Question

Accounting information has economic consequences. What are economic consequences and why does accounting information have them? Provide examples of some economic consequences accounting information can have. Provide examples of the types of accounting choices managers can make that can cause economic consequences. Explain.

Answer 1

The Economic consequences of Accountings As follows

We review empirical tests of economic consequence theories, categorize those tests, and discuss their strengths and weaknesses. The empirical tests reveal two systematic associations with accounting choice: size, a proxy for political visibility, and leverage, a proxy for contracting and monitoring costs of lending agreements. Interpretation of the results is difficult, due to general limitations of the tests. We conclude by suggesting some directions for future research, based on our analysis of the potential payoffs associated with different types of empirical tests.

Firm size has been used as a proxy for the firm's political costs and hence managers' proclivity to choose income reducing accounting procedures. This study provides additional evidence on this topic by examining the association between firm size and effective corporate tax rates. The latter are one component of a firm's political costs. The roughly fifty largest U.S. exchange-listed firms, in particular oil and gas companies and manufacturing firms, have significantly higher worldwide tax rates than other firms. These higher tax rates are observed primarily after the implementation of the U.S. 1969 Tax Reform Act and after the OPEC countries raised their tax rates on U.S. oil producers. The findings, which are insensitive to alternative sources of data, alternative measures of firm size, and alternative measures of effective tax rates, are consistent with the use in previous studies of firm size as a proxy for the firm's political costs.

Accounting Choices Management Can be explained as below

Improving Revenue Generation

By preparing reports on profit and loss, budget comparison, and examining your processes and procedures, a management accountant can help increase the efficiency of your business operations. Receiving regular detailed reports on various performance metrics, including monthly cash forecasts and budgeting, revenue projections, and variance analyses will be beneficial for key decision makers in your organization. Subsequently, you’ll have a better handle on your expenditure and pricing.

Increased Business Efficiency

As an expert in financial reporting and control, a management accountant prepares managerial reports that provide you with a clear picture of the different factors that drive business operations. With this progressive report, you will be able to see the actual cost of your firm’s day-to-day operations, as well as make sense of your business’ financial information. As a result, you would be better equipped to allocate and budget resources and address bottlenecks in your processes.

Management Accounting for Data-Backed Decision-Making

A skilled management accountant collects and analyses information that could mean the difference between the success and failure of your firm. Using complex tools for analysis, your management accountant analyses constraints and helps you set targets, identifying trends and presenting you with relevant financial and non-financial information. In this sense, managerial accounting drives better decision-making. With a management accountant in your team, you can leave the guesswork out when making operational and financial decisions for your firm.

Ready to Hire a Management Accountant?

Hiring an accountant who can provide these services or, alternatively, designating the task to one of your current staff members may be tricky. What you’d want to look for is someone who can understand your operational processes, one who can develop an accounting system that addresses your organizational needs while maintaining high-quality standards. If you do not have the right resources at the moment, outsourcing this function may be a better option.