Accounting Management

The distinction between traditional and innovative accounting practices is illustrated with the visual timeline (see sidebar) of managerial costing approaches presented at the Institute of Management Accountants 2011 Annual Conference. Traditional standard costing (TSC), used in cost accounting, dates back to the 1920s and is a central method in management accounting practiced today because it is used for financial statement reporting for the valuation of income statement and balance sheet line items such as cost of goods sold (COGS) and inventory valuation. Traditional standard costing must comply with generally accepted accounting principles (GAAP US) and actually aligns itself more with answering financial accounting requirements rather than providing solutions for management accountants. Traditional approaches limit themselves by defining cost behavior only in terms of production or sales volume. In the late 1980s, accounting practitioners and educators were heavily criticized on the grounds that management accounting practices (and, even more so, the curriculum taught to accounting students) had changed little over the preceding 60 years, despite radical changes in the business environment. In 1993, the Accounting Education Change Commission Statement Number 4 calls for faculty members to expand their knowledge about the actual practice of accounting in the workplace. Professional accounting institutes, perhaps fearing that management accountants would increasingly be seen as superfluous in business organizations, subsequently devoted considerable resources to the development of a more innovative skills set for management accountants.

Another accounting practice available today is resource consumption accounting (RCA). RCA has been recognized by the International Federation of Accountants (IFAC) as a “sophisticated approach at the upper levels of the continuum of costing techniques”The approach provides the ability to derive costs directly from operational resource data or to isolate and measure unused capacity costs. RCA was derived by taking costing characteristics of GPK, and combining the use of activity-based drivers when needed, such as those used in activity-based costing.

A modern approach to close accounting is continuous accounting, which focuses on achieving a point-in-time close, where accounting processes typically performed at period-end are distributed evenly throughout the period.

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