04 Jun The role of accounting policy in business decision-making process
A very real life situation we would like to share.
Two CEOs were having a discussion about organizing of company’s accounting. One of them explained that in their company, added value was accounted for by managerial level, i.e. how much revenue every manager generates and how much s/he costs for the company. The other CEO asked: which accounting software achieved this? The previous CEO named the software their company was using.
However, the right answer should have been: any accounting software, because they all are a tool for company’s accountants. And each manager’s added value calculated according to the accounting policy within the organization.
Such policy is usually run by CFO. However, CEOs must also participate in the accounting policy by setting certain goals for financial office to achieve.
The CEO has to decide whether the goal of the financial department is to run only tax accounting (calculate the taxes and settle with the state), or whether they have to produce data that is useful to the decision-making process (reports, financial analysis, etc.).
Managers’ added value can be calculated simply by pen, paper and accounting charts, if that’s all the CFO is required to do, which is why any accounting software can be used to achieve this. However, this kind of data can never be used to review company’s financial state or make decisions for the future.
Furthermore, accounting software is much faster and comfortable tool to use than pen and paper, but the CEO must set goals for the financial office in order to do so.