The Importance Of Reliable Measurements In Accounting

2307 words - 10 pages

Performance measures play an important in all companies and their daily operations. By providing multiple methods of comparison and evaluation, accounting measurements provide a better view of the overall state of a corporation. Not only do investors use certain measures to help decide in which companies to invest, but internal managers use other measures to make sure their company is meeting set standards and that it is not falling behind or losing money. Therefore, it is important that these measures are accurate and not misleading. It is up to auditor and regulators, such as the SEC, to ensure that only reliable measurements are being provided. While customized measurements can more accurately focus on the goals of a specific company or process, more traditional measurements can be used to compare companies or processes. With the rise in popularity of customized or specialized performance measurements, their validity must be compared and contrasted to that of traditional measures of performance.
The importance of creating performance measures stretches from internal managers all the way to external investors. Internal managers can use different performance measures to help determine if a company is running efficiently and if it is meeting standards that were preset. For example, an internal manager of a manufacturing plant can use performance measures to see if enough products are being made to meet demand, if the machines are being utilized for the most profit, and if there is enough employees to efficiently operate the machines. Executive management can use performance measures to determine if their organization is on track to be profitable for the year and, if not, they can use them to determine why not. Investors and analysts can use performance measures to determine the outlook of stocks and whether or not it is a good time to invest. Investors commonly compare the measures among different companies in the same market to determine which companies are the best fit for them in which to invest.
Executive and internal managers can use different performance benchmarks to help them improve their operations. Certain benchmarks can help managers set better goals for the next year and help forecast for the next year. There are also measures that can be used to ensure all parts of the business are profitable and, if there is one that is not, they can determine whether to remove that segment or not. Other measures can be used to ensure all employees are working efficiently and that all products being made meet quality requirements. “Firms often rely on strategic performance measurement systems to facilitate managers’ strategic decision-making. By aligning strategic constructs, initiatives, and objectives with related performance measures, these measurement systems function as a framework that organizes the firm’s information environment around its strategy. Among many other benefits, this alignment enables managers to make strategic decisions...

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