Question

Drawbacks of conventional financial accounting in cost accounting

Answer 1

The benefits of cost accounting come with a price. Since costing methods differ from organization to organization, it's not clear how these costs might manifest themselves until a specific firm is examined.

Generally speaking, complex cost accounting systems require a lot of work on the front end, and constant adjustments need to be made for improvements. This complexity consumes time and resources and leaves room for misinterpretation.

Even if the rigidity of financial accounting creates some inherent disadvantages, it does remove the uncertainty and misapplication of accounting guidelines of cost accounting. Uncertainty equals risk, which always comes at a cost. This means additional, and often more vigorous reconciliation to verify accuracy.

Higher-skilled accountants and auditors are likely to charge more for their services. Employees have to receive extra training and must sufficiently cooperate with data input; non-cooperation can render ineffective an otherwise beautifully constructed system.

The repeated tradeoff in any accounting method is accuracy versus expediency. Cost accounting reflects this more dramatically than other accounting methods because of its pliability. Every business needs to find its own balance between the two.

Costing methods are typically not useful for figuring out tax liabilities, which means that cost accounting can't provide a complete analysis of a business' true costs. It's easy enough to compensate for this by combining financial accounting with cost accounting, but it, nevertheless, highlights a flaw in cost accounting.