren, Sundem, Stratton, Burgstahler & Schatzberg, 2002). They generally provide both monetary and non-monetary information by dealing with quantitative as well as qualitative data. Financial accountants, on the other hand, perform the finance-related functions to provide financial information to various internal and external parties of the organization such as shareholders, managers, providers of finance, government etc. They basically undertake the functions relating to financial reporting and tax compliances.
To perform the role of the accountant whether managerial or financial, the accountants are required to hold an expertise in the area of accounting under any recognized educational degree. As both management accounting and financial accounting requires collection, analyzing and processing of relevant data from various sources, so as to report the processed information through management or financial reports (Sunarni, 2013).
Management accountant and financial accountant hold a significant position in the organization as they both provide necessary information to various internal and external parties of the organization such as managers, employees, banks, financial institutions, government etc. so as to enable them to make effective decision making (Zubac, 2012).
Outline of information provided by both types of accountants
Management accounting is mainly concerned with catering to the information needs of managers and employees of the company and therefore management accountant serves the top and line level managers with useful information that helps them in formulating effective strategies and policies for the growth and survival of the firm (Parker, 2002). Whereas, financial accountants serve the information needs of internal as well as external stakeholders of the company.
A single report is prepared and delivered by the financial accountants to the stakeholders of the company whereas management accountant has to prepare various reports to carter the information needs of different divisions and levels of the management of the organization (Sori, 2009).
From the above study about the different roles of management accountant and financial accountants of the company, it is clear that both of these professionals plays vital role in the organizational success. Although the basis objective of these accountants is to help the different user groups of an organization in their decision making but both of them perform certainly different functions. Therefore management accountant and financial accountant hold different position in an organization.
The present case of Jess Newman involves the issue of ethical dilemma as being a professional the accountant has to face a conflict of interest between his professional duty and the personal relationships. While performing the professional services Jess has discovered certain items that were not real but yet they were claimed as real expense for the purpose of obtaining tax benefit thereon. As a part of professional responsibility the accountant must not include such expenses in the income tax returns. But since, the client has some personal relationships with the accountant’s firm, the supervisor instructed him to include such expense in the calculation of net income. As an accountant it is important for Jess to respect both his professional duty as well as the ethical values (Banks & Williams, 2005).
To solve the issue of ethical dilemma involved in the present case, the accountant must follow Langenderfer and Rockness model as it provides a systematic approach to resolve ethical dilemma:
It is firstly required for the accountant to understand the facts of the case so as to identify the opinion conflicts that are involved therein. It is also necessary on part of accountant to determine as to who and what is going to be affected if a particular choice of action is made.
The interest of concerned stakeholders must be given due consideration once the first stage of fact determination is completed. The consideration about the stakeholders must be taken beyond the core accounting issues to the interest of stakeholders who are connected with the matter of ethical issue.
The accountant must prepare a portfolio of possible actions that could be undertaken to deal with the issue of ethical dilemma. These courses of actions must be determined on the basis of legality, correctness and fairness of the act.
This step is important as it involves a detailed comparison of all the possible alternative actions by identifying the ultimate consequences of such actions and their direct impact on the stakeholders of the case.
The final step involves the final decision making by selecting the best possible course of action that holds the ability to balance the ultimate consequences with the prime values of the accountant through the elimination of various unethical options (Langenderfer & Rockness, 2006).
- Since Alice and Sarah are planning to join hands to provide the services to the people who are getting married, they can form partnership firm. In this way they can share the profits and losses of the business in the proportion as may be decided by them. Moreover, partnership firm as a whole does not have to bear any tax liability since the tax burden is ultimately borne by the individual partners on their share of profits. Also, a partnership requires its TFN number for the purpose of filing its annual returns (Nyazee, 2002).
- Hugh can start a sole-proprietorship form of business so that his business can be taken to the next level without being distracted from his personal duties towards the family. As Hugh makes the chairs himself he must operate this business as a sole proprietor in order to expand the business to the local stores. In sole-proprietorship business, the proprietor is individually responsible for all the tax obligations relating to the business and also there is a requirement to get GST registration if the turnover reaches the limit of $ 75000 (Australian government, 2018).
- The Harold family must set up a trust to hold the property as well as shares for the benefits of the members of the family i.e. the beneficiaries of the trust. The trust form of business organization need a formal trust deed which outlines the way in which the trust must operate. The trustee of the trust is legally responsible for all the operations as he has to provide the asset protection. Trust can be an expensive form of business organization (Malhotra, 2000).
- As Julie and Robert are involved in a manufacturing business since last 5 years, they must switch to the company form of business organization with the increasing need of funds to acquire more assets and warehouse. A company is a separate entity in the eyes of law. As a company can raise the funds through the public issue of shares and debentures, it is feasible to start company form of business so that funds can be raised as per the needs of the business. A company has a limited liability and involves huge cost in the setting up process. Company is also required to file its separate return of income. The company is also required to get itself registered under Corporations Act, 2001.
References:
Australian government. (2018). Business Structure. Available at: < https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure> Accessed on 27.05.2018.
Banks, S., & Williams, R. (2005). Accounting for ethical difficulties in social welfare work: Issues, problems and dilemmas. British Journal of Social Work, 35(7), 1005-1022.
Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2002). Introduction to Management Accounting: Chapters 1-17. Prentice Hall.
Langenderfer, H. Q., &Rockness, J. W. (2006). Integrating ethics into the accounting curriculum. Accounting Ethics: Theories of Accounting Ethics and their Dissemination, 2(1), 346.
Malhotra, Y. (2000). Knowledge management and new organization forms: A framework for business model innovation. Information Resources Management Journal (IRMJ), 13(1), 5-14.
Nyazee, I. A. K. (2002). Islamic Law of Business Organization Partnerships. International Institute of Islamic Thought (IIIT).
O’Fallon, M. J., & Butterfield, K. D. (2005). A review of the empirical ethical decision-making literature: 1996–2003. Journal of business ethics, 59(4), 375-413.
Parker, L. D. (2002). Reinventing the management accountant. Transcript of CIMA address delivered at Glasgow University, 15.
Sori, Z. M. (2009). Accounting information systems (AIS) and knowledge management: a case study. American Journal of scientific research, 4(4), 36-44.
Sunarni, C. W. (2013). Management accounting practices and the role of management accountant: Evidence from manufacturing companies throughout Yogyakarta, Indonesia. Review of Integrative Business and Economics Research, 2(2), 616.
Zubac, I. (2012). Financial accountant versus managerial accountant in the hotel business system. Turizam, 16(1), 1-7.
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