The Impact of Cost-Based Accounting on Crop Farming

Introduction 

Agriculture is a major industry in the United States of America. The industry is now a net exporter of food. It implies that although the United States of America is a nation which highly industrialized, crop farming is still a significant activity in the country. There are people who engage in large-scale crop farming within the country. Considering the costs involved in crop farming, there is always high demand for good management practices to enjoy success. Managerial accounting is a function that has immense relevance in crop farming. The purpose of this paper is to discuss the impact of managerial accounting, from the perspective of cost-based accounting, on crop farming in the country. 

Cost-Based Accounting in Crop Farming 

Background Information 

In the context of crop farming, cost accounting refers to the full activity of valuing the environmental as well as social expenses and benefits from processes which are external to the market. Cost accounting is a central function of managerial responsibility since it helps in formulation an informed and logical decision regarding business and activities. It is understandable that cost-based accounting has got high relevance in crop farming within the United States of America since agriculture normally has environmental costs and benefits which have to be evaluated critically ( Bonsch et al., 2016) . Therefore, in crop farming, managerial accounting based on cost analysis focuses on activities that are non-market in nature. Some of the factors analyzed in this case include the negative environmental externalities. 

Application in Crop Farming 

Understanding the total net economic value of a crop farming project is useful for the farmers. There are various concepts which constitute the practice of cost-based accounting in agriculture. One of them is direct use value. The value of the land resource on which crop farming takes place is quite significant in this analysis. It is notable that whereas the agricultural land is able to produce crops, it cannot generate biomass for energy production. There is also the indirect use value, which refers to the ecological benefit and cost of crop farming. Indirect use value may include bio-diversity and protecting the water-sheds from the issue of siltation. Another indirect use value is carbon sequestration. All these factors make up the economic value of farm cropping. 

As the wills of globalisation continue to grind bring the world together, discussions over the need for convergence of the national and international accounting standards continues to rage. A lot of the major capital markets are now on the path of working for the development of single globally accepted accounting as well as auditing standards. These efforts are however always limited by the presence of compliance challenges for most corporations. There are always substantial barriers to the adoption and implementation of international standards. 

Researchers agreeably acknowledge the benefits of having globally consistent and accepted financial systems and practices like accounting standards. For instance, it is accepted that globally consistent accounting standards offer benefits like cost-efficiencies to the business organisations. They also offer huge safeguards to the public that relies on proper bookkeeping to analyse company performance. The members of the public need to have confidence and trust in the bookkeeping practices of corporations to the extent that they understand wherever a given business transaction takes place; similar high quality accounting standards are applied. In the modern world, investors are highly interested in diversifying their investments both geographically and in terms of industries ( Chambers, Lal & Paustian, 2016) . When considering options for diversifying their investments, investors need standardised financial reports to inform their decisions and for comparison. It means that the international accounting standards can lead to economic expansion across the world and boost the process of globalisation. 

In itself, the process of farming involves many and diverse costs incurred. Expenses in the farms exist and are regarded as the direct costs to the farmer. For the expenses which are incurred in the crop farms, they are not always tracked since the emergence with the occurrence of the farming process. However, the many indirect costs related to crop farming in the United States of America are monitored through managerial accounting based on cost-analysis. Through managerial accounting that is premised on cost-analysis, the farm managers in the United States of America are able to view their agricultural activities as a function of expenses, incomes and costs. The expenses and incomes are dependent on factors like the number of acres and units of yields. 

Companies dislike the fact that the IFRS standards are always changed making organisation to stay in a perennial change mode. This scenario is quite detrimental to normal business of a company since employees like using systems they are accustomed to at the workplace. Once changes are introduced at high frequency, compliance becomes difficult and uneconomical. Therefore, many organisations decide to disregard some of the changes to the provisions of IFRS. 

Managerial accountants are tied by important international as well as national ethical standards, which they must obey while doing company auditing and accounting work. The accounting and auditing ethics prohibits falsifying financial reports. In fact, false reporting is one of the major crimes in the field of managerial accounting. Accountants are normally bound by strong ethical codes, which demand high standards of integrity and fidelity to the functions of the offices they hold ( Burke & Emerick, 2016) . It is important to also note that managerial accountants are not loyal to any person other than the ethical codes, which provide standards of behavior to be observed. 

Despite the substantial attention on the challenges which limit the adoption and implementation of IFRS across the world by companies, most of the factors examined are those that revolve around the use of these requirements. No research acknowledges the fact that there are country-specific factors which act as major challenges to the adoption and implementation of the international standards. It is important to consider the case of United States where many multinational corporations are shifting their operations to today. The national financial laws and regulations of United States significantly and uniquely affect bookkeeping, which makes it difficult to adopt the IFRS requirements. The proposed research will be filling this informational gap in literature. 

