The core principles of accounting

The old fashioned principles of accounting are no longer central to modern accounting and accounting education ... in fact they have been sidelined. The reason is quite simple ... most of the leadership of our global society favors a regime of minimal accountability that allows greed to flourish.

Demise of data

I thought this was a joke ... “My mind's made up ... don't confuse me with facts” ... but first in corporate management and then in politics and in society at large, this was a common mindset.

And increasingly as well ... “I know what I am doing ... and God forbid that anyone would try to hold me accountable!”

The central point to accounting is to get data about facts into a record that is reliable. How it is done is very much a secondary level set of issues. The data are neutral ... and they are about facts. Measuring facts may be difficult ... but accounting aims to have data about facts on the record. When you have data ... there can be analysis ... and reports ... and conclusions. And if there is organizational structure there can also be decisions and improved performance.

The point of accountancy

The point of accountancy is the use data that costs as little as possible to create value that is the biggest possible. This is what has been central to accountancy for a very long time and has served the (limited) objectives of profit maximizing business and capital markets very well. TVM Value Accountancy has the same central idea, except that the goal is to create the maximum of social value. Accountancy collects and organizes data in a systemic way ... data that are neutral and representative of reality.

Double entry

Double entry is a powerful idea, now almost 500 years old ... and perhaps somewhat diminished in its importance with the use of computerized accountancy over the past 40 years. There are two sorts of accounts that together balance ... (A) Balance Sheet Accounts; and, (B) Income and Expenditure Accounts. Changes in the balance sheet accounts over a period are the same as the difference between income and expenditure over the same period.

In corporate accounting the accounting is about the activities of the organization. In TVM Value Accountancy the accounting is for the activities of the Community and embraces everything. This concept of “balancing the books” has deep significance for the control of economic resources. It is a whole lot more than the accountancy done as a step towards filing a tax return or satisfying a legal requirement imposed by some regulatory agency. Balancing the books helps to identify problems in the activities of an economic entity through the simple process of equating what has been used with what has been achieved ... and if this is not right, something needs to be addressed.

Data neutrality

A critical strength of accountancy is that it produces data that are neutral,. The use of these data may prove a point or support an opinion ... but the data are neutral. This is a fundamental of good professional accounting and is key to the system being of value. Old fashioned corporate accountancy had rules and conduct, both professional and internal to ensure that data are neutral and correct. Now Community Accountancy must do the same.

In good accountancy data are neutral ... they merely are a reflection of something that has reality. Data may have economic characteristics, or represent any other piece of reality. Taken together, these data make a picture. But the data have to be neutral, and reflect as much as possible what is reality. This is in stark contrast to the aggressive use of financial engineering to create the appearance of value merely by re-presenting the reality. It may fool some of the time ... but not everyone all of the time. Old fashioned accountancy based on certain key principles helped to keep financial reports reliable and understandable ... but legislation and rules have sometimes worked to make wrong accounting legal and allowable. These situations have usual had the support of powerful interests ... but this does not make the accounting right ... just legal!

Financial statements

Financial statements are simple considering what they communicate. In a few short pages, financial statements convey a huge amount about the financial status and performance of the reporting entity. Many millions of transactions are condensed into a few summary totals that are (relatively) easy to understand. Financial statements comprise balance sheet and operating statement that together tell the story of the financial state of the entity and the operating performance of the entity. Most entities will also report in a cash flow format, and there are various requirements and reasons for having notes and explanations as well.

The balance sheet is one of the most powerful analysis tools in accountancy ... critical for financial analysis, especially in complex situations. A balance sheet is accountancy shorthand to describe the financial conditions of an organizational entity. It shows assets and liabilities and explains how the difference between hem came about. A balance sheet is an efficient way of showing with very few numbers the impact of thousands or millions of individual financial or economic transactions and comparing the balance sheet from different dates makes it possible to measure progress very tangibly and very easily.

