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ACCA Applied Knowledge · Business and Technology · Accounting and finance functions within business organisations

Kiran Ltd's board asks the accounting team for a report showing the expected profitability of a proposed new product line for each of the next four quarters, including estimates of costs not yet incurred. Which statement best describes this report?

This is management accounting because the report is prepared for internal decision-makers, looks forward to future quarters and relies on estimates for a specific product line. Financial accounting reports historic results of the whole entity to external users under mandatory rules, which is not the case here.

  1. AIt is financial accounting because it concerns profit
  2. BIt is management accounting because it is internal and forward-lookingCorrect
  3. CIt is financial accounting because it will be audited
  4. DIt is management accounting only if it complies with IFRS

Explanation

The report is for internal decision-making, covers future periods and uses estimates, which are hallmarks of management accounting. Concern with profit does not make it financial accounting, and management reports are not required to be audited or to follow IFRS.

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