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Can the numbers lie? A management accountant discussion of fad-like innovations.

Question:

"As managers we need to be wary of the fad-like innovations proposed by management accountants. We know if our company is in control if we earn at least the required rate of return on our investments. At the end of the day the numbers don't lie."

Discuss the above statement and explain whether you think management accounting can serve a useful purpose in assisting organizations in assessing progress towards long-term objectives.

Solution Preview

Here is an approach the question:

1. Discuss the differences in GAAP accounting as compared to management accounting

a. GAAP is historical; management is often prospective (budgeting, forecasting)
b. GAAP has very strict rules to follow; management can be designed to fit the goal
c. GAAP is for many types of stakeholders; management is an internal function

2. Next touch on the fact that numbers can be subjective, and in that respect they certainly could 'lie'. I would use examples involving estimates (allowance for bad debts, depreciation, deferred taxes, percentage of completion on contracts, etc) where amounts are calculated on the best information known at the time. Yes, numbers certainly can 'lie', even if innocently.

3. Then, write a couple of paragraphs about the benefits of management accounting and how it can help a firm control themselves and work towards goals. Use specific analysis (ratios, budgets, forecasting) to demonstrate the benefits that can be derived with good cost accounting procedures.

4. Another important feature of management accounting is the ability to assess new projects, new products, plans, or cost cutting ...

Solution Summary

The response presents a four part solution for writing a rebuttal. Also included is three additional sources of information for further clarification to management. This solution is 684 words.

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