Ann Marie Puig explains the impact the accounting area has on management decisions
Date : July 26, 2021 By
It is commonly considered that the success of a company is due exclusively to the effort of the managers, their business vision and implementation of strategies; however, the reality is that by looking behind the results, we will find that, thanks to the efficiency in the processes carried out by each particular area, the objectives set can be achieved. In fact, most of the strategies taken by the management of the company depend on the guidance and performance of all its departments (some of which are perceived as static or little involved with the value chain), as is the case of the accounting department. Ann Marie Puig, a proven entrepreneur and philanthropist from Costa Rica, details the important role accounting has in making management decisions.
The activities carried out in this area are key for managers and managers to make decisions, mainly because their function is to seek the necessary tools to correct the structural failures that arise within the integration or consolidation of data, which can distort in some way the veracity of financial information; generally, such failures are presented as information with errors and/or omissions (reliability failure) and information delivered at the wrong time (opportunity failure).
Explains Puig, “Based on the company’s financial results, the effectiveness of its policies can be evaluated, which allows us to consider whether it is necessary to establish new policies or improve current ones.” This information allows managers to make decisions such as: reducing the staff or identifying the impact that an increase in staff would have; determine whether departments need to cut costs, as well as suggest how and where; evaluate increases in investment and determine whether the company has the necessary liquidity to make them or needs to use external sources of financing; modify inventory levels, among others.
In essence, the main value of accounting information is to enable company managers to identify, measure, classify, analyze and evaluate all the operations and activities of the company. This information helps them to know the resources, obligations and results of the company’s operations; support in the planning, organization and administration of business activity; evaluate the management of managers and directors; make short- and long-term decisions, establish obligations to the state and evaluate the social impact of the company.
Accounting departments represent a solid and concise source of the company’s status. For managers and managers, they are of great help in decision-making; by evaluating their policies and controlling the functions of the organization, and measuring objectives, strategies and goals, they can focus their attention on changes in the external environment, as well as develop strategies with greater flexibility, attached to real financial capabilities. Also, from the reliable and timely information generated by these departments, predictions can be made and areas of opportunity revealed.
When it comes to the design of strategies in transnational companies, the Accounting Department acquires a lot of relevance due to the attention required by the changing economy and the effects of globalization. In the case of these companies, the accounting area is not limited to the control of assets and liabilities.
Transnational corporations, by their very nature, require a more dynamic involvement of the Accounting Department. The accounting areas intrinsically participate by projecting inflation rates, exchange rates, coordination and cooperation of the different areas that make up the company. In addition, they seek effectiveness and efficiency in operations, improving budget management. “When creating a Business Plan, the Accounting Department must design various actions, using different tools such as the cost-volume-utility model and identifying the relevant variables that will lead the company to achieve its objectives,” asserts Puig.
The growth of the company depends to a large extent on the integration of the areas into corporate strategies. In this case, the accounting area can reveal substantial information so that decision-makers can perform better analyses and, with it, design strategic plans that meet their needs. Each of the areas of the company can contribute in some way to the value chain; it is the task of those responsible for these, the directors and managers, to give them the opportunity to develop and help their participation in corporate strategies.