Synchronization of management and financial accounting
In the past few years, more and more financial directors have been thinking about the issue of transferring management accounting and reporting of their enterprise to IFRS or at least the maximum approximation (if not complete convergence) of management and financial accounting.
How appropriate is this synchronization for the company?
With financial accounting, everything is more or less clear – it is generally accepted that it is a process of collecting, processing, aggregating, classifying and transmitting information about the financial situation of an enterprise and its results for a certain reporting period to external users in order to make economic decisions.
Since the process of financial accounting ends with the formation of financial statements, in fact the second half of this definition, in fact, gives the wording of the concept of “financial statements” – as a concentrated (through aggregation and classification of data) source of information about the enterprise that is transmitted to external users to make decisions on this reporting entity.
If we talk about financial statements compiled in accordance with IFRS standards, the IASB by external users primarily means investors, although the range of users of financial statements is generally broadly defined and also includes creditors, counterparties, customers, employees of the enterprise and even government bodies and the public. “Conceptual provisions for the preparation of financial statements in accordance with IFRS” (the so-called Framework) in paragraph 11 also mentions management needs, which can be addressed by using financial statements prepared in accordance with IFRS, but allow managers to make decisions on planning and controlling the company’s activities additional information may be required.
Methodologically, financial accounting is supported by a foundation consisting of a system of concepts, principles, rules and specific accounting techniques. If we are referring specifically to the IFRS system, then we are talking primarily about the standards and interpretations of IFRS, as well as about all the associated methodological framework and international experience gained in their application.
The situation with the definition of managerial accounting and reporting is a little more complicated, since there is no unambiguous definition and different authors give their own definitions, emphasizing certain nuances. According to the author of the article, management accounting can be defined as a system of information support for the enterprise management process.
Unlike financial, management reporting can be formed not only for certain periods, but also for specific and diverse management requests. In addition, usually regular management reporting is generated on a more frequent basis than IFRS reporting (not only monthly, but also weekly or daily). Its main purpose is to serve as a management tool for internal control and evaluation of the company. Unlike the usual reporting forms for financial statements, management reporting can be very diverse in formats and include, for example, report forms such as cash budget execution, unit cost analysis, the size and structure of the cost of products or services, dynamics of receivables and payables .
All these forms are usually drawn up not only with greater frequency than financial statements, but also at an earlier date, which is dictated by the needs of management to make decisions promptly. It is clear that the speed of compiling management reports is often achieved by sacrificing their accuracy and accuracy. It is not uncommon for a report with the same name (for example, “Profit and Loss Statement”) for the same period to show completely different, if not diametrically opposed results (profit versus loss) in financial and management reporting.
In addition, it is generally accepted that management accounting includes work with budgeting, forecasting and planning issues, analysis of the profitability of products and lines of business, costing and pricing, issues of controlling the centers of profit and cost.
There is no single regulatory framework governing the organization of the enterprise accounting system — neither at the international level, nor in terms of the direction or direction of the enterprise accounting management in Russia by the government or the Ministry of Finance. Here, in fairness, it should be noted that the International Federation of Accountants (IFAC) issues international management accounting standards. However, few people in Russia are familiar with them in detail, and even fewer enterprises actually apply these standards in practice.