ACCOUNTING AND FINANCIAL RESPONSIBILITY

IN STRATEGIC PLANNING

ByCharles D. Little, Ph.D.

ACCOUNTING AND FINANCIAL RESPONSIBILITY

Accounting is the

• Recording

• Classifying

• Summarizing

• Interpreting

of financial events and transactions in an organization.*

*Provides management with financial information to be used in making well informed decisions

ACCOUNTING AND FINANCIAL RESPONSIBILITY

Accounting inputs

• sales documents

• purchasing documents

• shipping documents

• payroll records

• bank records

• travel records

• et al

ACCOUNTING AND FINANCIAL RESPONSIBILITY

Accounting outputs

• balance sheets• income statements• profit and loss• ratio analyses• audits• ledgers• budgets• statements of cash flows• tax returns• annual reports

ACCOUNTING AND FINANCIAL RESPONSIBILITY Managerial accounting

• generated for people inside the organization, i.e. managers, accountants, CEO’s, etc.

• assists in decision making• concerned with measuring and reporting costs of

-production-marketing-operations-shipping-sales-administrative activities

• involves budget preparation and controlling• designing strategies to minimize taxes• cost control

ACCOUNTING AND FINANCIAL RESPONSIBILITY

Financial accounting

• Generated for people outside the organization, i.e. owners, managers, board members, creditors and lenders, unions, customers, suppliers, government, the public, etc.

• Provides information related to profitability, revenue, debt, solvency, financial condition, plans for the future,

• Annual reports

ACCOUNTING AND FINANCIAL RESPONSIBILITY

Role of accounting in strategic planning

• Prominent in the internal assessment (SWOT) • Reveals financial capabilities• Manage working capital• Major feedback mechanism• Tracks progress toward goals and objectives• Provides targets for organizational units• Aids in decision making• Reveals where the organization is at any point in time• Measures ROI• Brings the concept of the mission statement to life• Tool for control and financial responsibility• Maintain compliance with the law

ACCOUNTING AND FINANCIAL RESPONSIBILITY Role of accounting in strategic planning

Sarbanes-Oxley Act (SOX) of 2002

• Brought about by fraudulent acts of Enron, MCI WorldCom, Arthur Anderson, Adelphia, et al

• Most far-reaching legislation since the 1930’s• Enacted to resolve the governance crisis in public organizations• Attempts to ensure truth in financial reporting• Mandates internal control in public corporations• Establishes and clarifies accountability for corporate leaders• Reduces potential for conflicts of interest among corporate

leaders• Prohibits corporate loans to directors and executives• Requires financial competency among corporate leaders• Requires CEO’s and CFO’s to certify accuracy of financial reports• Attempts to restore confidence in the corporate capital arena

ACCOUNTING AND FINANCIAL RESPONSIBILITY Role of accounting in strategic planning

Sarbanes-Oxley Act (SOX) of 2002 (cont’d)

• Creates a regulatory framework for financial reporting• Sets standards for financial reporting to all SEC registrants• Replaces self-regulation of the accounting profession with the

Public Company Accounting Oversite Board (PCAOB) for auditing • Oversees and regulates auditors of public companies• Strengthens protection for ‘whistle-blowers’• Provides a framework for full accountability to the public• Focus attention of stakeholder (internal and external) interests• Encourages creation of more ethical cultures in organizations• Produces a new awareness of ethics, reputation and image (which

is strategically linked to organizational success)• Establishes strict penalty provisions for noncompliance

ACCOUNTING AND FINANCIAL RESPONSIBILITY IN STRATEGIC PLANNING

Accounting and financial control is essential in strategic planningas a part of the internal assessment in the SWOT. Planners needto carefully review all aspects of their accounting and financialactivity to ensure total control and accuracy in reporting and decision making. This should be done not only in the interest ofcorporate financial stability, but also in the interest of ethical responsibility. Stakeholders now view every organization andevery corporate leader from an ethical perspective. Image and reputation is often closely linked to ethics, all of which can be strategically linked to organizational success.