Accountants are Cowboys of the Business World

In today’s business world, there are many accountants that can be called cowboy accountants and they are also very dangerous just like the American cowboys of the Wild West.

The cowboy accountants operate in a lawless frontier/ environment no different than the Wild West. It is important to clarify that we are not referring to accountants that perform external financial reporting or tax accounting. For these two disciplines, many laws and regulations exist that provide protection to banks, investors, government agencies, and other business stakeholders. We are referring to accountants that operate in the lawless frontier of internal managerial accounting that is mainly used for internal analysis, reporting, and decision making.

No Laws Mean No Punishment

When accounting firms report wrong financial numbers to the shareholders, investors, regulatory bodies, and other stakeholders then they may face punishment in the form of penalties and serving jail time. However, if they provide wrong figures and information in internal accounting reports, they don’t serve jail time. This allows accountants to ease up and put their effort into reporting revenues, costs, and profit margins that they feel are worth their time and effort. The problem in all this is that some accountants are lazy and therefore they only do the work which they feel is convenient for them to do as opposed to doing work or providing information that is good for who they work for.

Another important aspect to discuss here is that typically accountants are the ones that are in control of determining what constitutes good cost information. The users of the cost information, for example, production or marketing departments, usually have little or no say in the matter. To be clear, we are talking about information and not just data. Information can be defined as the conversion of raw data into something more meaningful. An item’s cost and gross profit margin would be considered as information.

Who is to Say What is Correct?

When it comes to external financial reporting then companies are required to comply with a number of rules and regulations including the International Financial Reporting Standards (IFRS) and tax rules prevalent in the region you operate in.

In contrast, mostly outsourced accountants or in-house accountants responsible for performing internal managerial reporting are left to their own when it comes to defining managerial accounting and reporting practices to apply within the organizations in which they work. If they want to allocate overhead costs to the cost of a product on the basis of an average factor that simply has no cause-and-effect relationship with the product then they can. This will ultimately lead to the reporting of misleading and flawed results. There will be users that will complain against such reports. These are types of users that recognize that there are other more practical methods and techniques to trace as well as assign the cost of overheads to the cost of a product using causally-based driver quantities (That is, using principles of activity-based costing).

Confusion in Selecting the Appropriate Costing Technique

There are many rivalries between accountants with regards to the area of cost accounting. There are many different accounting groups and camps on various social media and accounting discussion groups that believe in different ideologies when it comes to using different costing techniques and methods.  All this is due to the absence of a proper legal framework and uniformity in connection to the selection and use of costing methods and practices.  Sometimes, this lack of uniformity creates a lot of confusion in the minds of accountants regarding the selection and use of costing practices that will enable them in providing the best information to the senior management. Having great and qualified accountants is therefore essential so that correct costing method are used depending on your business. This is why it is said that “behind every successful business there is a great accountant”

Accounting Institute Task Forces to the Rescue

Fortunately, some of the accounting institutes across the world are now making attempts to address the above-mentioned problem. Many institutes are now providing more webinars and courses on management costing and accounting and in some cases, certifications are also being offered. In other words, accounting institutes are now not only limited to offering courses on external financial reporting as now they are also offering courses on management accounting as well.

So, it is a warning for all the cowboy accountants out there in the world that are operating in a lawless environment, sooner than later you may learn news about the arrival of a new sheriff in town. You may no longer get away with providing misleading and information to your users, who are most likely making poor decisions with it.