Incomplete records

The logic of double entry and the framework comprising balance sheet accounts and profit and loss accounts that describe status, change in status and the cost and value or revenue of activities makes it possible to draw conclusions about missing elements using what is known.

While it is better to have a complete set of data, important conclusions can be drawn from only a subset of all the data.

Because of the balancing principle it is possible to prepare a complete presentation of financial performance without having all the data. It is also possible to validate the coherence of the data. In practice this means that Community Accountancy can build a useful picture of community progress without having all the details.

Accrual accounting

Accrual accounting is used in the business world because it matches the expenses and the revenues within a reporting period so that the profit results are not distorted. This type of accounting has been the norm for commercial and industrial entity accounting since early in the industrial revolution ... but has not been used in most governmental entities.

Cash basis for government accounting!

The principles associated with accrual accounting are clear, but in some government accountancy (such as the United States) the statutory authorities and the regulators have seen fit to suspend the accrual principles and allow important assets and liabilities not to be recorded in the balance sheet accounts. How convenient!

TVM Value Accountancy uses the accrual principles, applying these concepts not only to the money dimension of the accounting but also to the value dimension. This has many benefits, notably bringing into account future impact of present activities, both beneficial and detrimental. Consolidations and value chains

Consolidation accounting is a part of this paper because hardly anything is as simple as it seems, and consolidation accounting has the essential critical logic that helps to sort this complexity into its component parts. Community is impacted by many different economic entities and activities, and the way in which these interact and are recorded has been defined comprehensively in the accounting principles associated with consolidations.

Very few transactions are simple an have impact only on the direct participants ... most have other ramifications which are important in the money accounting of the business world, but have even more importance in the context of the combined flows of value and money around the community.

Modern corporate accountancy is complex. Most of the rules apply to the way an organizations reports to the financial stakeholders and, to a much lesser degree, to the public. These reports are the result of complex consolidation that takes into consideration the way the internal and external value chains impact costs, revenues and profits.

Managing these value chains makes it possible for a corporate organization to minimize its exposure to taxes, duties and other regulations that impact its financial performance ... and understanding and having data about value chains makes it possible for the public to hold organizations accountable for their performance in the community and towards society as a whole.

Materiality

In good accountancy, the data have utility and value in part because of the way data are organized. They help make it possible to focus on what is important. Good accountancy includes analysis about what is going to make a difference, without burying in costly inconsequential detail. TVM Value Accountancy does this for things that are important for the community ... with the purpose of having these data is to get something done that improves the status of the community. Modern society is drowned in information that tells us a lot about unimportant matters ... while there is very little reliable information about matters that are very important. But many analysts do not realize how much time and effort they spend on matters that will have no impact on performance. And if the analyst does not understand what is material ... what hope is there that they will understand anything. Materiality is the concept that helps focus effort and analysis on issues that matter. The accountancy version of “Don't sweat the small things!” There are many examples including reports that include cents in multi-million dollar tables, a sure sign that the analyst does not understand materiality.

Accountancy ... a system

Corporate Accountancy is a system, and TVM Value Accountancy is a variant of this system. Both based on the same basic principles for record keeping and accounts that have been used for several centuries. Accountancy has universality, but we have become accustomed to seeing accountancy being used only in an organizational setting, whether it is a company, or in government or an NGO ... and in recent years accountancy has been used creatively without respect for basic principles.

But the powerful logic of accountancy applies wherever there are economic transactions and it is logical to apply the principles of accountancy to the Community and the public in much the same way that the system applies to an organization and its stakeholders.

2-2 SOME CONCEPTS FROM ENGINEERING

History

It would seem that accounting is very old ... there has always been a need for fairness in socioeconomic affairs, and equitable transactions must always have had a role in human interaction. Keeping track has a long history ... and hiding wealth and covering ones tracks has an equally long history.

