May 27, 2014
I recently was talking to a CFO who seemed much more concerned about his financial statements being audit proof and way less concerned about them aiding in management decisions. I see this as a major flaw. In the spirit of full disclosure I am not an auditor and certainly am not passionate about audits. I do, however, understand being audited is important and there are many rules that need to be followed, I am by no means discounting that. Although, if you cannot rely on your financial statements to make sound management decisions, you will no longer have a company to have audit proof financial statements for.
Financial statements are a very integral part of running a business. The statements report what is actually happening day to day in your operations, and with these statements you can compare what is happening to what you thought should happen, and that is where decisions come into play. The accuracy of your daily statements is vital to the success of this comparison.
A huge part of the truth is the costing. It is important you capitalize into inventory those costs that are still in inventory, and expense those costs that were used up. But at what rate do you do those things? That is such an important question with such an important answer, if you are more concerned about the GAAP rules and what your auditor will think you may be missing the mark significantly! Make sure you know what your true costs are and that you are applying them accurately.
In the end do care about GAAP and what needs to be done, but do not get so hung up that your hugely important management decisions are inaccurate or non-existing!
Categories: Cost Accounting