Presenting Variances on the Face of the Financial Statement
Jun 05, 2015
At our recent continuing professional education teaching day, we brought up the subject of presenting variances on the face of the income statement as part of the reoccurring and standard presentation. Only a few cost accountants in the room were presenting financial statements which included the variances. Many others presented the financial statements at actual and then separately prepared reports that reconciled from standard to actual results by each department and the variances created.
We had a long dialog with several of the individuals who were showing their variances on the face of the income statement. We ultimately concluded the most logical presentation was to report the variances without trying to use the financial statement format as a means to present or analyze monthly variances.
For instance, in the labor and material category there are mix and yield variances and perhaps scrap that can be further investigated from the general cost and efficiency variances. Whether it’s mix and yield for labor; or mix, yield and scrap for material, those more detailed variances are all buried in and part of the general cost and efficiency variances that most companies compute periodically anyway.
It seemed to be the consensus for a more detailed variances analyzing discrepancies between actual results and standard results were most efficiently shown and managed in a separate detailed variance analysis. This analysis would look into each of the general variances in much greater detail. The goal is to keep the financial statements as uncluttered as possible, but still point out the broad categories of differences from a plan.
This is also true for the overhead variances. The general overhead variances of spending and volume can also be further analyzed into fixed and variable cost with a four variance analysis which can be derived from the simple two variance volume and spending. It was the consensus that this further analysis did not belong on the face of the income statement, but should be presented in a far more detailed variance analysis that would be part of and supported by the monthly financial statement.
It appears that the popular approach was to keep the monthly financial statements in high-level general terms with any detailed and analytical work being offered as a further analysis of the monthly financial statements. Although not all companies follow this general policy it seemed as though this was a consensus among those companies that did present variances as part of the reconciliation from standard to actual results on the income statement.
What practice have you used and why?
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