A fusion of several disciplines

TVM Value Accountancy is a fusion of some of the key principles of engineering, management, human behavior and accountancy. The key characteristics of engineering that are incorporated into TVM Value Accountancy come mainly from engineering thermodynamics, control theory, hydraulics and aerodynamics. Ideas from the area of management relate to how get knowledge converted into value.Ideas from human behavior are included because, if not, the chance of anything being of value is very much diminished.

Principles from the established field of corporate accountancy are used because they are are surprisingly close to what is needed ... and simply need some modest modification to make them work for society as a whole rather than merely for the corporate subset of society.

Audit

In old fashioned accountancy ... the audit opinion, the statutory audit opinion, was simply that the financial report was a true and fair view of the entity and that the report reflected the underlying vouchers and records. It was nothing more than this.

Data reliability

The data associated with accountancy are boring ... but the system does what it can to ensure that the data are reliable and may be trusted. The techniques used for this include organization so that there is both internal control and internal check. The quality of accountancy data are enhanced by the professionalism of accountants who address the details that is so essential to data reliability. The data reliability of accountancy is very much greater than what may be achieved using statistical method on top of small surveys. While there is a case for the statistical approach in some limited circumstances, it is not a useful alternative for financial control and for most accountancy reporting purposes.

Data independence ... accounting independence

There is a need to have data ... and accounting ... independent. This helps to ensure that the data and the accounting reports reflect reality and are not merely some fiction desired by operating management. There are many different approaches that can be taken to have this independence ... it is, however, usually not enough to have an independent audit to provide this independent view when the structure itself is deeply flawed.

Inadequate independence

Most accounting data originate in an operating environment. In the relief and development industry most activities are funded by donors who want feedback, and frequently donors fund Monitoring and Evaluation (M&E) to get this feedback ... but is this good enough. In some cases it is not, and in other cases the feedback is appropriate ... but there is no systemic internal control or internal check that ensures that the data are reliable and neutral.

Modularity

Modularity helps make something manageable ... and makes it useful more rapidly. This is applied in TVM Value Accountancy to make little things useful while waiting for other detail. In the TVM Value Accountancy framework the community data can be worked on section by section ... bits of the economic activity analysis can be done. Modularity helps make something manageable ... and makes it useful more rapidly. This can be applied in TVM Value Accountancy to make little things useful while waiting for everything to be deployed.

Efficiency

Efficiency comes more from engineering than from accountancy ... but the idea is very relevant. Productivity is something similar to efficiency, as is cost effectiveness. In each case the amount of output is being related to the amount of input that went into the activity and its result.

Cost of TVM Value Accountancy

The cost of TVM value accountancy must be small relative to the economic activities that are going on. Because TVM value accountancy aims to be useful in low income communities, the cost of the system is designed to be very very low ... and using only ultra low cost technology and systems. A good accounting system does not come free, but it should not be excessively expensive. Good design especially of analytical codes helps to reduce cost without sacrificing analytical power. A TVM Value Accountancy system can be deployed with very low costs making use of existing available infrastructure. Good design, together with effective use of the Internet and relational database systems makes TVM Value Accountancy much lower in cost than its value.

2-3 SOME MORE ACCOUNTING CONCEPTS

Accounting ... the idea of accounts

The origin of an account probably goes back to the idea that a responsible person had to give an account ... an accounting for what had happened. In practical terms an account in accounting is a critical part of the way accounting gets data organized.

Account codes

Account codes identify accounts ... just as account names identify accounts. Codes can make it easier to process transaction data automatically, as long as the account code designers have some understanding of computer logic and sorting.

Depreciation

Depreciation brings together both an economic reality and an accounting principle. Some things last for a long time, some last for less time. The time they last and can function economically is the economic life of the thing. The cost when the thing is new is the acquisition cost, but the cost or using this thing in any period is the acquisition cost divided by its economic life.

A basic principle of accounting is that revenues for a period are matched against the costs of generating those revenues in the period.

