ACCT 601 MDC Week 8 Data Recording in Business Accounting Presentation

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ACCT 601

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Prepare a 10–15 minute Oral Presentation summarizing the key points of your Final Term Paper.

Oral Presentation

Your oral presentation will consist of PowerPoint slides comprised of talking points for a 10–15 minute total presentation duration. No more than 10 slides should be used. The Oral Presentation is intended as a summary of your research, analysis, conclusions, and recommendations.

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ACCT601 – ACCOUNTING CAPSTONE TERM PAPER Term Paper Activity Based Costing Yaima Hi Jimenez 12/12/21 Accurate information is one of the most important assets a company can obtain, and it helps management make better decisions. Knowing exact production costs helps the company decide which price to assign and what processes must be improved. ABC helps to understand and allocate overhead costs more efficiently. The traditional absorption costing method assigns overhead costs to individual units, while the ABC method uses different cost drivers to allocate overhead costs more efficiently. U.S GAAP should recognize ABC as an acceptable cost reporting technique. ACCT601 – ACCOUNTING CAPSTONE TERM PAPER Table of Contents I. Executive Summary .............................................................................................................................. 1 II. Introduction .......................................................................................................................................... 2 Problem Statement ................................................................................................................................... 2 Background ............................................................................................................................................... 2 Objectives ................................................................................................................................................. 3 III. Review of Literature ............................................................................................................................. 4 IV. Analysis ................................................................................................................................................. 8 V. Recommendations .............................................................................................................................. 13 VI. Summary and Conclusions .................................................................................................................. 14 References .................................................................................................................................................. 16 ACCT601 – ACCOUNTING CAPSTONE Executive Summary TERM PAPER Traditional full costing has been the sole acknowledged method for establishing and reporting production costs for far too long. Full costing techniques have worked effectively for many years because they are appropriate for reporting production costs in specific conditions, particularly where direct labor and direct materials account for nearly all production costs. But things have changed, and the share of direct labor and direct materials in overall costs has reduced from roughly 85 percent to 40 percent as manufacturing has evolved. For many years, reporting fixed overhead expenses was virtually a footnote because they made up a small portion of overall production costs (less than 10 percent). However, with greater automation and the use of machinery, the equation has shifted, and fixed overhead expenses now account for more than half of overall production costs. What formerly insignificant and irrelevant expenditures have become the most substantial and relevant costs. Companies should be able to choose which costing approach they want to use. Most major organizations currently utilize activity-based costing. The US GAAP should recognize activity-based costing as an acceptable cost reporting technique for overhead expenses since it assigns fixed rates. Page 1 of 17 ACCT601 – ACCOUNTING CAPSTONE Introduction TERM PAPER Managerial accounting is one of the three main divisions in the accounting field, and it involves providing more accurate information about costs for internal use. It deals with preparing an accounting analysis of a company’s overhead activities to allocate them more precisely to the goods and services produced. Accurate information is one of the most important assets a company can obtain, and it helps management make better decisions. Knowing exact production costs helps the company decide which price to assign and what processes must be improved. ABC helps to understand and allocate overhead costs more efficiently. The traditional absorption costing method assigns overhead costs to individual units, while the ABC method uses different cost drivers to allocate overhead costs more efficiently. A huge obstacle in the implementation of ABC is that US GAAP does not recognize it, and this paper will provide arguments in favor of reversing this decision. ABC costing should not negatively affect the income statement since it just allocates existing costs more efficiently. Financial accounting in the United States is different from the rest of the world since US GAAP is used while most of the world uses IFRS or accounting principles based on IFRS. Problem Statement To what extent could manufacturing companies benefit if Activity-Based Costing was accepted by the US Generally Accepted Accounting Principles and