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.

Being fooled

My understanding is that a money instrument that pays 14% will have one value, and that a money instrument that pays 7% will have a substantially lesser value.

In the 1980s and 1990s the US banking industry replaced high yield mortgages with low yield mortgages ... and reported huge profits as they did this. How could this be?

We were being fooled then ... just as the fooling continues to this day. The banks charged fees for the work of issuing new mortgages. The old mortgages were paid off without losses. The new mortgages were bundled and sold off (securitized) ... and though the value of these new mortgages was small relative to the old mortgages ... the accounting for this drop in value did not appear anywhere.

Something is very wrong when an industry can do this and the system of accounting does not show it.