Why is it important that financial accounting systems report performance fairly and factually?

Management Accounting is a system using financial accounting records as basic data to enable better business planning decisions. It is designed to aid decision making, planning, and setting performance standards for specific periods of time. The accounting procedures record the inputs and outputs in an analysis system to find the best cost-effective plans to ensure the company's future.

In order to properly maintain and grow a profitable business, companies strongly rely on Management Accountants who work closely with the company's management. Managerial Accounting focuses primarily on internal financial reports of past performance which become the basis for short- and long-term decision making. The accounting procedures are more flexible than those regulated for financial accounting. Preparation of the data and reports is the focus of managerial accounting, which consists mainly of four broad functions: budgeting, performance evaluation, cost management, and asset management.

With operating costs, taxes, and cost of living continually to increase, management may find itself in a situation where cuts may need to be made to maintain quality while earning a reasonable profit. It is the responsibility of the Management Accounting department to find which business activities were least profitable and then make a recommendation whether or not to continue with the business activities, or estimate future revenues in order to aid present day decision-making.