financial statements using ABC could be presented to the Securities and Exchange Commission? Background Managerial accounting is recognized as one of the three main divisions in the accounting field, and companies use it to provide accurate and relevant information that helps management make operational and investment decisions. Currently, the Financial Accounting Standards Page 2 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER Board (FASB) is the organization in charge of setting the accounting standards, and the SEC is in charge of enforcing their application by public firms. Traditional financial reporting methods based on absorption costing: job order and process costing methods are not very efficient and can be inexact. This aspect is one of the reasons why managerial accounting exists: even though it represents duplicating the resources and efforts assigned to accounting, it provides information that upper management uses to make business decisions. The fact that companies have to duplicate expenses is a waste of resources. They prepare, and present financial statements that follow US GAAP, and then they prepare managerial accounting reports that they can use. Duplicating expenses does not sound reasonable simply because a company is required to present a formal statement that does not represent the company’s real situation. Objectives US GAAP does not follow international accounting standards and many corporations have to elaborate different financial reports following both US GAAP and International Financial Reporting Standards (IFRS). Institutions like the American Institute of Certified Public Accountants (AICPA) and the SEC are trying to change this and converge both US GAAP and IFRS rules to eliminate the duplication of financial reports (AICPA, 2021, and FASB, 2021). They realized it is not reasonable to prepare different financial reports, mix concepts, and increase expenses unnecessarily. The same logic applies to managerial accounting and ABC. If duplicating expenses is not reasonably related to US GAAP and IFRS, shouldn’t it be reasonable that ABC could be used to prepare financial reports and not just as an information tool? Why do companies prepare certain financial reports that are exact for decision-making purposes but are not allowed to present them Page 3 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER as official financial statements? This research paper aims to present arguments in support of the acceptance of ABC by US GAAP. Review of Literature The value of an accounting system is represented by how useful and accurate the information is provided. Traditional absorption costing methods have serious limitations regarding the accuracy of the information provided. When information is not accurate, then it cannot depict reality correctly. According to Maria Moisello (2019), absorption costing is accepted by US GAAP since it allocates all the overhead costs directly over the production stage. But what if not all overhead costs are related to the production stage? For example, depreciation is an overhead cost applied directly to the products manufactured during the accounting period, but most countries (including the US) accept accelerated depreciation methods. If the company has already taken advantage of the depreciation tax shield, the cost of the machinery becomes a sunk cost (Maria Moisello, 2019). There is no reason why financial reports should be different from the reports presented to the country’s tax-collecting agency (the IRS in the US), but, normally, deferred tax liabilities or assets are included in the financial statements. Management is forced to create accounts that do not depict reality and are not useful for decision-making. No matter what, the accelerated depreciation expense taken for one year cannot be undone and then decide to present depreciation on a straight basis to the IRS. The matching principle, fundamental in US GAAP, doesn’t match the actual expenses and taxes. ABC and variable costing methods depict this situation much more accurately, but IFRS and US GAAP decide not to accept them. Kopel et al. (2019) propose a new model to evaluate supplier decisions and how they can affect profitability. Input prices are extremely important for a company, and they are not given since they represent someone else’s sales, and vendors will Page 4 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER always try to maximize their utility, diminishing the utility of the company. The article proposes a new model for evaluating suppliers. Balios (2021) explains that Big data is changing the way companies work, and managerial accounting will also be affected. Big data involves the analysis and processing large amounts of data to obtain significant and useful information that a company can use to improve its efficiency and performance. The understanding and scope of big data are changing and expanding to cover most of the activities carried out by organizations. According to Kitsantas et al. (2020), ERP systems usually comply with financial accounting standards, but they can also be set to carry out activity-based costing systems in a very efficient manner. The article compares the application of both ABC and traditional costing systems using ERP and how it can improve a company’s decision-making process, especially regarding operation costs which increases competitiveness. Modern IT systems can be tailored to meet specific requirements, including managerial accounting. One of the major obstacles for integrating ABC within an ERP system is that it requires some duplication of reports and resources. If carried out properly, the benefits can offset the additional costs. An article by Kitsantas