Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Which of the following is true about financial accounts compared to management accounts?

1. Financial accounts are governed by statute

2. Management accounts are subject to audit

3. Financial accounts are often ad hoc

4. Management accounts are historical

The correct answer is: Financial accounts are governed by statute

Financial accounts are governed by statute, which means they must adhere to specific legal regulations and accounting standards (such as IFRS or GAAP) set by governing bodies. This ensures consistency, transparency, and accountability in financial reporting, which is essential for external stakeholders, including investors, creditors, and regulators. In contrast, management accounts are primarily designed for internal use. They are more flexible and can be tailored to meet the specific needs of management for decision-making purposes. While management accounts are important for operational insights and ongoing performance evaluation, they are not subject to the same regulatory framework as financial accounts. This distinction emphasizes the formal and mandatory nature of financial accounts as opposed to the more discretionary approach taken with management accounts.