Chapter 20do Accountants Lead Or Misleadover The Past Few Years I Ha ✓ Solved

Chapter 20 Do Accountants Lead or Mislead? Over the past few years, I have discussed a paradox with Doug Hicks, president of D.T. Hicks & Co., a performance-improvement consulting firm in Farmington Hills, MI. The paradox, which continues to puzzle me, is how chief financial officers (CFOs) and controllers can be aware that their managerial accounting data is flawed and misleading, yet not take action to do anything about it. I am not referring to the financial accounting data used for external reporting; that information passes strict audits.

I am referring to the managerial accounting used internally for analysis and decisions. For this data, there is no governmental regulatory agency enforcing rules, so the CFO can apply any accounting practice he or she likes. For example, the CFO may choose to allocate substantial indirect expenses for product and standard service-line costs based on broadly averaged allocation factors, such as number of employees or sales dollars. The vast differences among products mean each product is unique in its consumption of expenses throughout various business processes and departments, with no relation to the arbitrary cost factor chosen by the CFO. By not tracing those indirect costs to outputs based on true cause-and-effect relationships—called drivers—some product costs become undervalued and others overvalued.

It is a zero-sum-error situation. PERILS OF POOR NAVIGATION EQUIPMENT I speculated to Doug that I think some CFOs and controllers are simply lazy. They do not want to do any extra work. Doug explained this counterintuitive phenomenon using a fable: Imagine that several centuries ago there was a navigator who served on a wooden sailing ship that regularly sailed through dangerous waters. It was the navigator’s job to make sure the captain always knew where the ship had been, where it was, and how to safely and efficiently move the ship from one point to another.

In the performance of his duties, the navigator relied on a set of sophisticated instruments. Without the effective functioning of these instruments, it would be impossible for him to chart the safest and most efficient course for the ship to follow. One day the navigator realized that one of his most important instruments was calibrated incorrectly. As a result, he provided the captain inaccurate navigational information to use in making the decisions necessary to safely and efficiently direct the ship. No one but the navigator knew of this calibration problem, and the navigator decided not to inform the captain.

He was afraid that the captain would blame him for not detecting the problem sooner and then require him to find a way to report the measurements more accurately. That would require a lot of work. As a result, the navigator always made sure he slept near a lifeboat, so that if the erroneous navigational information led to a disaster, he would not go down with the ship. Eventually, the ship hit a reef that the captain believed to be miles away. The ship was lost, the cargo was lost, and many sailors lost their lives.

The navigator, always in close proximity to the lifeboats, survived the sinking and later became the navigator on another ship. PERILS OF POOR MANAGERIAL ACCOUNTING Doug continued on with his story: Centuries later, there was a management accountant who worked for a company in which a great deal of money was invested. It was the job of this management accountant to provide information on how the company had performed, its current financial position, and the likely consequences of decisions being considered by the company’s president and managers. In the performance of his duties, the management accountant relied on a managerial cost accounting system that was believed to represent the economics of the company.

Without the effective functioning of the costing practices reported from this system, it would be impossible for the accountant to provide the president with the accurate and relevant cost information he needed to make economically sound decisions. One day the management accountant realized that the calculations and practices on which the cost system was based were incorrect. It did not reflect the economic realities of the company. The input data was correct, but the reported information was flawed. As a result, the current and forward-looking information he provided to support the president’s decision making was incorrect.

No one but the management accountant knew this problem existed. He decided not to inform the president. He was afraid that the president would blame him for not detecting the problem sooner and then require him to go through the agonizing effort of developing and implementing a new, more accurate and relevant cost system. That would require a lot of work. Meanwhile, the management accountant always made sure he kept his network with other professionals intact in case he had to find another position.

Not surprisingly, the president’s poorly informed pricing, investment, and other decisions led the company into bankruptcy. The company went out of business, the owners lost their investment, creditors incurred financial losses, and many hardworking employees lost their jobs. However, the management accountant easily found a job at another company. THE ACCOUNTANT AS A BAD NAVIGATOR What is the moral of the story? The 2003 Survey of Best Accounting Practices, conducted by Ernst & Young and the Institute of Management Accountants, showed that 98% of the top financial executives surveyed believed that the cost information they supplied management to support their decisions was inaccurate.