et al. (2020) reveals that new technologies are changing the world, including how people work. Information is an extremely valuable asset, although many companies have tons of information that are unless since they do not know how to process data to be meaningful. Big data and ERP systems are important management tools to make information useful. Both systems are useful for ABC or variable cost accounting but not for traditional absorption costing. The reason is simple; absorption costing does not use available information and considers many historic costs that may be obsolete. The real purpose of information systems is to provide information that can be useful, accurate, and relevant. The Page 5 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER problem with using historic values and allocating them over long periods is that they become meaningless for decision-making purposes. This aspect results in a contradiction since financial reporting aims to provide external users with accurate accounting information about the organization. The fact that traditional absorption costing is obsolete makes its mandatory application illogical. Besides the study presented by the authors, you can also support their findings with actual information applicable to the United States, where the IRS and Congress allow certain reporting methodologies that US GAAP rejects (Kitsantas et al., 2020). I understand that accounting principles must present financial reports that can be compared between companies but using an obsolete and inaccurate methodology does not help external users make better decisions. The whole purpose of financial reporting is not being accomplished. Balios (2021) provides supporting information to the previous article in the sense that big data provides useful information tools to managers for decision-making purposes, but this information is not allowed by US GAAP for financial reporting. I believe that the importance of accounting systems is that they truly show what is going on in an organization, and big data help this purpose. The problem is that firms cannot present this information and knowledge to external investors. US GAAP principles have been around for 73 years (74 now), and the world has changed significantly during this period. Before, the cost of materials and direct labor were among the most significant and relevant costs of a company. Nowadays, fixed overhead costs resulting from automated machinery and information systems represent the bulk of most organizations (Schiff & Buzinkai, 2021). Full costing methods (absorption costing) accurately represent the organization’s costs, especially direct labor and direct materials. But as these two cost items have lost their importance, should not accounting standards be updated to reflect that Page 6 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER change? US GAAP first considered full costing in 1947 to depict the real costs of inventory as it was published in the Accounting Research Bulleting No. 29, in the article “Inventory Pricing.” Back then, the American Institute of Certified Accountants (AICPA) was called the American Institute of Accountants (AIA), and they were responsible for the publication of the bulletin. The weight and relevance of fixed overhead have changed dramatically over the past years, as depicted in the following graph presented by the authors. Continuing to prepare financial reports that do not consider this dramatic shift only results in inaccurate information. Overhead costs are not a small fraction anymore, and they have to be treated in a much more accurate manner. Currently, absorption costing or full costing treats overhead costs as marginal that should be allocated using a fixed standard rate (Schiff & Buzinkai, 2021). But current production systems have changed, and a single facility can produce many different product lines, and assigning a standard overhead rate will inaccurately overstate or understate costs. Page 7 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER This debate is not new since managers, investors, and regulatory agencies acknowledge that the current system is obsolete. Since 1973, AICPA has been proposing changes to absorption costing since it already didn't reflect real production costs (Accounting Research Study No. 13). Almost 50 years later, the situation has worsened, and absorption costing is less accurate now. Absorption costing currently doesn't comply with accounting principles since absorption costing is not fully complying with the matching principle. Organization and rules must evolve, and accounting principles are not an exception. Continuing to insist on a system that everyone acknowledges is not working correctly anymore is not reasonable. Analysis Management accounting is recognized as one of the three main divisions in the accounting field, and companies use it to provide accurate and relevant information that helps management make operational and investment decisions. Currently, the Financial Accounting Standards Board (FASB) is the organization in charge of setting the accounting standards, and the SEC is in charge of enforcing their application by public firms. The value of an accounting system is represented by how useful and accurate the information is provided (Maria & Mella, 2019). New technologies are changing the world, and that includes how people work. Information is an extremely valuable asset, although many companies have tons of information that are unless since they do not know how to process data to be meaningful. This article provides supporting information to the previous article in a sense that big data provides useful information tools to managers for decision-making