Accountants are key partners in overall business success. Management accounting has recently advanced due to continuous evolution in technology regarding access to operational and financial data. In most cases, accountant use historical data in their operations. According to Nobes (2011), recent trends require accountants to provide information on a real time basis to foresee business needs. Generally accepted accounting principles (GAAP) focus on historical costs. However, to make financial reports timely, generally accepted accounting principles should focus on real time and fair value reporting principles compared to historical cost.
Historical cost in accounting implies that an asset is recorded in the balance sheet based on its original price. Factors such as asset depreciation, appreciation, mark-to-market and impairment should be considered and thus recorded according to real value. For example, if materials were bought in 2015 at a price of $ 2000, they would have depreciated after some years and thus real time cost should be recorded on the balance sheet compared to the original price ( Welborn, 2012) . In instances where a company purchases an asset such as land, after a few years, the price would have increased. Thus, real time cost should be recorded to provide guidance to effective communication regarding company’s assets to shareholders ( Nobes, 2011) . In addition, raw materials, inventory and labor costs should be recorded on a real time value to ensure fair reporting without material misstatements.
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Mark-to-market approach ensures that raw materials, inventories cost and assets are recorded according to the market value thus outlining a true reflection of the company’s worth ( Welborn, 2012) . In some instances, impairment such as loss of goodwill may occur; hence, raw materials, assets, labor and inventory cost should be recorded on a fair and real time basis.
References
Nobes, C. (2011). Towards a general model of the reasons for international differences in financial reporting. Abacus , 34 (2), 162-187.
Welborn, I. (2012). Fundamental Accounting Principles. Issues in Accounting Education , 17 (2), 219.
