Final answer:
Financial Accounting must adhere to legal standards like GAAP or IFRS for external reports, while Management Accounting is used internally without such legal requirements, being more focused on assisting management's future planning and decision-making processes.
Step-by-step explanation:
When discussing the difference between Financial and Management Accounting concerning Legal Requirements, it's important to recognize that Financial Accounting is heavily regulated and must adhere to established standards like Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). These standards are designed to ensure that the financial statements are consistent, comparable, and transparent for external users such as investors, regulators, and creditors.
In contrast, Management Accounting is not subject to the same legal requirements because it is used internally within an organization to inform decision-making processes. The focus of Management Accounting is on future planning, controlling, and performance measurement, which requires flexibility and relevance to management's specific needs. Consequently, organizations have more autonomy in determining the practices and methods that work best for their internal purposes.
One common example of how these distinctions play out can be seen in cost analysis. Accounting profit takes into account only the explicit costs that are reflected in financial accounting, while economic profit includes both explicit and implicit costs, a concept more relevant to management decision-making and less concerned with external reporting standards.