purposes, but this information is not allowed by US GAAP for financial reporting.US GAAP principles have been around for 73 years (74 now), and the world has changed significantly during this period. Page 8 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER Traditional full costing accounting methods are the only costing method approved by the Financial Accounting Standards Board (FASB) and the US generally accepted accounting principles (GAAP). Full costing or absorption method can be divided into two main categories: job order or process costing methods. Each one was designed 85 years ago to deal with different production processes. Job order costing is suitable for companies that produce heterogeneous products, while process costing is suitable for producing homogeneous products. Making business decisions requires knowing how to calculate a fair manufacturing cost for every product. Knowing the production costs of a unit of products impacts a company's ability to fund new development, but it also serves as a starting point for establishing the sales price. The distribution of overhead expenses is an important aspect of assessing a product's or task's total cost of production. For certain firms, the old technique of overhead allocation, which is often less complicated, works effectively (Moisello, 2020). On the other hand, overhead allocation is a more challenging problem for many goods, and a performance-based pricing mechanism is desirable. Another factor to consider when choosing between the two fundamental procurement techniques is the cost of gathering and processing data. When selecting a strategy, the corporation must consider these aspects and time and money. In many circumstances, the ABC method takes longer and costs more money. The difference between traditional and ABC approaches is more nuanced than the number of cost factors suggests. When direct labor expenses make up a large portion of a product's price, overhead costs are frequently driven by a single cost driver, such as labor or machine hours. Traditional technology effectively spreads these expenses. When technology accounts for a large portion of a product's cost, overhead expenses are frequently dictated by various factors. As a result, the ABC approach's integration of various cost factors allows for more exact allocation. Page 9 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER In reality, performance-based calculation solutions do not comply with generally accepted accounting regulations. However, they provide useful data for management decisionmaking. ABC systems do not map all production costs to goods, a major cause of GAAP noncompliance. Regardless of the amount of the service, expenses such as plant security, heating, air conditioning, and building rents are incurred. Therefore, ABC systems do not link these prices to specific items. The idea is that unless costs change based on what goes on in production, they are not important to decision-making. This aspect makes sense from the management's point of view but does not conform to GAAP. Although GAAP does not approve this method, ABC systems assign certain unique nonmanufacturing costs to items (Schiff, 2021). Firms should include all product-related costs in the product costs according to the ABC principles. For example, if a bespoke product requires additional telephone support staff to process customer orders, companies should include these costs in the product price. Even if this isn't a production expense, there would be no product orders if the phone workers didn't handle those calls. In addition, if the company discontinues the unique product, firms can lay off the phone staff. In contrast to conventional costing methods, ABC systems assign overhead costs to goods across multiple cost pools. Expense pools are groups of expenses collected before they are allocated to goods. These cost blocks are linked to certain processes in the company. For example, a small business might make many products and need to set up machines as they move from one to another. Businesses would include overheads incurred due to the product change in the cost pool for the work facility. The difference between this technique and standard costing systems is that traditional methods distribute all overhead costs as part of a large bucket using a plant-wide or departmental rate (Schiff, 2021). Traceable expenses are treated the same way by traditional and ABC Page 10 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER systems. In both systems, traceable costs or expenses that can be easily and inexpensively traced back to the goods are applied directly to the items. These expenses are often associated with material and labor costs in small businesses. Institutions developed full costing methods when a company's major production costs were direct labor, direct materials, and variable overhead expenses (mostly related to supervisory costs). On average, these costs represented 90% of the total production costs. But times have changed, and for almost 50 years, AICPA has been proposing changes or updates to the production costing methods (Schiff & Buzinkai, 2021). Nowadays, 80-90% of direct labor costs have been eliminated through efficient production processes and automation. Even the proportion of direct materials has decreased by 1/3. The only expense with a significant proportion of total costs is fixed manufacturing overhead. Fixed overhead now represents on average 50% of total production costs, and if you add this percentage to traditional levels of variable overhead expenses, total overhead nowadays totals almost 60% of total costs. This aspect leads to a significant problem with current costing methods accepted