Cash based accounting

Cash based accounting is common in government organizations. The US uses a cash based system. These systems have become intertwined with budget procedures ... have become increasingly complex and legalistic and increasingly seem to be inadequate to control funds and achieve any reasonable level of accountability for anything. Cash based accounting in government is one of the weakest aspects of modern governance and makes a mockery of responsible financial management ... which is almost certainly the big reason why it has remained the favored system of accounting in government.

Some countries have moved away from cash based systems in order to get better control of the financial management of government ... notably New Zealand, Australia and the UK. The move from cash based to more accrual based accounting is a substantial change with the potential for much confusion.

TVM Value accounting can learn from the large scale government accounting experience ... and have an easier time simply because the scale is more manageable.

About consolidations

The reason why consolidation accounting is an integral part of this paper is simply that a community is impacted by many different economic entities and activities, and the way in which these interact has already been defined comprehensively in the accounting principles associated with consolidations.

Very few transactions are simple an have impact only on the direct participants ... most have other ramifications which are important in the money accounting of the business world, but have even more importance in the context of the combined flows of value and money around the community.

Consolidation

The consolidation technique makes it possible for complex organizations to aggregate their financial reporting so that a single report gives a fair representation of the underlying operations.

As the organization becomes more complex, the scope for planned misrepresentation increases. What is powerful and useful for the corporate style GAAP accounting is equally of importance and useful in developing metrics for community impact analysis.

For organization accounting the idea of consolidation is to be able to present in one report the combined activities and results of many entities or units.

For TVM Value Accountancy the idea of consolidation is the same. A simple consolidation report can summarize the outcome of man different activities and organizations in a community.

Consolidating statements

In GAAP accounting a consolidating statement is used to help analysts understand how the data for the consolidated reports were aggregated, and to give a profile of the performance of the organization.

The same sort of report is useful in the community to show what entities in the community are creating wealth and which are not.

In organization accounting, consolidating statements show how different units make up the consolidated results.

For TVM Value Accountancy a consolidating statement shows similar information. A consolidating statement shows what is working and what is not.

Rules about consolidations

In GAAP accounting there are strong rules about how consolidations are done ... but the strong rules are also complex and subject to many views about what is permitted. Where there is complexity it is possible for clarity to disappear.

Some of the same issues arise in TVM Value Accountancy where the focus is on activities in a community. Under TVM Value Accountancy, the aim is to highlight alternatives rather than to argue simply for the one approach. The principles of consolidation accounting are quite clear. However law and practical complexity make consolidation accounting difficult, and in turn less and less useful. For TVM Value Accountancy the basic principles of consolidation accounting apply.

TVM Value Accountancy aims to keep complexity to a minimum so that reports can be easily understood and have value to the public.

2-4 CENTRALITY OF DATA

How do you measure

It usually is very easy to know what to measure if two things are known: (1) what are the goals or objectives; ad (2) what is the technology or science that is or may be used. Measure what is Simply put ... measure what makes sense.

How to measure

Cost is easy. Price is easy. Value is more difficult ... and all the more reason for having it central to the analysis system, and being able to prepare reports that look at results from different perspectives.

What does measurement tell you

The first thing is that what is measured is often what you are trying to do ... so when activities are measured and not impact, it can be concluded that the activities have priority over results. This is a widespread problem that TVM Value Accountancy addresses.

Transactions

Transactions are the elemental economic event ... any economic activity comprises many transactions. Every purchase or sale is a transaction. Production is a transaction. Consumption is a transaction. Movement is a transaction. Everything.

TVM Value Accountancy provides a framework so that small amounts of data can be used to build up a complete picture of the impact that economic activities are having on the community and how much resources are being used to give what result ... whether value adding or value destroying.

Voucher

A voucher is a document or record of some sort that describes the transaction. It may be a document that describes the sale ... an invoice ... or it might be a set of papers prepared to evidence the approval of the the transaction.

Journals ... Books of Original Entry

Journals the the books of original entry are the first step in traditional accountancy for getting the details of the transaction organized and on the record. Journals ... or day books ... are essentially lists of transactions ... with ALL transactions being put on the record.