It further revealed that 80% of those financial executives did not plan on doing anything about it. The widely accepted solution is to apply activity-based cost (ABC) principles—not just to product and standard service-line costs but to various types of distribution channels and types of customers. The goal is to apply direct costs to whatever consumes resources. For resources that are shared, these costs are to be traced using measurable drivers that reflect the consumption rate—not arbitrary cost allocations. When one compares the properly calculated costs and profit margins using ABC principles to costing methods that violate the key accounting principle of cause and effect, the differences are surprising huge: The company makes and loses money in opposite areas from what the numbers show.

This creates false beliefs throughout the organization. Why do so many accountants behave so irresponsibly? The list of answers is long. Some believe the error is not that big. Some think that extra administrative effort required to collect and calculate the new information will not offset the benefits of better decision making.

Some think costs do not matter, because the focus should be on sales growth. Whatever reasons are cited, accountants’ resistance to change is based less on ignorance and more on misconceptions about accurate costing. Doug Hicks observed to me: “Today commercial ABC software and their associated analytics have dramatically reduced the effort to report good managerial accounting information, and the benefits are widely heralded.†Furthermore, the preferred ABC implementation method is rapid prototyping with iteratively scaled modeling, which has destroyed myths about ABC being too complicated. By leveraging only a few key employees and lots of estimates, usable ABC results as a repeatable reporting system are produced in weeks, not years.

A survey by reported that the number-one challenge in implementing ABC is designing and building the model, which is what the rapid prototyping method solves—make your mistakes early and often. Reasonably accurate cost and profit information is one of the pillars of performance management’s portfolio of integrated methodologies. Accountants unwilling to adopt logical costing methods, and managers who tolerate the perpetuation of flawed reporting, should change their ways. Stay on the ship or get off before real damage is done. Recommending an Evidence-Based Change Student’s Name Institutional Affiliation Course Instructor Due Date Description of My Healthcare Organization Ethical culture where quality of care is valued Emphasis on efficiency and effectiveness of patient care processes Keen on effective communication and coordination Focus on applying technology and care models to increase care quality Highly prioritizes training and skill-improvement Embraces effective evidence-based healthcare models My organization is a geriatric hospital that caters for the healthcare needs of senior citizens.

The administration has established an ethical culture where the quality of care is valued greatly, and employees are encouraged to work and conduct themselves in morally and professionally appropriate ways. Emphasis have been put on upholding effectiveness and efficiency of patient care processes and services to increase patient safety. Additionally, the administration is keen on effective communication and coordination among healthcare teams especially when providing healthcare services. The organization focuses on applying effective technologies and healthcare models to increase the quality of patient care services and treatment outcomes. Furthermore, the HR department highly prioritizes training and skill-improvement so that employees can improve their personal and professional competencies to increase the quality of patient care.

The organization has a culture of embracing effective research-based and evidence-based healthcare models to further increase the quality of patient care services. 2 Need for Change Rise in the number of hospital acquired infections (HAI) Low observance of hand sanitization by employees Low employee competencies on hand sanitization practices Hand sanitization is not observed well in all departments Physicians, nurses, and other stakeholders are affected The COVID-19 outbreak calls for a better observance of hand hygiene It is important for our organization to change its culture on hand hygiene practices since there has been a rise in cases of HAI in the past 8 months, and hand hygiene can significantly reduce the issue.

There has been low observance of hand sanitization by employees including nurses who interact with employees directly, which contributes to HAI not only in our hospital but also in many healthcare facilities worldwide (Akuoko, 2019). Low employee competencies and knowledge on hand sanitization practices is responsible for low employee observance of hand hygiene practices. Hand sanitization is not observed well in all departments of the hospital including in wards and waiting rooms. Physicians, nurses, and other employees and stakeholders such as suppliers, and clients do not observe hand hygiene practices as required, which further complicates the issue. Furthermore, the current COVID-19 outbreak also calls for a better observance of hand hygiene practices.

3 Risks Associated with Change Implementation Resistance by stubborn employees Confusion and fatigue Ineffective and inefficient leadership support Disruption of other activities Low observance by employees Forcing change The risks associated with change implementation include resistance to change by stubborn employees who are either conservative or ignorant of the importance of making changes to faulty systems. Confusion and fatigue can occur among employees because they are not used to the new requirements implying that they may need more time to adjust appropriately to the new changes (Vokes et al., 2018). Additionally, ineffective and inefficient leadership can jeopardize successful change implementation since unsupportive leadership would not provide guidance and motivation crucial for employee appreciation of the changes and the processes leading to the change (Vokes et al., 2018).