by US GAAP since they were very good for carrying out their original purpose: keeping track of large variable costs like direct labor and direct materials. Traditional accounting methods like job order and process costing were designed to keep track of costs that have lost relevance, and this trend will continue. These two methods were not designed to track manufacturing overhead, especially fixed overhead costs efficiently, and now they represent the bulk of production costs. Traditional costing methods are generally inaccurate when dealing with overhead costs since they assign predetermined rates. This approach worked very well when the differences between actual costs assigned and costs incurred were insignificant since the proportion of Page 11 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER overhead costs was very small. But now that overhead costs are most of the costs incurred by a production process, these inaccuracies are extremely relevant, significant, and material. Managerial accounting came up with diverse solutions to solve these inaccuracies by changing the costing methods to understand better and apply overhead costs. Two different accounting methods used by managerial accountants are much more efficient when dealing with overhead costs: variable costing and activity-based costing. The problem is that these relatively new methods are not accepted by US GAAP and cannot be used by businesses for financial reporting purposes. There is also a significant difference between both alternative methods since variable costing is very efficient for assigning variable overhead costs but not for assigning fixed overhead costs. On the other hand, activity-based costing has proven extremely efficient for assigning proportional variable and fixed overhead costs. Since the purpose of financial reports is to present the most accurate possible information, companies should be allowed to present their production costs using activity-based costing. Some accountants state that activity-based costing is too complicated and complex and that some companies can present accurate costs using traditional full costing methods. The purpose of proposing the acceptance of activity-based costing by US GAAP is not to replace one accounting system with another but instead to provide alternatives so businesses can decide which one to use. Having an alternative like companies can now choose between job order or process costing methods would benefit companies and external users since financial reports could be more accurate. Page 12 of 17 ACCT601 – ACCOUNTING CAPSTONE Recommendations TERM PAPER Activity-based costing should be accepted as a viable cost reporting technique by US GAAP. Activity-based costing (ABC) further improves the costing system in different ways. It increases the cost pool quantities accessible for obtaining overhead costs. It pools costs by activity rather than putting all expenses in a single vast pool. The ABC cost bookkeeping structure is predicated on activity, any occasions, gathering of errands, or assignments that have a predetermined point, like setting up assembling machines, making items, conveying completed merchandise, or running gear. Cost items include activities utilizing overhead costs. Any expense driver in the manufacturing process is considered an activity under the ABC framework. Machine settings, support needs, utilized power, purchase orders, quality checks, and work orders are generally cost drivers. The two sorts of activity estimations are exchange drivers, which count the occasions an activity happens, and span drivers that survey the timeframe were taken by an activity to finish. Second, ABC creates novel strategies for distributing overhead expenses for things, for example, assigning costs dependent on cost-producing exercises rather than volume measurements like machine hours or direct labor costs. Unlike traditional costing evaluation techniques that give indirect or overhead costs to products dependent on volume considered, such as direct work hours and direct machine hours, the ABC approach distinguishes five general classes of activity that are, somewhat, independent of the number of units produced. They include Unit-level activity, Batch-level activity, organization-sustaining activity, customerlevel activity, and product-level activity. Finally, ABC changes the basis of several indirect expenses, including utilities, wages, and depreciation, making them attributable to specific activities. On the other hand, ABC shifts overhead expenditures from low-volume to high-volume items, increasing the unit cost of the Page 13 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER low-volume items. Given these benefits, this research recommends that the US GAAP accepts ABC as a viable costing method because it provides valuable information for decision-making. Summary and Conclusions For too many years, traditional full costing has been the only acceptable alternative for determining and reporting production costs. Full costing methods worked very well for many years since they are suitable for reporting production costing under specific circumstances, especially where direct labor and direct materials represent almost all production costs. But times have changed, and nowadays, as production has changed, the proportion of direct labor and direct materials in total costs has decreased from around 85% to 40%. For many years, reporting fixed overhead costs was almost secondary since they represented only a small percentage of total production costs (less than 10%). But nowadays, automation and increased use of machinery have changed the equation, and fixed overhead costs on average represent over 50% of