The Importance of Financial Statements

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Management accounting also supports the executives in making future projections for the company since it gives detailed financial and non-financial information for them in order to support the decision-making process, planning, and control activities (Heisinger & Hoyle, n.d.).

My personal experience

Management accounting supports startups to overcome the challenges that arise along with the business growth and bridging the information gap with external partners (Pelz, 2018). From this statement, we know that the roles of management accounting are not only as guidance for making internal decisions, but also as tools to overcome challenges as the company grow.

I have been working in a small (start-up-like) IT company in Osaka, Japan since 2019. Our main business activities mostly software development, website development, mobile app development, data analysis consulting, and IoT system planning and development.

My role as a manager requires me to have good decision-making skills in terms of leading my department in expanding our business, outsourcing the IT project to the overseas developers, and even hiring the programmers from overseas to work remotely with us.

Since the company where I work is a small start-up-like company, the most useful managerial accounting activities will be:

1. Budgeting: by doing budgeting, the top management (C-levels) of my company can establish the limit or thresholds for the business operational expenditure.
2. Financial reporting: by using the data from the financial statements, the finance department of my company can project its future policy related to financial management.
3. Variance analysis: this helps our top management to recognize compelling expenses in operational activities.

Who Else Should Be Concerned With A Company’s Financial Statements And Why They Are Important

1. Executives: the company’s executives need to use the financial statement data to encourage their interspersed thought processes in order to make a good decision. In my company case, the managers of each division, including the C-levels have a regular monthly meeting to determine the company direction for the following month. We use the data from the financial statements to analyze which activities are the most profitable for us and which markets we can tap into.
2. Clients: we are mostly working on B2B-based businesses. Sometimes we need to provide our financial statements to the clients in order to maintain their trust as well as to prove our reliability to them.
3. Employees: we also shares our financial statements with our employees as well in order to maintain their engagement with the company businesses and make sure everyone understands our company situation.
4. Government: of course, we have to provide financial statements to the government of Japan in order to fulfill our taxes responsibility and determine how much tax should be paid.
5. Lenders: in our case, the bank requires us to provide the financial statements in order to estimate our ability to pay back all loaned funds and related interest charges.

Conclusion

In my opinion, the topics I’ve learned in this unit (as I mentioned in the previous paragraphs) are applicable to and will benefit me in terms of decision-making and direct the company business direction in the right way. As an overseas business division manager, sometimes I have to make decisions in terms of business development for my company, especially in the overseas market.

References

Accounting Tools. (2022, May 24). Users of financial statements. AccountingTools. Retrieved June 21, 2022, from https://www.accountingtools.com/articles/users-of-financial-statements.html

Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers. https://2012books.lardbucket.org/books/accounting-for-managers/index.html

Pelz, M. (2018). How Management Accounting Can be Helpful for Startup Companies [Doctoral dissertation]. https://publikationen.bibliothek.kit.edu/1000081317/7338139

Wather, L. M., & Skousen, C. J. (2009). Managerial and Cost Accounting. Bookbon.

Way, J. (2019, February 4). What Is the Importance of a Company’s Financial Statements? CHRON. Retrieved June 20, 2022, from https://smallbusiness.chron.com/importance-companys-financial-statements-21332.html

Note:
This article is written based on University of The People Managerial Accounting (BUS 5110) written assignment by Fristy Tania in June 2022