Both types of accounting requite accuracy of information, but there is a different degree of data reliability in the two of them. Financial accounting requires much more accuracy than managerial accounting does. There are several reasons for the need for precision in financial accounting data.
The main cause for requiring accuracy in financial accounting is associated with the aim of such accounting. The reports on financial accounting are aimed to be analyzed by professionals or institutions from outside the organization in which they are prepared (Narayanaswamy, 2017). Therefore, it is of utmost importance to provide the most authentic data so as not to misguide anyone checking it. Another reason for the reliability of information in financial accounting is that usually, reports comprise data of a large period of time, which means that a small mistake or an inaccurate statement may undermine the dependability of the whole paper. Therefore, financial accounting is highly strict when it concerns the reliability of data used in the reports.
In managerial accounting, the demand for information reliability is not as high as it is in financial accounting. Managerial accounting is aimed at preparing reports not for external but for internal use (Warren, Reeve, & Duchac, 2016). These papers are necessary to build the future perspectives rather than analyze past achievements and losses. As a result, the major requirement for the data mentioned in such reports is their relevance rather than accuracy.
Therefore, it is necessary to keep in mind that both managerial and financial accounting presuppose accuracy, but they do not require it to the same extent. While in managerial accounting, the emphasis is put on data relevance, in financial accounting, the primary requirement to information is accuracy and reliability.
References
Narayanaswamy, R. (2017). Financial accounting: A managerial perspective (6th ed.). Delhi, India: PHI Learning Private Limited.
Warren, C. S., Reeve, J. M., & Duchac, J. E. (2016). Financial and managerial accounting (14th ed.). Boston, MA: Cengage Learning.