total production costs. What was once marginal costs that had little relevance are now the most significant and relevant? The problem is that traditional full costing methods do not account for them properly. This approach was not a problem 85 years ago or 60 years ago, but it is a significant problem because manufacturing costs are not properly calculated and reported. The whole principle of materiality is not being accomplished by traditional full costing since they were not designed to deal with automation. In the future, this problem will only get worse as artificial intelligence, and further automation will probably end up replacing all assembly line workers (direct labor). The world is changing, and accounting and costing methods cannot refuse change. Whether the FASB likes it or not, traditional full costing is obsolete and doesn't report production costs accurately, and the lack of accuracy may be a handicap for external decision-makers. Companies Page 14 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER will not stop using machines and robots simply because the FASB prefers costing methods that focus on direct labor and direct materials. The whole purpose of financial reporting is not being fulfilled due to the rejection of accurate and modern costing methods. The FASB should allow companies to decide which costing method they want to use. Due to its high accuracy and relevance, most large corporations already use activity-based costing for internal decisionmaking processes. Mangers know that job order costing or processes costing are not accurate anymore, so companies must spend more money to produce different account records, one that works and is used for internal purposes and one that is used for external reporting purposes. This aspect does not make sense, and that is why the paper proposes that US GAAP accepts activitybased costing as a valid cost reporting method. Page 15 of 17 ACCT601 – ACCOUNTING CAPSTONE TERM PAPER References AICPA. (2021). Convergence of International and US Accounting Principles and IFRS. https://us.aicpa.org/advocacy/issues/us-intlacctprinconvergenceandifrs Balios, D. (2021). The impact of Big Data on accounting and auditing. International Journal of Corporate Finance and Accounting (IJCFA), 8(1), 1-14. FASB. (2021). Comparability in International Accounting Standards: A Brief History. https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156304264 Kitsantas, T., Vazakidis, A., & Stefanou, C. (2020). Integrating activity based costing (ABC) with enterprise resource planning (ERP) for effective management: A literature review. Moisello, A. M., & Mella, P. (2020). Matching Revenues and Costs: The Counter-Intuitive Rationality of Direct Costing. International Journal of Business and Management, 15(1), 202-222. Schiff, J., & Buzinkai, D. (2021, Winter). Is It Time to “Retire” Full Costing? Management Accounting Quarterly, 22(No. 2), 1–11. . Page 16 of 17 Term Paper Outline Activity Based Costing YAIMA HI JIMENEZ 12/12/21 Page 1 of 7 I. Executive Summary a. Traditional full costing has been the sole acknowledged method for establishing and reporting production costs for far too long. b. Companies should be able to choose which costing approach they want to use. Most major organizations currently utilize activity-based costing. c. The US GAAP should recognize activity-based costing as an acceptable cost reporting technique for overhead expenses since it assigns fixed rates. II. Introduction a. Managerial accounting is one of the three main divisions in the accounting field, and it involves providing more accurate information about costs for internal use. b. Accurate information is one of the most important assets a company can obtain, and it helps management make better decisions. c. Financial accounting in the United States is different from the rest of the world since US GAAP is used while most of the world uses IFRS or accounting principles based on IFRS. d. Problem Statement i. To what extent could manufacturing companies benefit if Activity-Based Costing was accepted by the US Generally Accepted Accounting Principles and financial statements using ABC could be presented to the Securities and Exchange Commission? Page 2 of 7 e. Background i. Managerial accounting is recognized as one of the three main divisions in the accounting field, and companies use it to provide accurate and relevant information that helps management make operational and investment decisions. ii. The fact that companies have to duplicate expenses is a waste of resources. They prepare, and present financial statements that follow US GAAP, and then they prepare managerial accounting reports that they can use. f. Objectives i. If duplicating expenses is not reasonably related to US GAAP and IFRS, it should be reasonable that ABC could be used to prepare financial reports and not just as an information tool. ii. Why do companies prepare certain financial reports that are exact for decision-making purposes but are not allowed to present them as official financial statements? iii. This research paper aims to present arguments in support of the acceptance of ABC by US GAAP. III. Review of Literature a. The value of an accounting system is represented by how useful and accurate the information is provided. There is no reason why financial reports should be different from the reports presented to the country’s tax-collecting agency (the Page 3 of 7 IRS in the US), but, normally, deferred tax liabilities or assets are included in the financial statements. b. Kopel et al. (2019) propose a new model to evaluate supplier decisions and how they can affect profitability. Input prices are extremely important for a company, and they