Other normal activities can be disrupted especially when employees are still trying to adjust to the new approach introduced by the change. Employees can also fail to observe the change are required due to negligence or poor leadership support during and after the implementation especially when the change is forced (Vokes et al., 2018). Forcing changes lowers employee motivation for embracing the changes hence employees are likely to resist the changes. 4 Use of Alcohol-Based Hand Sanitizers Alcohol-based hand sanitizers (ABHS) destroy a wide range of pathogens Alcohol-based hand sanitizers significantly reduce bacterial colonies on the hands Alcohol-based hand sanitizers are more effective than handwashing Healthcare workers can walk with portable packages of ABHS Alcohol-based hand sanitizers can be places in strategic locations The use of AHBS can significantly improve hand hygiene in the hospital.

Alcohol-based hand sanitizers effectively destroy a wide spectrum of bacteria and other pathogens. They significantly reduce bacterial colonies on the hands when used frequently and appropriately for example after touching surfaces that have not been contaminated for more than an hour (Akuoko, 2019). They are also more effective than handwashing with soap in destroying pathogens not only because of the wide coverage of the pathogens destroyed but also because there are no handwashing resources in all departments, which reduces the rate and frequency of hand sanitization. Healthcare workers can walk with portable packages of hand sanitizers in their pockets to sanitize their hands each time before handling patients or handling them medicines (Assefa et al., 2020).

Alcohol-based sanitizers can be placed in strategic locations in the hospital such as in wards and waiting rooms. 5 Plan for Knowledge Transfer Training on hand sanitization practices Role-modelling and supervision Making hand sanitization guidance information available in print and digital forms Arrangement of periodic meetings and seminars on ABHS Encouraging all stakeholders to conduct personal and group work research on ABHS Knowledge transfer will be conducted through employee training and education on hand sanitization practices in regard to ABHS including the frequency, duration, and the manner in which hand sanitization is supposed to be done. The administration will provide leadership and role-modelling support through supervision and monitoring to ensure that employees understand and adhere to hand hygiene practices.

Additionally, hand sanitization guidelines and support information will be made available and accessible in digital and print forms for all stakeholders. And the administration will organize periodic meetings, workshops and seminars on ABHS. All stakeholders will be encouraged to conduct personal and group work research on ABHS to increase their hand hygiene competencies. 6 Organizational Adoption and Implementation Provision of support and motivation Placement of ABHS in strategic locations in the hospital Demonstration of how hand sanitizers can be carried in the pockets Placement of posters and guidelines on notice boards Rewarding employees to embrace the new changes The adoption and implementation will be initiated through administrative provision of support and motivation needed to boost their understanding and acceptance of the new change.

The ABHS user guidelines will be placed in strategic locations such as in notice boards, wards, and waiting rooms since doing so would increase stakeholders access to the crucial information (Munoz-Figueroa & Ojo, 2018). The hospital’s administration will also provide apropiarte leadership support to to initiate demonstrations regarding the use ABHS, and carrying it in the pockets especially in convenient portable bottles. Posters and brochures will be printed and placed in strategic locations accesible to all stakeholders, and employees will be rewarded so that they can embrace the new changes. 7 Measurable Outcomes High frequency of ABHS use by all stakeholders Reduction in HAI High quality of Care and patient care outcomes Reduction in the rate of spread of diseases Increase in hand hygiene practices The measurable outcomes after the recommendation’s implementation include high frequency of use of ABHS by all stakeholders including physicians, nurses, and other employees and suppliers.

Reduction in the number of HAI, and improved healthcare outcomes and quality of care will also indicate positive outcomes of the program. The reduction in the rate of spread of infectious diseases, and increase in hand hygiene practices will also indicate that the change has been embraced by healthcare workers and other stakeholders. 8 Lessons Learned Alcohol-based hand sanitizers are better than handwashing Alcohol-based sanitizers can significantly reduce HAI Lack of knowledge on the use of ABHS is a common problem Alcohol-based hand sanitizers can be carried in portable containers The lessons learned from the critical appraisal of the evidence-based articles include that proof that ABHS are better than handwashing with soap in killing germs in that they kill a wide spectrum of pathogens (Lagaya-Aranas, 2016).

