Accounting Best Practices, Fifth Edition

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 existing 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, in terms of either 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 ...