What is the difference between financial control and cost control?
A search of the web provides various definitions for both but most lean towards financial controls. I am interested in hearing from anyone who can give me a suitable definition of both, which also identifies the main differences.
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May 3, 2015
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Many people have gave you the definition, I will give you comparison and relating instead.
"Financial" when use in different place means different.
If you say financial account - it probably mean reports for external use
if you say management account - it would mean reports for internal use
If the financial account and management account are the subset of the financial control, than financial control (managed by financial controller) is the general term to cover the entire management of the financial functions and activities.
In general, costing falls understand management accounts. Cost control is part of management accounts' activities. Thus cost control is the sub-sub-set of the financial control.
Imagine the different financial positions in a company:
Head of department => CFO or Financial Controllers (for smaller companies)
Financial accountant => handle external reporting + treasury activities (some companies include this)
Cost/ Management accountant => costing, budgeting, forecasting, pricing ...Hope the above can help you to visualize financial control vs cost control.
Apr 29, 2015
In many instances conventional reporting systems provide executive management with reactionary information related to crisis situations, rather than providing proactive data. In such a situation, the data provided is typically focused on what has been spent at that particular point in time. Additional information, such as forecasting of final costs, and detailed cost data for high-risk areas, is needed to satisfy the project controls mission, and enable instead, management by exception, which requires the identification and isolation of important and critical information for a given situation, and channeling it to the proper person for immediate consideration, decision, and action. Early reporting of exceptions and potential exceptions/risks is critical to decision makers. The fundamental difference between cost accounting (or financial accounting) and cost management (or project controls), then, is in the packaging and treatment of project cost data.
Financial accounting is concerned with receipts and expenditures, is based on accepted accounting practices and principles and must satisfy taxation, regulation and other legal requirements. The data is organized according to the accounting chart of accounts to support the operations and capitalization efforts of the company. The result is a common budget versus actual expenditure comparison with equal effort given to even the smallest booking. What financial accounting lacks is budget and commitment data, and the ability to call attention to or divert attention from line items within the cost report, because with rare exceptions, financial accounting simply categorizes the data. The typical accounting software package does not use project data for forecasting/profiling/trending; contingency planning; cash flow curves; what-if scenarios; quantity tracking; earned value/progress analysis. None of these items are typically addressed by the cost accounting.
Apr 29, 2015
Financial controls refer to the ability of a business to ensure that cash is being spent on business expenses. Also, known as Internal Controls. Essentially financial controls are in place to ensure that company funds are not taken for non business expenditures.
Cost controls relate to the appropriateness of business expenditures and can be accounted for on an enterprise level or at the project level (or both), this relates primarily to the efficiency with which cash is spent. Are you getting the best pricing on things you purchase, are materials and labor being used in the most efficient and profitable manner.
Apr 29, 2015
Well, financial control would be the management of your companies costs and expenses relative to budgeting. While cost control is identifying the costs associated with the business and evaluating those costs to identify if those costs are suitable for that budget.
So the main difference would be that financial control is managing cost and budget expenses while cost control is more about evaluating those costs to determine if they're viable.
So if you decide you have $4,000 a month to spend on marketing, financial control would tell you what expenses are related to that budget and cost control would evaluate those expenses. If you are using a marketing software or material that costs $2200 a month, you would use cost control to decide if that's a reasonable and affordable expense.