Business owners are tolled with numerous functions. The business heads along with carrying out the crucial job of undertaking risks of business activity; need to be vigilant about the schedule of every minute operation.
All business heads are accustomed to the term financial reporting as it bluntly portrays the financial accounts of a company. But management report is still a relatively unaccustomed term for the freshers in the industry.
Both financial reports and management reports are extremely vital for profitably running a commercial venture.
Certain inquisitive questions can help any business entity get a clear picture of their present commercial scenario; like whether the business service is priced right, has the turnover from the previous quarter increased by the targeted percentage, if the most profitable clients are treated in the desired manner and definitely spotting them, are the payments on time & is capable of extending payrolls and lastly who among the workforce are least and most productive in terms of service delivery. These inquiries are good enough to elevate the business potential of any firm.
What is Financial Reporting in Accounting?
Financial reporting can be simply understood as making available commercial information, like financial statements, to the stakeholders like creditors and investors.
Financial statements encompass income statement, profit & loss statement, balance sheet, statement of cash flow (accounts receivable and payable) and statement of owner’s equity. Financial reporting is a much broader domain which includes commercial interaction with external bodies like the press and shareholders.
The work encompasses press release, management analysis and generating auditor reports. Financial reporting of any kind is concerned with fetching financial statistics to the public. Financial reports are absolutely necessary and are scrutinized by financial institutions like banks to approve lines of credit and loans.
The financial statement ensures if the company is operating in line with the Generally Accepted Accounting Principles (GAAP). These reports showcase the financial status of a firm at a particular point in time.
What is Management Reporting?
Management reporting is an internal culture and concentrates on the functioning of a particular segment of the business entity.
It is surely not mandatory for all firms to generate its management report but if invested in it, it surely can help boost up the business of a firm through minute analysis of every department of the business.
It includes reporting the profit or loss made by every department and team, calculating the realisation and utilisation rate.
Management reporting acts as a silent catalyst in boosting business as it offers the minute details of the drivers of a firm. For example, the analysis of how the marketing or the data analysis team is performing, say for the last 6 months, or how much of sales could a particular sales personal generate in the last month.
It is like monitoring one’s own work to inflame the performance beyond the present state.
Difference Between Financial Reporting And Management Reporting
- The financial report is based on the outcome of the entire business activity. It is a general picturization.
- Management report is known to showcase more detailed information such as the geographic region, product line, customers and profits by-products.
- Financial report portrays the profitability and thus the efficiency of a business unit.
- Management report pinpoints what is causing specific problems and lists the methods to tackle them.
- Financial reports are developed with precision which is essential to highlight the true financial statement.
- Management report is more concerned with estimates rather than truly verified information.
- Financial reports encompassing financial statements are disbursed both within and outside the company.
- Management report mainly encompasses operation reports to be made available within the firm.
- Financial reports must be documented following certain standards
- Management reports are not bound to follow any standard ceiling or flooring.
- Financial report is not bothered by the overall system of the firm. It concentrates only on the outcome data.
- Management report is concerned with locating the problematic areas and coming up with solutions.
Period of time
- Financial report is all about the financial results the company has already achieved.
- Management report is concerned about the future orientation of a company and therefore concentrates on forecasting.
- Financial reports are generated at the end of a financial period.
- Management reports can be generated at a much frequent rate depending on the decision of the management to evaluate the company functions.
- Financial report labels the appropriate valuation of liabilities and assets and thus is backed by revaluations and impairments.
- Management report is concerned only about the productivity of the firm.
The need for financial reporting and management reporting in business is indispensable.
Just as financial reporting services help get a compact picture of the business outcome, management reporting is an unparallel tool for firms to understand its operational loopholes and find out ways to efficiently address them.
The management report helps the business heads to take efficient and crucial business decisions that are backed by robust data. Both the financial and management reports help the firm to critically analyze the path of business endeavor.
Thus to be up to dated and able to undertake effective business decisions in the future both the financial and management reports are of immense utility.