Strategic Business Management

4

A TAXONOMY OF ACCOUNTING AND COSTING METHODS

Organisations possess a growing desire to understand their costs and the behaviour of what drives their costs. An organisation’s managerial accounting system design can help or hinder its organisation’s journey toward completing the full vision of enterprise performance management as I have defined it. It is understandable that people with nonfinancial backgrounds and training have difficulties understanding accounting. For many of them, accounting is outside their comfort zone.

However there is a gathering storm in the community of management accountants in which a need for so-called ‘advanced’ accounting techniques (eg, activity-based costing management, resource consumption accounting, lean accounting and time-driven activity-based costing) is confusing even the trained accountants, as well as the seasoned practitioners. The result is that managers and employees receive mixed messages about what costs are the correct costs. Upon closer inspection, various costing methods do not necessarily compete. They can co-exist and be reconciled and combined. They all do the same thing. They measure the consumption of economic resources.

CONFUSION ABOUT ACCOUNTING METHODS

The fields of law and medicine advance each decade because their body of knowledge is codified. Attorneys and physicians build upon their predecessor’s captured learning over the centuries. In a sense, the generally accepted accounting principles (GAAP) published by the USA’s ...