2-5 REPORTING CONCEPTS

Analysis and reporting

The process of collecting, organizing and storing data has a cost, and not much value. But analysis and reporting makes these data valuable and powerful. Analysis may merely confirm that what was expected has happened ... or it may help to deepen understanding and facilitate new and better ways of creating value.

But nothing will happen unless there are reports. Reports should be part of a system and report nothing as reliably as they report something of significance ... in other words accountancy has reports that are not a subset of journalism but are an independent system in their own right.

Balance sheet

The balance sheet is one of the most powerful analysis tools in accountancy ... critical in corporate financial analysis ... but alas, missing in much of public sector financial reporting. A balance sheet is accountancy shorthand that describes the financial conditions of an organizational entity. It shows assets and liabilities and explains how the difference between hem came about.

A balance sheet is an efficient way of showing with very few numbers the impact of thousands or millions of individual financial or economic transactions and comparing the balance sheet from different dates makes it possible to measure progress very tangibly and very easily.

Activity Statement ...

An operating statement or profit and loss account, or income and expenditure account ... all serve to explain the use of resources and what was received in return.

While the balance sheet is useful in describing how much change has happened ... the operating statements serve to explain how the change happened. The operating statements can be in summary ... or in great detail depending on the need for analysis.

An operating statement (profit and loss account or income and expenditure account) shows in summary form all the costs and all the revenues or income in an organized way.

The information from an operating statement shows the way in which the balance sheet has changed. In GAAP accounting these data apply to the corporate organization ... in Community Accountancy, the data include value to the community and social impact.

Cash Flow Statements

A cash flow statement is a clarifying presentation that shows the way cash has been used, and how cash has been acquired.

A cash flow statement repeats much of what is in the P&L statement, excluding transactions that have no cash impact and including transactions that have impact on cash but not on the calculation of profit.

For example:

• Depreciation has an impact on profit reporting, but not on cash.
• Financing has an impact on cash but not on profit.
• Changes in level of inventory have an impact on cash, but not on profit. Use of inventory in cost
• of sales, has an impact on profit.

Notes to Accounts

While good accountancy should be very clear and based on sound accounting principles, there are times when there is a need for some explanation. Notes are an integral part of a set of accounts.

In much of modern accountancy the notes have become very complex, and it is not at all easy to understand the impact of these notes on the financial statements themselves.

National Accounts

The UN System of National Accounts developed in the 1950s expanded the national system of financial statistics to include balance sheet indicators. This was an important improvement of the expanded trade statistics that were previously used ... but the data available for most developing countries is still very limited and also very late. While the data are weak, the willingness of the international institutions to substitute estimates for actuals is problematic at best, and might have contributed directly to some development failure.

Some of the key concepts that are included in the UN System of National Accounts are also embraced by TVM Value Accountancy. The balance sheet is a key concept in TVM Value Accountancy ... but at the community level becomes very understandable and a very simple way of measuring progress. Balance sheet analysis used at the community level provides tangible metrics about progress and specific lessons may be learned. Community Accountancy is to the community what the system of national accounts can be to a nation.

IMPACTS

Making value chains benefit community

The end to end value chains tell interesting stories ... and maybe for this reason are not easy to compile. The value chain works well when everyone is making money, and it matters less in this situation that some party is making a lot of money, while others are making only modest amount.

Things work when everyone is in positive money making territory.

In a situation where one main party is making most of the money ... it is likely that this is reflected in the capital markets as a high valuation of the company's stock ... but this is dangerous.

When attempts are made to make the allocation of money and value fairer with respect to the community, the money making by the one main party gets reduced ... and this in turn reduces the valuation on the capital markets.

Getting equitable distribution of value adding between corporate enterprise and society is not going to be easy ... and there may be major disruption of capital markets as this adjustment proceeds. In corporate accountancy and capital market terms this will be a bad change ... but looked at through the TVM Value Accountancy perspective and including community values it is likely that society will be far ahead.