are not given since they represent someone else’s sales, and vendors will always try to maximize their utility, diminishing the utility of the company. The article proposes a new model for evaluating suppliers. c. Balios (2021) explains that Big data is changing the way companies work, and managerial accounting will also be affected. Big data involves the analysis and processing large amounts of data to obtain significant and useful information that a company can use to improve its efficiency and performance. d. According to Kitsantas et al. (2020), ERP systems usually comply with financial accounting standards, but they can also be set to carry out activity-based costing systems in a very efficient manner. e. An article by Kitsantas et al. (2020) reveals that new technologies are changing the world, including how people work. Information is an extremely valuable asset, although many companies have tons of information that are unless since they do not know how to process data to be meaningful f. Besides the study presented by the authors, you can also support their findings with actual information applicable to the United States, where the IRS and Congress allow certain reporting methodologies that US GAAP rejects (Kitsantas et al., 2020). Page 4 of 7 g. Balios (2021) provides supporting information to the previous article in the sense that big data provides useful information tools to managers for decision-making purposes, but this information is not allowed by US GAAP for financial reporting. h. Nowadays, fixed overhead costs resulting from automated machinery and information systems represent the bulk of most organizations (Schiff & Buzinkai, 2021). i. Since 1973, AICPA has been proposing changes to absorption costing since it already didn't reflect real production costs (Accounting Research Study No. 13). j. Absorption costing currently doesn't comply with accounting principles since absorption costing is not fully complying with the matching principle. IV. Analysis a. Management accounting is recognized as one of the three main divisions in the accounting field, and companies use it to provide accurate and relevant information that helps management make operational and investment decisions. b. The value of an accounting system is represented by how useful and accurate the information is provided (Maria & Mella, 2019). c. New technologies are changing the world, and that includes how people work. Information is an extremely valuable asset, although many companies have tons of information that are unless since they do not know how to process data to be meaningful. d. This article provides supporting information to the previous article in a sense that big data provides useful information tools to managers for decision-making purposes, but this information is not allowed by US GAAP for financial Page 5 of 7 reporting.US GAAP principles have been around for 73 years (74 now), and the world has changed significantly during this period. V. Recommendations a. Activity-based costing should be accepted as a viable cost reporting technique by US GAAP. Activity-based costing (ABC) further improves the costing system in different ways. b. It increases the cost pool quantities accessible for obtaining overhead costs. VI. Summary and Conclusions a. For too many years, traditional full costing has been the only acceptable alternative for determining and reporting production costs. b. The whole purpose of financial reporting is not being fulfilled due to the rejection of accurate and modern costing methods. T c. he FASB should allow companies to decide which costing method they want to use. Due to its high accuracy and relevance, most large corporations already use activity-based costing for internal decision-making processes. VII. References Page 6 of 7 References AICPA. (2021). Convergence of International and US Accounting Principles and IFRS. https://us.aicpa.org/advocacy/issues/us-intlacctprinconvergenceandifrs Balios, D. (2021). The impact of Big Data on accounting and auditing. International Journal of Corporate Finance and Accounting (IJCFA), 8(1), 1-14. FASB. (2021). Comparability in International Accounting Standards: A Brief History. https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156304264 Kitsantas, T., Vazakidis, A., & Stefanou, C. (2020). Integrating activity based costing (ABC) with enterprise resource planning (ERP) for effective management: A literature review. Moisello, A. M., & Mella, P. (2020). Matching Revenues and Costs: The Counter-Intuitive Rationality of Direct Costing. International Journal of Business and Management, 15(1), 202-222. Schiff, J., & Buzinkai, D. (2021, Winter). Is It Time to “Retire” Full Costing? Management Accounting Quarterly, 22(No. 2), 1–11. . Page 7 of 7
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Accounting
ACCT601

Introduction





In every business, set up, it is vital to ensure excellence in data recording.
Traditional full costing is appropriate for analyzing production costs.

Costing entails business management and resource allocation.
Most companies prefer using International Financing Standards (IFRS)
unlike Activity Based Costing (ABC).

• However, most US based manufacturing companies would significantly
benefit if they were using ABC (FASB. 2021).

Research
• Businesses require appropriate management and accounting.
• Accounting entails data management and report records which facilitate
business activities.

• For long, businesses have been having a challenge in management.
• However, efficient business management through technology has
promoted growth in accounting.

Research
• The value of accounting bases on...

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