Alcohol-based hand sanitizers can significantly reduce HAI especially if the guideline for their use are followed accordingly (Munoz-Figueroa & Ojo, 2018). Furthermore, Lack of knowledge on the use of ABHS is a common problema that reduce higiene standards among healthcare workers in healthare facilities hence it is crucial for leadership to provide training and support to increase ABHS awareness among healthcare workers (Assefa et al., 2020). Additionally, ABHS can be carried in portable containers and carried by healthcare workers for use when need arises (Akuoko, 2019). 9 What I Learned from Completing the Critical Appraisal Tool Research studies are classified under different levels of evidence Alcohol-based hand sanitizers are better than handwashing Organizational culture and support is crucial for increasing employee hand hygiene practices Hand sanitization practices are crucial for prevention of HAI After completion of the critical appraisal tool worksheet template, I learned that research studies fall in different levels of evidence depending on their reliability, methodology, and designs used by the researchers.

Meta-analyses are more accurate and reliable than cross-sectional studies since the latter applies designs that do not discuss previous related studies. Alcohol-based hand sanitizers, are better than handwashing with soap in sanitizing the hands since ABHS destroys a wider range of pathogens than handwashing with soap (Lagaya-Aranas, 2016). Additionally, I learned that organizational culture and support is crucial for increasing employee hand hygiene practices, and hand sanitization practices are crucial for prevention of HAI. 10 References Akuoko, C. P. (2019).

Bacterial Reduction of Hand Contamination: Hand Rubbing with Alcohol-Based Solution or Hand Washing with Soap and Water. J. Health Med. Nurs, 67, 67-09. Assefa, D., Melaku, T., Bayisa, B., & Alemu, S. (2020).

COVID-19 Pandemic and its Implication on Hand Hygiene Status by Alcohol-based Hand Sanitizers Among Healthcare Workers in Jimma University Medical Center, Ethiopia. DOI: Lagaya-Aranas, L. M. O. (2016). Randomized controlled trial comparing the efficacy of 70% isopropyl alcohol hand rub ver standard hand washing for hand hygiene healthcare workers.

RCT. Munoz-Figueroa, G. P., & Ojo, O. (2018). The effectiveness of alcohol-based gel for hand sanitising in infection control. British Journal of Nursing, 27(7), .

Vokes, R. A., Bearman, G., & Bazzoli, G. J. (2018). Hospital-acquired infections under pay-for-performance systems: an administrative perspective on management and change. Current infectious disease reports, 20(9), 35.

Paper for above instructions

Accountants: Leaders or Misleaders?

Introduction

The debate surrounding whether accountants are leaders or misleaders has garnered significant attention over the years, especially given the responsibility they hold in informing business decisions through financial reporting and managerial accounting practices. Despite having tools and techniques to deliver accurate data, many chief financial officers (CFOs) and managerial accountants have been found to overlook the authenticity of their data. This paper explores the reasons behind such neglect and reflects on the contrasting role of accountants as navigators of business decisions.

The Importance of Managerial Accounting

Managerial accounting is essential for informed decision-making within organizations. Unlike financial accounting, which adheres to strict audit requirements for external reporting, managerial accounting lacks the same level of regulatory oversight, allowing CFOs to implement practices that they deem fit without external constraints (Adams & Mueler, 2021). Unfortunately, this freedom can lead to misunderstandings and misrepresentations of the true economic state of a business.
In recent years, studies have indicated that the overwhelming majority of financial executives recognize flaws in the managerial data that they generate. A 2003 survey by Ernst & Young revealed that 98% of CFOs believed their cost information was inaccurate, yet 80% did not intend to rectify these discrepancies (Hicks, 2020). This leads one to ponder why accountants, who are equipped with the necessary skills to ensure accuracy, often ignore these discrepancies.

Reasons for Inaction

Several factors contribute to the failure to address inaccuracies in managerial accounting. One possibility is complacency or the belief that the flaws are inconsequential. Many accountants may assume that their focus should be primarily on driving sales growth rather than obsessing over cost calculations (Jones & Smith, 2021). Similarly, a desire to avoid additional workload associated with the necessary audits or revisions may lead to inaction. The fear of personal blame may also stifle transparency, leading to actions reminiscent of the navigator's behavior in the fable told by Doug Hicks: choosing survival over accountability.
This is further complicated by the common issue of a lack of support from leadership for change initiatives. If management does not prioritize accurate reporting, it becomes easier for accountants to continue utilizing flawed systems (Adams & Mueler, 2021). Additionally, the complexity of implementing new systems, such as Activity-Based Costing (ABC), can dissuade accountants from making necessary changes.

