Financial Reporting and Management Accounting: can Management Accounting provide support and value for a high quality Financial Reporting?

Abstract

In modern financial systems economic-financial information to the market is assuming an essential role in increasing market efficiency and in satisfying the investors's and istitutions's information need. Actually, financial information is the essential foundation of financial market operating mechanism since the role of such communication allows the reinforcement of relations between the enterprises and the financial system, through a faithful representation of business capabilities. It is the internal basic accounting system that keeps track of all the business activities. It is divided into two main specialized branches that share a common information base and process the basic accounting data in order to generate financial statements, reports, analysis or forecasts required by decision makers. Accounting information, which can be divided in two main streams, Financial Accounting (FA) and Management Accounting (MA), serves different purposes and is used by audiences with different needs. This work focuses on the relationship between FA and MA and on how there has been substantial convergence in the last years between these two areas of activities performed by enterprise orgsnizations. Particularly for some international accounting principles, it can be noticed how the accounting information and analysis techniques of MA can be useful or, in some cases, necessary for the purpose of providing informative elements for the correct application of the IFRS: - IAS 36: Impairment of Assets. - IFRS 8: Operating segments. This research allows to observate how, in the financial dislosures relating to IFRS 8 and IAS 36, a good deal of information provided by the above accounting standards has either a forward-looking perspective, making reference to managerial estimations of the future cash flows relating to the assets under evaluation, or a business segment perspective. With financial statements prepared according to applicable accounting standards, the management communicates the firm's financial position and the performance achieved to the market. Market operators recognize that a higher quality financial communication can be pursued through an integration of the different types of report, provided by Financial Accounting, prepared according to International Financial Reporting Standards and based on FA systems, and Managerial Accounting, represented by scientific and statistical methods aimed at supporting decision-making and based on MA systems. This work focuses on relationships and differences between the two types of accounting, FA and MA, by comparing their purposes and their structure as well as analysing the current trend towards a stronger convergence and intergation between them. Notwithstanding this trend, FA and MA differ to each other in several ways. While shareholders, creditors and regulators use publicly reported financial accountancy information, only managers within the organization use the normally confidential MA information. MA is mostly focused on the future and characterized by a stronger presence of prospective information, while FA information are historical and provided on the base of applicable accounting principles. The contemporary digital era provides new means to satisfy different customer needs and to allow new and flexible methods to run business operations through collaboration and networks. On this regard this work contains a section focused on how IT technologies influenced and enabled convergence and integration of FA and MA. The importance of a well structured MA system in order to accomplish a high quality FA information, is of the utmost evidence when IAS 36 and IFRS 8 are taken into consideration. In the last part of the work, a sample of 3 Italian listed companies, Autogrill SpA, Luxottica SpA and Fincantieri SpA is analyzed in order to study the informative quality of their financial statements disclosures in the light of the requirements provided by the above accounting standards.