Question

Legal requirement (differences between FA and MA)

Option 1: Financial accounting reports are optional for public limited companies.
Option 2: Both financial and management accounting reports are required annually for public limited companies.
Option 3: Management accounting reports are required by law for public limited companies.
Option 4: Financial accounting reports for public limited companies are required annually by law and regulations; management accounting reports are optional and should be produced only if the benefits exceed the cost of collecting the information.

Answer 1

Financial accounting reports are required annually by law for public limited companies, whereas management accounting reports are optional and based on a cost-benefit analysis. Companies must also consider various methods of financing when seeking financial capital, with each method having its own pros and cons.

Step-by-step explanation:

The correct option that defines the legal requirement for financial and management accounting reports for public limited companies is Option 4. Financial accounting reports for public limited companies are required annually by law and regulations; however, management accounting reports are not legally required and are considered optional.

The decision to create management accounting reports is based on whether the benefits of having this additional information exceed the cost of collecting and analyzing the data. Public limited companies must plan how to access financial capital and decide between options that include borrowing from a bank, issuing bonds, or issuing stock.

Each of these options has its own advantages and disadvantages, such as maintaining control over the company or being obligated to make scheduled interest payments regardless of income.