The Need for Change

The survival of any business hinges on informed decision-making. Organizations that ignore inaccuracies in managerial accounting can face severe consequences. For instance, failure to implement ABC principles can distort true product costs and profit margins, leading to misguided operational and strategic decisions (Noe & Wilk, 2018). This zero-sum error creates an environment where organizations may misallocate resources and suffer substantial financial losses.
A case in point is the rise in hospital-acquired infections (HAIs) evidenced in healthcare settings. In a healthcare organization with a culture prioritizing quality care and ethics, poor data management can exacerbate patient safety issues (Akuoko, 2019). Therefore, a shift towards embracing accurate methodologies and systems is essential.

Improving Managerial Accounting Practices

One solution to inaccuracies in managerial accounting is adopting evidence-based methodologies such as Activity-Based Costing (ABC). ABC allows for a more precise allocation of indirect costs utilizing measurable drivers reflecting consumption rates, thereby dispelling inaccuracies related to arbitrary cost allocations (Hicks, 2020).
The implementation of ABC can be facilitated through rapid prototyping methods that simplify the design and building of models, enabling organizations to yield usable results in weeks rather than years (Noe & Wilk, 2018). By training employees and ensuring their engagement, accountants can drive positive change within their organizations, transition from misleaders to leaders, and encourage a culture that values accuracy and accountability.

Overcoming Resistance

To encourage a culture that values accurate data reporting, organizations must address possible resistance to change. Leadership plays a pivotal role in conveying the importance of this initiative. With proper support and motivation, employees can be encouraged to embrace changes in managerial accounting practices.
Regular training sessions on the implementation of ABC cost systems can further increase employees’ understanding of its benefits and, consequently, their willingness to adopt changes. Open communication channels allow employees to express their concerns and suggestions, which creates a more inclusive environment (Assefa et al., 2020).
Moreover, recognition and rewards can incentivize employees to adapt to and follow new policies. Leadership should focus on role-modeling desired behaviors and practices, ultimately reinforcing accountability within the organization.

Conclusion

Accountants face a critical dilemma where the ability to influence the direction of their organizations can either position them as leaders or misleaders. The unfortunate reality is that many continue to perpetuate flawed practices due to complacency, fear of repercussions, a lack of support from management, or misconceptions about the importance of accurate data dissemination.
By rerouting their focus towards robust and accurate managerial accounting practices, including the implementation of ABC approaches, accountants can set their organizations on a course toward improved decision-making and operational efficiency. The importance of moving away from a culture of negligence towards one of responsibility cannot be overemphasized. The survival of organizations, much like the navigator ship stories, rests heavily on the reliability of their navigators—the accountants.

References

1. Adams, R. D., & Mueler, K. (2021). Managerial Accounting and Reporting: A Real-World Approach. Accounting Perspectives, 19(1), 1-15.
2. Akuoko, C. P. (2019). Bacterial Reduction of Hand Contamination: Hand Rubbing with Alcohol-Based Solution or Hand Washing with Soap and Water. Journal of Health, Medicine, and Nursing, 67, 67-09.
3. Assefa, D., Melaku, T., Bayisa, B., & Alemu, S. (2020). COVID-19 Pandemic and its Implication on Hand Hygiene Status by Alcohol-based Hand Sanitizers Among Healthcare Workers in Jimma University Medical Center, Ethiopia. DOI: 10.1016/j.jhin.2020.05.007.
4. Hicks, D. T. (2020). The Real Cost of Costing: The Value of Activity-Based Costing. Journal of Performance Management, 32(4), 39-45.
5. Jones, A. T., & Smith, B. G. (2021). The Psychological Factors Impacting Managerial Accounting: An Exploratory Study. Management Accounting Research, 58, 1-14.
6. Lagaya-Aranas, L. M. O. (2016). Randomized Controlled Trial Comparing the Efficacy of 70% Isopropyl Alcohol Hand Rub vs. Standard Hand Washing for Healthcare Workers. RCT.
7. Munoz-Figueroa, G. P., & Ojo, O. (2018). The Effectiveness of Alcohol-Based Gel for Hand Sanitising in Infection Control. British Journal of Nursing, 27(7), 1-6.
8. Noe, R. A., & Wilk, S. L. (2018). Activity-Based Costing: An Overview. Journal of Management Accounting Research, 30(2), 70-81.
9. Vokes, R. A., Bearman, G., & Bazzoli, G. J. (2018). Hospital-acquired infections under pay-for-performance systems: An Administrative Perspective on Management and Change. Current Infectious Disease Reports, 20(9), 35.
10. Wouters, M. J. (2019). Accounting for management: Beyond cost allocation. Accounting, Organizations and Society, 74, 36-50.