Recognition of Cost Accounting As a Profession: Standard #3
Sep 17, 2014
Professional Recognition
Virtually all professions that I can think of have some method of recognizing professional proficiency achievements of their members. Examples include recognition in the form of a board certification, achievement by passing a test, or completing some combination of work assignments and professional education with demonstrated skills in both.
I believe to be considered a profession, cost accounting has to have some method of recognizing achievements by members of the profession based on both work experience and academic level.
I believe the board for the entity controlling this would have input as to how that certification would best be achieved related to cost accounting and I personally have no bias one way or the other. I do believe that in order for recognition by industry and society in general, there must be some level of significant effort and experience expended to achieve professional recognition.
I can think of several examples where professional organizations have undercut the value of their certification or recognition of achievement by making it so simple that virtually anyone can qualify by merely paying dues and applying. Such recognition is of little use in the achievement of professional recognition for cost accounting.
In conjunction with professional certification, I believe there should be some method of recognizing achievements by students and others, perhaps academics, who are working in the area or desire to work in the area, but have not been in a position to gain the actual work experience which is required for full recognition.
I’m thinking that the completion of some components of the academic portion of the overall completion requirements would qualify a student or an academic for some intermediate recognition towards a goal of achieving full status as a professional cost accountant.
Further, I believe that in order to keep the business community confident in the skills of a professional cost accountant there has to be ongoing continuing professional education requirements. These are typically expressed in hours of study per year required or perhaps hours of classroom work required. The board would oversee this reporting process to ensure that their recognition is dependent on the successful completion of a certain number of hours and perhaps in a certain field of study so as to provide reassurance to the business community and society in general that the professional cost accountants are technically proficient and constantly improving as new concepts are presented and accepted by the profession.
What are some areas of professional certification you feel are necessary?
Categories: Cost Accounting
Recognition of Cost Accounting as a Profession: Standard #2
Sep 15, 2014
The creation of professional standards
The creation of professional standards will likely be the most difficult part of the entire process of recognizing cost accounting as a profession. This is true because of the broad diversity of businesses, uses of cost accounting and cost accounting methods both in-use right now and under development. I believe it will be very difficult to cut across all of those lines and create standards that are universally applicable to cost accountants who will use them in their day-to-day work.
Nevertheless, I believe the benefits resulting from the creation of such a body of knowledge and professional standards will be worth the effort and, ultimately, worthy of the undertaking by the entity created to raise cost accounting to a professional level.
I view the creation of the standards in three different groups. The first group would be the technical standards that would be followed regarding technical completion of any assignment in the cost area. The second group of standards would be related to principles of work, meaning how cost accountants conduct themselves in the operation of their day-to-day assignments. These might be considered somewhat related to the professional ethics and standards of conduct within the profession. The final area of development of standards that I would envision would be an agreed upon list of definitions, terms, descriptions, acronyms and all the other tools that cost accountants need relative to the completion of their day-to-day duties. Another body would be responsible for the development and maintenance of both the work standards, the principles of conduct, and the development and maintenance of cost accounting terms.
As I mentioned before, it would be logical to me that the board formed to develop these standards would be a cross-section of all the areas of cost accounting that might need these standards as part of their day-to-day. I think it would also include at least a few members from the consulting area who could provide insight as to the complexity and nature of the cost systems used today and how diversity of the standards would have broadened to include all of those various costing methods.
I believe the technical standards could be related to basic concepts, such as the development of the classification of accounts. This would provide a general definition as to what account or nature of expenses are direct and should be included in with the manufacturing process and the recovery of costs as part of the cost system. I would also see that there might be a principal or a standard related to what represents a direct cost that would be recorded in some fashion directly to the product. I think it would also dictate what would represent an indirect cost that might have to be allocated to a product for recovery. I can imagine a half dozen other such general topics which would be the foundation for the development of the technical standards.
I also believe that other standards of work such as the development and maintenance of work files and reporting to management would also be included as part of the technical standard. This would provide cost accountants who are working in the area with guidance on the completion of all of those components of their day-to-day assignments from an independent board of cost accounting standard who set standards.
What are some standards that you think would be helpful or that you would like to see?
Categories: Cost Accounting
Tools of the Trade: Financial Statements
Sep 11, 2014
Some “tools of the trade” are specific. Carpenters need hammers. Programmers need computers. Financial statements, however, are critical tools for all businesses. They allow you to monitor profitability, improve financial management, and provide banks and other lenders with vital information.
Primary Tools
There are several financial statements. The two most well-known are:
- The Balance Sheet shows the assets of your business and the amounts it owes (liabilities) on a particular date. The difference in the two numbers is the amount of owners’ equity.
- The Income Statement is a summary of your business’ revenue and expenses over a certain period of time. It reveals your income (or loss) from core operations and then incorporates other income and costs and any extraordinary items to arrive at a net income figure.
Level of Services
A CPA can provide different levels of service when it comes to financial statements. How you plan to use the statements will determine the level of review or verification required.
