Final answer:
The assignment of financial and managerial accounting roles in the statement is incorrect; financial accounting caters to external decision makers, while managerial accounting is for internal use. Additionally, as firms grow and more information is available, personal knowledge of managers becomes less necessary for investors. Also, a firm's profitability is measured by accounting and economic profits.
Step-by-step explanation:
The statement that financial accounting involves communicating accounting information to internal decision makers while managerial accounting involves providing information to external decision makers is false. In reality, the roles are reversed. Financial accounting is concerned with the preparation and reporting of financial statements for external parties such as investors, creditors, and tax authorities. On the other hand, managerial accounting focuses on internal decision making, providing information that helps managers within the organization make business decisions.
As a firm grows and its information about products, revenues, costs, and profits becomes widely available, the need for outside investors to know the management personally diminishes. This dynamic encourages outside investors like bondholders and shareholders to provide financial capital to the firm even if they are not personally acquainted with its managers.
It is also important to note that profit plays a pivotal role in the operations of privately-owned firms. While accounting profit solely considers explicit costs, economic profit takes into account both explicit and implicit costs, painting a more comprehensive picture of the firm's profitability.