the introduction of cost accounting changes. There is, thus, created a new cost accounting environment which must be effectively addressed by the auditor.
The new cost accounting environment, together with appropriate responses from auditing, are addressed in this research. In the following section, background information on management accounting and cost accounting are discussed. This discussion is followed by a brief description of changes introduced into American manufacturing, which, in turn, dictate changes in traditional approaches to managerial and cost accounting. The following discussion examines the major changes in cost accounting procedures which must be addressed by the auditing profession, while the final discussion considers appropriate responses from the profession.
MANAGEMENT ACCOUNTING AND COST ACCOUNTING
Financial accounting is concerned with recording the actual financial activities of an organization, while traditional managerial accounting is concerned with the discovery of the relationships in the financial data which will enhance the managerial decision-making process. Eight factors and characteristics differentiate traditional managerial accounting from financial accounting. These factors and characteristics are as follows (Garrison, 1982):
1. Managerial accounting focuses on providing data for the internal use of an organization's managers, while financial accounting focuses on providing data for external uses by investors and creditors.
2. Managerial accounting emphasizes the future, while financial accounting emphasizes the current period and the past.
3. Financial accounting is governed by generally accepted accounting procedures, while managerial accounting is not so governed.
4. Managerial accounting emphasizes the relevance and flexibility of financial data, while financial accounting requires adherence to factual events.
5. Financial accounting emphasizes precision,...