Fall 2009 issue of Horizons

GENERAL TOPICS

Six Degrees of Separation... Maximizing Accounting’s Value within Your Organization “Theory of Six Degrees of Separation — If a person is one step away from each person they know and two steps away from each person who is known by one of the people they know, then everyone is at most six steps away from any other person on earth.” — Wikipedia This concept can apply to accounting functions in any organization. All actions create transactions captured by accounting — a new product idea, an unhappy customer and even a sick employee. So, if accounting is one step away from a transaction and two steps away from an action, then accounting is at most six steps away from any action within an organization. What an incredible wealth of information! The challenge By Kristin Parshay

becomes how to capture that information to provide timely, relevant and accurate reporting to support business decisions and create maximum stakeholder value. Our answer to this challenge is to think lean. In summary, lean can be defined as the relentless pursuit of maximum value through the elimination of waste. Lean theory classifies waste into eight categories: 1. Waiting: delays in creation or delivery of a product or service 2. Over-production: processing too soon or more than required 3. Rework: correction of errors or mistakes 4. Motion: movement of people without adding value 5. Processing: processing more than required when a simpler approach would have met customer requirements 6. Intellect: employees not leveraged to their potential 7. Inventory: having excess inventory 8. Transportation: moving items more than required Accounting’s role in the elimination of waste is two- fold; first, within the operations of the accounting function and, second, through the behaviors created from the use of financial information. Opportunities for eliminating waste from accounting operations include (1) re-balancing closing practices so corporate accounting is not waiting to finalize closing until accounts payable closes or (2) mistake-proofing transaction posting to eliminate the re-class of expenses because they were not posted to the correct account the first time. Wasteful behaviors caused by financial reporting can be changed by providing profit and loss statements that consider inventory as a waste if customer demand did not warrant its production or analyzing organizational spending based on the justification for the value it created instead of whether the spending was budgeted.

Addressing waste in both accounting operations and reporting marks an accounting function’s transition to

17 u fall 2009 issue