Let’s face it, we Management Accountants live in a Financial world dominated by Financial Accountants. We report to Financial Accountants and get reviewed by them. Following GAAP is more important than reasonable Cost Management. Is it important for all Cost Management analysis to match the GL per GAAP? How does depreciation relate to analysis of future profitability analysis? How can an accurate ROI calculation be factored into an analysis according to GAAP?
Some believe (including some members of our Executive Committee) that the world is changing, that Management Accounting will come again to the forefront as businesses search for greater profitability. Certainly following consistent rules is important for analysis of Financial Statements, but does it always make sense in internal analysis. The answer of course is ‘not always’.
An easy example would be inventory valuation. Maintaining a reliable inventory system is important for Financial Statement analysis but most ERP systems cannot handle more than a simple approach to valuation including a traditional ‘peanut butter’ approach to overhead allocation, without spending a lot of money or consultant resources. But for an effective Cost Management approach may call for an inventory valuation approach that is more sophisticated. Often a spreadsheet is enough technology to bring something like this to fruition. See Doug Hicks book an ABC for a good example of how simple applied ABC can be.
It may be more accurate to maintain a separate Cost Management system separate from the traditional accounting system. Lean Cost Management, Throughput Accounting, and Explicit Cost are methodologies that should probably be maintained in separate systems. Lean proponents are trying to encourage use of Lean profitability measures because they can fit into a GAAP system, is this a good thing?