17 Feb Top Ten Accounting Questions
This post coincides with my post a few days ago regarding the Balanced Scorecard approach and they are certainly both related. This post is about the top ten questions for people performing within a company as a managerial accountant. They are not all boring and should all be highly applicable.
- Does the benefit of a new or different information system justify its cost?
- How should we trade-off fixed and variable costs in our cost structure for now and into the future? We should consider that the operating leverage in our cost structure affects variability of income but also affects incentives and behavior.
- Are we incorrectly treating allocated fixed costs as if they are incremental costs in our decision making?
- Are we incorrectly evaluating the effects of dropping unprofitable products/activities? Are we treating allocated fixed costs as if they are incremental costs that will be eliminated when we reduce our activity level?
- Would a different accounting system (such as job-costing system or an activity-based costing system or allocation of overhead based on capacity available) improve decisions about which activities, customers, and products to emphasize?
- Are there side effects of this decision we have not considered or not quantified in our decision process? For example, will a decision affect sales or costs for other products in other parts of the company? Will a performance evaluation and control system create unintended incentives?
- Would performance evaluation based on EVA result in better focus on the fundamental firm goal to create earnings in excess of the cost of resources employed?
- Would a balanced scorecard help us better understand, measure, and communicate the financial and non-financial factors critical to implementing strategy and achieving our objectives?
- Do I have incremental cost and revenue information for the decision I am facing? If not, how can I get this information? Please do not trust your accountant to give you the information you need for your decisions.
- Do our performance evaluation and control systems provide the right incentives? Can we make changes to our systems to improve incentives? In this case, do not be surprised when people do what you tell them based on the incentive structure you’ve set up for yourself.
There are so many nuances when it comes to managing a company from within. These are meant to act as some general pointers to get you started on the right path to managing your new firm.