Making data valuable

There is a wide recognition that knowledge confers power and therefore has value. There are many organizations that have data ... and knowledge ... but these are little used for social benefit, rather, they are used to give the organization some competitive advantage. Community Accountancy aims to make data useful as management information for development ... in a complete comprehensive framework. This is the missing element that is needed to bring the north and the south together for global benefit.

• Getting data ...
• Getting data organized and into a data store where it can easily be accessed ...
• Mobilizing resource so tat they are allocated effectively ... the north has wealth and the resources to be enormously helpful, but rarely are the resources well used.
• The south has needs ... some are very urgent but resources do not get well allocated for priority needs.

Foreign Direct Investment (FDI) is investment from outside the community ... and while there may be benefit from this investment in the community, this is going to be some share of the total benefit arising from the investment. Experience shows that this share may be quite small, and maybe quite negative when all the social costs to the community are taken into account. The split of value added is critical to the success of the local community, and almost always a deep secret probably because the share attributed to the community is so small.

Sustainability

Sustainability is a fashionable idea ... but with many meanings. One is that sustainability is to do with damage being done to the environment by the human race ... and the issues of the survival of our specie. Another is more pedestrian relating to the ability of a person or an organization to have enough financial resources to pay its bills and survive economically. One view of sustainability relates to the environment. Are economic activities doing excessive environmental damage or consuming too much of resources?

COST/ANALYTICAL ACCOUNTING

Cost accounting

Cost centers, profit centers, investment centers, departments, etc are all rather similar. The key is to understand what they are doing and what they are costing.

If what they are doing does not seem to have any value ... then some further questions need to be asked and decisions made.

Corporate accounting systems usually have very effective cost accounting capability, but getting useful information from these systems is not always obvious.

Unit costs, prices and values

Unit costs, prices and values are very informative ... they make comparison easy both over time and from place to place. There are some challenges because units of measure and currency exchange rates may confuse ... but when these issues are taken into account, unit costs, prices and values are very powerful.

Cost, price, value

Cost, price and value are three numbers that describe economic activity. The relationship between these numbers determines the performance of almost any economic activity. All of these measures are important ... any one missing and the understanding of the dynamic of societal progress is compromised.

Cost, price value and productivity, profit and impact.

Three critical metrics in understanding economic activity are: (1) cost, (2) price, and (3) value. The relationship between these numbers determines the performance of almost any economic activity. All of these measures are important ... any one missing and the understanding of the dynamic of societal progress is compromised. These metrics are a part of a further three critical indicators: (1) productivity ... productivity improves when less cost produces more goods or services; (2) profit ... profitability improves when price is increased and cost is decreased; and (3) impact on society ... impact improves when the value increases and the cost decreases.

Cost

Cost has multiple components, and one of the most useful data points for cost is the one that eliminates all the profit elements from the cost value chain. The socio-economic success of the last two centuries has been reduction in cost.

Price

Price is a key variable in the performance of society. It is not as important as cost, but the way price is used in society determines the way value is shared between the various economic actors.

Value

Value is what the recipient thinks it is worth. These relationships are key:

• When value is greater than cost there is value adding.
• When cost is greater than value there is value destruction.

Productivity is a derivative of cost ... productivity is the most important single metric for the performance of our global society. In broad terms science and technology has made it possible for society to live very comfortably, but leadership has not made the decisions that embrace what is possible for the benefit of a broad society but for narrow self interest.

Profit

Profit is the relationship between cost and price, and has an impact on the stakeholders of the organization. Profit measures the performance of an organization, but does not bring into account the costs to society, or on the positive side, the value derived by society. Profit is the key metric for capital markets, and profit drives corporate stock valuation. Unfortunately profit and valuation now has taken on a life that is far removed from corporate operations and the impact of these operations on society with serious consequences.

Value ... impact on society

Impact on society is a function of value and cost, but not only these metrics. Price has a role in allocating how added value is shared between different segments of society and across the value chain. Community accountancy explicitly addresses this matter both at the individual community level and across complex value chains.

