Tag Archives: value

Does Accounting Add Value?

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For many businesses-owners, accounting is perceived as a necessary evil. It is a cost that you have to bear but does not create value the way that other departments do, such as marketing, engineering, or finance. Some may argue about whether the accounting department of a firm is “productive” in the classical sense, but their support role is essential for any successful business. Accountants are derided for not providing as much value (especially by the finance and economics types, even though they are not productive in the classical sense, either) but without the accountants, large businesses could not operate.

Even for a small business, accounting is crucial. When your profit margin is in the thousands, you need to make sure and collect all receipts as soon as possible. Maintaining current books is crucial for this task. It becomes both more difficult and more important to discharge accounting duties as sales climb along with your need for new capital. As you move up the ranks and become a  larger company with many employees, accounting techniques, practices, and procedures enable managers to maintain control over cash flows and company resources. Anyone who has overseen cashiers knows the importance of keeping up with revenues.

Accounting information can also be used to make cost-benefit decisions, like the cost-benefit decision of how much accounting detail should be pursued. To make the cost-benefit decision, you have to use the tools of finance as well, and this is where the artificial distinction between finance and accounting dissipates. Without the building blocks of accounting, finance would have to start from scratch and end up with less reliable results. This is not because finance is not capable, but because there is value in comparative advantage. Financiers can focus their efforts on long-term capital budgeting, marketers can drum up sales, engineers can design, and accountants can precisely tally it all up.

Many companies also need accountants to report financial results to stakeholders, including stockholders, the Board of Directors, the government, and lenders. Although much of reporting for big business is typically seen as a legal requirement, the value of such standard reporting is still great and can be found in the cost of capital. Without assurance that a company’s financial reports are accurate, cost of capital would be higher to accommodate the additional risk. This concept applies to both small businesses that want to grow as well as large public corporations.

Further, our tax system in the US is quite complicated, and many companies do not have enough scale to warrant having in-house tax staff to navigate every complexity. In this way, tax accountants can help companies minimize tax expenses and associated risks. With their specialization and familiarity with tax law, tax accountants can consult with timthumbmanagement about strategies that can help them reduce their tax burden.

CFOs around the world agree that accountants add value not only to their company but to the public in general. We do this by performing critical functions that enable other business departments to do their work more efficiently. Next time you hear accountants being diminished as less important in some way, you can remind them of all these ways that accountants add value.