Page 12 - Accounting Best Practices

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Chapter 1
Introduction

A chief executive officer (CEO) spends months deciding on a corporate strategy.
The plan probably includes a mix of changes in products, customers, and markets,
as well as demands for increased efficiencies or information in a number of exist-
ing areas. The CEO then hands off the plan to a group of managers who are quite
capable of implementing many of the changes, but who scratch their heads over
how to squeeze greater efficiencies or information out of existing departments in
order to meet their strategic goals. This is where best practices come into play.
A best practice is really any improvement over existing systems, though
some consultants prefer to confine the definition to those few high-end and very
advanced improvements that have been successfully installed by a few world-
class companies. This book uses the broader definition of any improvement over
existing systems, since the vast majority of companies are in no position, either in
terms of technological capabilities, monetary resources, or management skill, to
make use of truly world-class best practices. Using this wider definition, a best
practice can be anything that increases the existing level of efficiency, such as
switching to blanket purchase orders, signature stamps, and procurement cards to
streamline the accounts payable function. It can also lead to improved levels of
reporting for use by other parts of the company, such as activity-based costing,
target costing, or direct costing reports in the costing function. Further, it can
reduce the number of transaction errors, by such means as automated employee
expense reports, automated bank account deductions, or a simplified commission
calculation system. By implementing a plethora of best practices, a company can
greatly improve its level of efficiency and information reporting, which fits nicely
into the requirements of most strategic plans.
One can go further than describing best practices as an excellent contributor
to the fulfillment of a company’s strategy, and even state that a strategy does not
have much chance of success unless best practices are involved. The reason is
that best practices have such a large impact on overall efficiencies, they unleash a
large number of excess people who can then work on other strategic issues, as
well as reduce a company’s cash requirements, releasing more cash for invest-
ment in strategic targets. In addition, some best practices link company functions
more closely together, resulting in better overall functionality—this is a singular
improvement when a company is in the throes of changes caused by strategy
shifts. Further, best practices can operate quite well in the absence of a strategic
plan. For example, any department manager can install a variety of best practices

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