Financial management systems allow a company to collect, process, and communicate financial information to decisions makers. Decision makers typically represent the end user in these systems; the reports sent to them must then be able to explain the business appropriately. The different types of financial management systems include financial accounting, managerial accounting, and corporate finance. In short, these systems are more about process than about a physical item that one can hold in one's hands. Multiple individuals are necessary to work inside the system in order to communicate information to decision makers.
Financial accounting is a part of financial information systems that provide information for external decision makers. These decision makers include creditors, investors, and taxing authorities, though others may also have an interest in the documents. Common documents released for external decision makers include the income statement, balance sheet, and statement of cash flows. Each statement presents a different portion of a company, allowing the decision maker to ascertain its financial health. These reports are monthly outputs that create the ability for decision makers to determine financial trends relating to the business.
Managerial accounting is a system that provides information for internal decision makers, most often individuals and businesses. The documents and reports created by these types of financial management systems vary widely. Most companies do not release these reports to the public, making the format and content less important. Decision makers can simply request data they wish to see and ask for a specific format, if necessary. The result is a document or report tailored to a decision maker’s specific needs and purposes.
Corporate finance is a part of financial management systems that resides outside of the normal accounting information systems. Here, individuals working the system complete tasks such as budgeting, financial analysis, forecasting, and performance metrics, among others. The data — in customized reports, most likely — still go to decision makers, albeit those internal to the company. The activities in this system take accounting information to create necessary reports. The main purpose of corporate finance, however, is to provide a road map or plans for a company’s future activities.
Not all financial management systems include the same activities. A small business, for example, will not have the needs of a much larger organization in terms of financial management. In other cases, a company simply does not engage in activities that require the heavy use of these systems. Creating a specific system tailored for the company’s needs is what sets these systems apart from others, however.