VALUE CHAIN ANALYSIS

Value chain

The value chain has been a critical factor in organizing development, production and marketing around the globe. The value chain has been structured to maximize profit for the involved organizations with little regard to the optimization of community value. The results have been predictable with favorable profit optimization largely offset by value destruction for society.

Transfer prices

Prices are critical in economic analysis and the determination of profit and value to any entity. Transfer pricing is used to put a value on goods and services as they move from one sub-entity to another within an organization, or between controlled entities. They are a tool that can be used to move profit between entities and may have inappropriate consequences.

Management accounting

Management accounting is a subset of accounting that helps to get useful analysis into the hands of decision makers. Management information is sometimes defined as the least amount of information that is needed to make good decisions reliably.

Department costs and the variants

A cost center is one way in which costs can be organized to help understand and control costs.

By pulling costs together within a unit called a cost center, it is possible to get information about a company's activities in a simple way.

Responsibility accounting

Responsibility accounting is the name given to accounting where the reports specifically identify the responsible managers. This is a useful technique for getting clarity about who is responsible for what ... and there is rarely much agreement.

Elements of cost

Materials, labor and equipment are the main elements of cost that go into most production activities ... and determine costs.

Fixed and Variable Costs

But these items also determine the behavior of costs and how costs can be improved.

Breakeven

When costs are thought of as being fixed and variable, and revenues are thought of as being directly related to quantities, in a profitable activity, there is a mathematical point where revenues equal the sum of fixed and variable costs. This is known as the breakeven point.

STANDARDS

Standards

The techniques of standard costing can be used in TVM Value Accountancy as they are in corporate accountancy. A standard is what might be expected ... compared to an actual which is what actually happened. There are many ways in which the comparison between actual and standard can be made ... the aim of analytical accountancy is for this comparison to improve understanding the most and cost the least.

Useless ... or valuable

Standards my be thought of as being fixed and arbitrary and useless ... or they may be used as a very powerful tool for understanding a lot of complex material in an efficient way. In this latter mode standards come alive. They start off being the best that can be ... best in the sense of reflecting the best data that are accessible ... and then they improve as better data becomes available and is made accessible.

Standard cost

Standard cost accounting helps cost accountants measure cost performance without getting deeply buried in detail. Standard costs are the theoretical cost of an item or service

Standard, actual, variance

The comparison of standard with actual alerts a cost accountant to something that is different and helps put the focus of effort onto something that is out of the ordinary. If actual costs are different from standard costs, then it is time to find out why.

Standard values

The same approach is used for value as for cost. Every activity produces something ... what is the standard value of this output? This can be determined in an arbitrary manner, and then it can be used in an analytical framework, and compared to alternative values that are justified from different other perspectives.

ANALYSIS ... UNDERSTANDING

Analysis ... a step to creating value from data

TVM Value Accountancy is nothing without analysis. The effective use of the product of analysis for decision making and holding people and organizations accountable is what makes Community Accountancy valuable. Experience has shown that performance improves when there is active feedback and there are the data that enables people and organizations to be held to account. People may not like it ... but their performance improves. The purpose of analysis is to get a better understanding. The data are neutral ... the analysis then produces results that might suggest some conclusions. It really does not matter what analysis is done as long as the result is better understanding and improved decision making. One value step is moving from data through analysis to understanding ... another is to move from understanding to effective action. In some situations this has been done with wonderful results, but mostly there have been interventions that were more expensive than effective.

Comparative analysis

Comparative analysis has many forms ... including (1) the comparison of data from one locations with another location; (2) the comparison from one time to another time; (3) the comparison from one organization to another (4) the comparison of what should be to what actually is; (5) the comparison of one approach to another approach; etc.

Time series

Time series are very powerful ... the corporate world uses them all the time. Capital markets use time series ... the public needs to have time series that show what is going on that specifically impacts their community.