At the global level, there have been major developments implemented on the accounting standards for corporations especially from the time of the Global Financial Crisis. International accountancy institutions have been proposing and implementing new policies and standards for organisations across the world to follow. There are also developed audit regulations for companies which are implemented by international accountancy groups. Understandably, the Global Financial Crisis of 2007-2009 proved that the financial system is now global in terms of its impact. The whole world was significantly affected by the financial crisis and some countries almost went on their knees because of bankruptcy. Today, all people accept that the financial situation which exists in one country is affected and affects developments in other nations. 

Importantly, despite the presence of the international accountancy groups which set bookkeeping practices, the accounting regulations and policies implemented in one country affects other countries and foreign corporations. This fact has shown the need for far greater coordination to be done among the accountancy regulators on the international level to mitigate future financial crises. There is little information on the ways companies can surmount these challenges. Research works existing in literature focus on establishing the effectiveness and efficiency of the IFRSs by describing the benefits and disadvantages. It is important to find out the main challenges limiting adoption of the IFRSs and suggesting some of the solutions that must be implemented. This particular study identified the main challenges affecting the adoption of IFRSs and gave suggestion on possible solutions. Believably, these propositions will be considered by the relevant policy makers and be used to improve the usability of the IFRSs. For instance, there should be some of level of consistency in the standards developed rather than frequent changes. 

Impact of Cost-Based Accounting on Crop-Farming in U.S.A 

The impact of cost-based accounting in the United States crop farming industry is significant. Through cost-based accounting, the management of an agricultural company is able to evaluate and determine the total economic value of a given crop. Once the total economic value of farming a given crop is established, one can logically decide whether to farm it or not based on the benefits and costs identified ( Clark & Tilman, 2017). . These non-market costs and benefits of a crop cannot be established without the use of cost-based accounting method. Therefore, managerial accounting leads to the choice of crops which have the high benefits in the country. 

Managerial accounting based on cost analysis makes the policy makers and farmers to look are areas of environmental priority while farming. There are crops which can be banned from being grown on farms in the United States because of their negative impacts on the soil ( Sobota et al., 2015) . It is also important to note the significance of developing effective and environment friendly ways of nurturing the crops. Through managerial accounting, methods like non-symbiotic nitrogen fixation can be considered. There are different lessons notable from this case study. The first key lesson from this case study is the fact that financial information is crucial for sound decisions about cash balances to hold and credit line amount to take from banks ( Daioglou et al., 2016) . It was evident from the analysis of this case study that firms cannot just decide to take short-term loans without care to deep analysis of financial performance information to decide a debt level, which is manageable. It was interesting to learn from this case study that firms must always develop and keep regularly updated financial statements like cash budgets, income statements and balance sheets ( Tang, Kragt, Hailu & Ma, 2016). These statements serve the significant purpose of ensuring maintenance of good funds management. 

The second lesson from this case study was the challenge experienced by seasonal businesses. It was enlightening to learn that firms are relying on seasonal events like tourism and hospitality experience fluctuations in their cash flows ( Gunders & Bloom, 2017) . A key point learnt from this case study was that cash budgets are quite instrumental for firms, which experience seasonal business peaks. Seasonal businesses demand adaptation to the processes. For example, expenses have to be structured in a manner, which conforms to the available revenue level. It is the reason companies lay off workers during low business seasons and recall them in the course of the peak period. For instance, the labour costs at crop farms in the months of April, May and June are lower than between January and March because of the decision to reduce the workforce size. Such a decision must have been taken with a view of matching expenses to available revenues. 

Finally, the importance of diversification in business was the third key point learnt from this case study. Diversification means investment in various lines of business to overcome shocks in one industry ( Canter, 2018) . It was learnt that agricultural companies would survive easily if they opened other lines of business away from the mainstream crop farming activity sector. The diversification plan would enable it to still have stable cash inflows even when there is much skiing in winter months. Some firms dealing with seasonal businesses usually close their shops when the market falls in terms of demand. 

Conclusion 

The analysis of crop farming based on managerial cost accounting leads to conclusion that cash-flow management is a critical function in any business entity. Liquidity of a crop farmer is maintained through ensuring close watch of the cash in-flows and out-flows in the farm. It is evident from this case study that credit lines are also essential in the general goal of ensuring good liquidity of a farmer. However, the decision to take credit line must be premised on financial due diligence. This due diligence entails keen analysis of the crop farmer’s target cash balance and existing liability level. This decision must also be based on analysis of balance sheet and income statement of the farmer, focusing on the current ratio level. Ability to repay a debt is always the determinant of amount to be taken in credit line. 

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