Question

One of the readings this week is an article published in a blog by Business Finance which compares managerial accountants to cowboys in the Wild West. The main argument provided by the author stems from the many rules imposed on financial accountants and the comparative lack of rules for managerial accountants. In BUSI 1043 (Financial Accounting) we learned about the effects of Enron, World Com, and Arthur Anderson as well as many other companies who committed fraud and the resulting impact/creation of governing bodies. As a result of such scandals, many accounting standards were created with the purpose of trying to mitigate the risk of fraud occurring in the future. However, there are very few rules and regulations for managerial accountants (similar to the cowboys of the Wild West). Do you agree or disagree with the author’s arguments? Please choose one section of the article and provide your thoughts and analysis.

Article Cokins, G. (2013, January). Cowboy accountants – The lawless frontier. Business Finance (Strategy Management). Retrieved from http://businessfinancemag.com/blog/cowboy-accountants-lawless-frontier

Answer 1

Cokins makes some very valid points, and I do agree with him.  Managerial accounting practices lack regulation just like cowboys of the Wild West do.   Cokins (2013) gives the example of managerial accountants allocating overhead costs to product costs based on a single broad factor with no cause or effect relationship to products, without any restriction.  The calculations will be flawed and results to misleading over ousted and under costed products (Cokins, 2013).  If financial accountants had done something similar to their expenses, for example recorded personal expensesas business expenses, there would be consequences for this action, however with managerial accountants fluctuating costs for a business’ advantage is not regulated.

In the section Accounting Institute Task Forces to the Rescue, Cokins (2013), mentions that some professional accounting institutes are beginning to see the problem and are filling the void with 12 principles from the Conceptual Framework for Managerial Costing.  If these principles are followed organization’s can be more assured that they are receiving highly valid managerial accounting information (Cokins, 2013).  AS Cokin (2013) states “Now what the accounting industry needs is enforcement for managerial accounting” (Cokins, 2013, para. 14).  Trying to enforce principles to accountants that have never been regulated maybe a difficult task.  However, if done all the debates on which costing method is best could be controlled. Overall, I agree with Cokins and his arguments.  Although I believe trying to enforce principles on accountants who have never been regulated will be a difficult task, it is still important.  I think some regulation for any important job such as managerial accountants that facilitate an organizations internal analysis and decision making is critical.