Question-Desperate. 1423
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I really want to know how Sarbox legislation has affected Activity-Based Costing and EVA, if anybody has any info on that or can direct me to a place to read about it. I have a dissertation I’m writing, and am having difficulties in this one area. Please, any information will be helpful for me… Thanks. ~Karen
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Hi,
US GAAP is the required basis of accounting for registered entities. Activity Based Costing (ABC) is a type of management accounting in that it assigns cost based on resources/activities consumed.
For this reason, I do not believe that SOX impacts companies that use ABC. It only impacts them as it relates to financial reporting under US GAAP.
Hope this helps,
Milan
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The following are various management techniques in use:
-Activity Based Costing
-Business Process Improvement
-Cost-Based Quality Management
-Economic Value-Added (EVA)
-Reengineering
-Time-Based Management
-Total Quality Management
Please note again, that SOX does not address management accounting methods employed including ABC or EVA. Compliance with SOX requires that the registered entity must have adequate and effective internal controls over financial reporting using US GAAP.
Variable costing, absorption costing, ABC, and other costing taxonomies are not relevant for SOX purposes.
Hope this also helps,
Milan
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Yes, that helps, due to the requirements I’ve been asked to write about. I needed to know this. No wonder I haven’t been able to put it together. One of the things I was supposed to address was written as such: How will this SOX legislation impact management decision-making, internal controls, measurement of results, activity based costing, balanced scorecard and EVA? Why? Thank you very much for taking the time to respond to my question–I’m grateful for your help. Sincerely, ~Karen
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Hi Karen - I don’t have a lot of knowledge in either ABC or EVA … In a google search of ‘SOX activity based costing’ several articles appeared and these may help you get ideas.
RECOMMENDED REPORT DEVELOPMENT STEPS- In writing the report, I’d 1st define what ABC/EVA are, and differientiate these from other techniques.
- Then learn the basic things that SOX compliancy will help a company achieve – no matter what the accounting method is. For example: SOX is going standardize accounting and accountability of ALL systems from the front-end customer service systems (e.g., sales) to the backend accounting reports received by the SEC. This standardization process should result in more accurate financial data. I think with ABC/EVA including more intangible factors this will help.
- After looking at ways SOX compliancy helps the company in general, see if it’s a fit in the context of ABC/EVA … If you believe it is, then make it an advantage for ABC/EVA where applicable (e.g., more standardized and controlled workflows, better checks and balances, more accurate data for decision making, etc).
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Excellent. Thank you. Great ideas.
~Karen
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SARBOX is in no way related to ABC ad EVA directly. ABC and EVA are useful in pricing and financial analysis respectively.
Since EVA takes profit in to consideration, only way SARBOX relates to it would be in the form of SOX costs hitting the profitability and hence the EVA. :lol:
This apart i dont see ABC and EVA being significant from SOX perspective
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Hi NC - I agree with you and I’m definitely only generally versed in ABC/EVA, as I’m more of IT person
The approach Karen might take in her report is that SOX makes ANY form of accounting and accountability better within the organization . Hopefully those of us in the corporate world are not doing this in vain, but to achieve real benefits in addition to meeting statutory requirements.
Thus some of the indirect benefits of standardization, better information, improved workflows, and more formalized change management. All the ingredients should help or at in least theoretically.
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Thank you to all of you who have replied: I actually look forward to viewing your replies every day before I start my report-writing again, as every bit is showing to be extremely helpful to me. I’m getting insight and understanding, and I’m glad to see now it wasn’t just me, as far as understanding what is required of me in this report. You’re really helping to put perspective on what I need to do and how I will now approach this assignment. Your perspectives are helping me a lot–thank you very much for taking the time to reply to this. Wow, there’s some really great people out there… Sincerely, ~Karen[/i]