Compilation. If you want reports mainly for internal use, a CPA will simply compile the figures you provide and prepare the appropriate statements. No assurances are made about whether the statements are presented fairly.
Review. Potential lenders will generally require more than a simple compilation. The CPA will need to provide limited assurance that, based on limited procedures, nothing came to the accountant’s attention that would indicate that material changes to your financial statements are necessary. That requires looking at your accounting policies and practices, how your business operates, the actions of your board of directors, recent changes in your business, and so forth.
Audit. In some instances, you may need to have audited financial statements prepared. This is the highest level of service and requires the CPA to thoroughly examine your books and records and all of your financial policies and procedures. Then, the CPA can provide an opinion about your statements.
Categories: Uncategorized
The Cause and Effect of a Cost System
Sep 10, 2014
I tripped over a crack in the sidewalk and scraped my knee; it is raining outside and I got wet; my feet were cold so I put on socks and my feet are now warm. The sky is blue my hair is blonde; today is Wednesday my phone rang; I sit a desk all day and it is raining. Hopefully, you were able to see the causation in my first sentence. For instance, I got a scrape on my knee because I tripped on the sidewalk. However, the fact that the is sky blue has nothing to do with my hair being blonde. This cause and effect relationship is not always so apparent in a costing framework.
When allocating costs that cannot be directly assigned to a product or process, they need to be assigned based on a specific driver or, something that causes those costs to occur. For example, labor costs occur because of an individual directly working on a product. Or electrical costs are being incurred due to machinery running, etc. Typical drivers are machine hours, labor hours, square footage, or some other similar factor. The important thing is that the driver does have some correlation, meaning when the driver occurs a cost is incurred.
There are statistical techniques used to determine how directly correlated two or more items are. What types of techniques have you used? One I use often is regression analysis.
Regression analysis is a statistical technique done in Excel. Regression estimates the relationship between a dependent and independent variable. Meaning, regression determines how a dependent variable will change when one of the independent variables changes, holding all else constant. Regression uses the coefficient of determination, or R squared to determine how closely related two items are. This helps to eliminate any possible correlation without causation. Regression is an excellent statistical tool, but again it cannot be used inside of a vacuum but some additional analysis should be performed. Regardless as of what technique you are using, it is important to verify that the allocations are done are based on actual cause and effect relationships. Arbitrarily assigning costs will give you unreasonable arbitrary results.
Categories: Cost Accounting
When Marriage Ends in Divorce or Separation
Sep 09, 2014
The end of a marriage is also the beginning of a new financial life. Reconsidering your financial arrangements — whether or not your income will be reduced — should be a priority as you adjust to your new circumstances. The major issues demanding attention and resolution include the following.
Retirement Issues
- The QDRO. A divorce settlement often determines how any anticipated future pension and/or retirement plan benefits will be divided. You may receive part of your ex-spouse’s retirement benefits, or your ex-spouse may receive part of yours. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a Qualified Domestic Relations Order (QDRO). If you are to receive benefits from your ex-spouse’s plan, you must follow through on obtaining the QDRO and ensuring that the plan’s administrator receives it.
- Change of beneficiary. The individual you have named as the beneficiary of your retirement plan account will automatically receive all the funds in your account after your death. A divorce or other agreement generally has no effect on a beneficiary designation. Therefore, you must formally amend the appropriate plan documents to name someone other than your ex-spouse. As soon as your divorce becomes final, you should give your plan administrator a new beneficiary’s name. Also, be sure to change the beneficiary on any IRAs you may have.
- Adjusting retirement plans. Your financial future may look very different without your spouse. You may be able to improve your lifestyle after retirement by taking advantage of additional current contributions to your 401(k) or other tax-deferred retirement plan. You might also consider contributing to a Roth or other IRA to supplement your employer’s retirement plan.
- Social Security. Your ex-spouse’s work record may entitle you to receive a benefit once you are at least 62 years old and meet the law’s conditions. So, after a divorce, it is a good idea to call the Social Security Administration to inquire about any benefits you can expect to receive.
Investments
Your new marital status may mean a shift in your investment goals and, therefore, in your investment strategy. Your present assets may be more or less risky than you will want in the future. You should also examine your new living costs to make sure your arrangements are realistic for your income and needs, and to decide how much and how often to invest for the future.
Financial Documents
After a divorce or separation, a general review of all your financial documents is advisable. In light of your new situation, be sure to examine the following.
- Estate plan. If your spouse is your heir, you need to revise your will to name another beneficiary(ies). Also, marital status is often a key factor in planning an estate. You should review your present plan with your professional advisor to update it for your new situation.
- Life insurance. The change in your marital status most likely will require a reevaluation of your life insurance policies and, at the least, a change in your beneficiary designations.
- Credit records. It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.
Get Professional Assistance
A divorce or separation may give rise to numerous tax issues, and a settlement agreement that reduces taxes may benefit both sides. Professional legal and tax advice is essential as your agreement is being negotiated.
Categories: Uncategorized