Managers and non-accounting personnel can have a hard time deciphering standard financial statements. There are two possible solutions to the problem. They are making changes to get GAAP to recognize accounting for lean or having two separate financial reports.
1. What are the advantages and disadvantages of GAAP recognizing accounting for Lean?
2. What are the advantages and disadvantages of having two seperate financial reports?
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The advantages of GAAP recognizing accounting for Lean is that Lean will get credibility; Also, GAAP may insist on defining minimum standards for lean. The process of lean accounting may become more systematic, more programs in universities will teach lean, and managers of more companies may demand lean.
The disadvantages of GAAP recognizing accounting for lean is that GAAP is a common set of accounting principles, standards, and procedures. GAAP is not a person or a body that can recognize anything. GAAP is the accepted way of recording and reporting accounting information. On the other hand lean accounting has the purpose of supporting lean manufacturing and thinking. Lean addresses the operations of the firm. On the other hand GAAP has the objective of ensuring that financial reporting is transparent and consistent from one organization to another. The objectives of GAAP and Lean are entirely different.
The advantages of having two separate financial reports are that lean accounting supports the lean enterprise as a business strategy. It will support excellent business practices. Lean will improve the operations and help reduce costs. Lean accounting will make the enterprise more competitive. The performance measures of Lean will improve every process. The management will have more useful information from lean accounting. At the same time GAAP will provide accounting information to the users in a transparent manner. Since GAAP will use common accounting principles, standards, and procedures, the financial statements produced by GAAP will be used by stakeholders such as creditors, government, shareholders, and lenders.
The disadvantages of having two sets of records are that lean accounting is time consuming. A full set of new accountants will be required to prepare accounts for lean. The cost of accounting will increase. Lean accounting increases the deluge of information creating confusion. Two different accounting methods can lead to incorrect decisions. There can be confusion about the objectives. Lean involves flow, pull, and continuous improvement. These concepts can detract the organization from its strategic goals and core values. Two separate financial reports can lead to conflict, confusion, and chaos.
Wiley GAAP 2013: Interpretation and Application of Generally Accepted Accounting Principles,Joanne M. Flood,E11, John Wiley & Sons, 2012
Practical Lean Accounting: A Proven System for Measuring and Managing the Lean Enterprise, Brian H. Maskell, Bruce Baggaley, Larry Grasso, E2, CRC Press, 2011