determine the difference between internal and external reporting © dale r. geiger 20111

© Dale R. Geiger 2011 1

Determine the Difference Between Internal and External Reporting

Principles of Cost Analysis and Management


What Do Accountants Do?


Terminal Learning Objective

• Task: Determine the Difference Between Internal and External Reporting

• Condition: You are a cost advisor technician with access to PCAM course handouts, readings, and spreadsheet tools and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors.

• Standard: with at least 80% accuracy:• Define the 4 characteristics of accounting information• Identify the difference between internal and external reporting• Classify GFEBS reports as internal or external



• Provide INFORMATION that is USEFUL to Decision Makers

• Information must be RELIABLE• Free from Bias• Verifiable

• Information must be RELEVANT• Will make a difference in the decision• Timely – frequency and lag time• Relevance is in the eye of the User




• Information must be RELIABLE• Free from bias• Verifiable






• Information must be RELEVANT• Will make a difference in the decision• Timely – frequency and lag time• Relevance is in the eye of the user


Who are the Users?

• Users may be INTERNAL or EXTERNAL• Internal users are:

• Managers and Leaders • What types of Decisions might they make?• What information might they need?

• External users are:• Investors, Creditors, Regulators and Legislators• What types of Decisions might they make?• What information might they need?


Who are the Users?


• Managers and Leaders • What types of Decisions might they make?• What information might they need?



Who are the Users?


• Managers and leaders • What types of decisions might they make?• What information might they need?



Who are the Users?


• Managers and leaders • What types of decisions might they make?• What information might they need?

• External users are:• Investors, creditors, regulators, legislators and

citizens • What types of decisions might they make?• What information might they need?


External User Needs

• Examining an organization’s performance over time demands CONSISTENCY• Assures users that the information is prepared in

the same manner over multiple time periods• Deciding whether to fund competing

organizations or programs demands COMPARABILITY• Assures that the information from all organizations

is prepared according to the same set of principles


External User Needs






Consistent Combat Ship

16" guns

cruise missiles

landing gatesperiscope

ballistic missiles

flight deck

submersible hull

helicopter pad

torpedotubes


Check on Learning

• Which characteristic requires timely information?

• Which characteristic requires verifiable information?

• Why would users demand consistency?


Two Sides of the Same Coin

requiredcompliancestructuredauditstableconsistency &comparability

purposegoal

methodologytest

dynamicsuser need

neededlearning

customizeduse

responsivecontinuous

improvement

external reporting managerial costing




purposegoal

methodologytest

dynamicsuser need

neededlearning

customizeduse


improvement



Example

External Report: Tax Return • Why?• How?• Test of success?• Dynamics?

Internal Report: Checkbook• Why?• How?• Test of success?• Dynamics?


Research: System Uses at 59 Federal Organizations

1 2 3 4 5 6 7 8

9 10 11 12 13 14 15 16

17 18 19 20 21 22 23 24

25 26 27 28 29 30 31 32

33 34 35 36 37 38 39 40

41 42 43 44 45 46 47 48

50 51 52 53 54 55 56 57

58 59

mgmt control

pricingOH allocation

reqr costing

BLM PBS

VMSS

WVA

FGIS



1 2 3 4 5 6 7 8

9 10 11 12 13 14 15 16

17 18 19 20 21 22 23 24

25 26 27 28 29 30 31 32

33 34 35 36 37 38 39 40

41 42 43 44 45 46 47 48

50 51 52 53 54 55 56 57

58 59

mgmt control


reqr costing

BLM PBS

VMSS

WVA

FGIS

Check on Learning

• What are the basic uses for Cost Accounting systems?

• Should all cost systems be the same?• Why or why not?


What about GFEBS?

• General Fund Enterprise Business System• Used Army-wide• Permits real-time posting of financial

transactions• Reports costs according to Budget-relevant

and non-Budget-relevant Cost Objects• Are GFEBS reports internal or external?

© Dale R. Geiger 201137

Unit Cost Report


Unit Cost Report

This report shows the actual and planned quantities and actual and

planned (average) unit cost for various SKFs (Statistical Key Figures)

such as Headcount.


Discussion Questions

• Who would use this report? • How might they use it?• If you were the Senior Leader of this

organization, would you be surprised that your cost per headcount was $78,919.20?

• What would you want to know about that number?

• Would this be an internal or external report for you?


Check on Learning

• What characteristics would identify a report as internal to an organization?

• What characteristics would identify a report as external to an organization?



Conclusion

• Needs for internal cost information are as varied as the organizations themselves

• External cost reports:• Facilitate comparison of organizations by external

users• Are unlikely to meet internal management

information needs

determine the difference between internal and external reporting © dale r. geiger 20111

Documents

elements of useful information

information aspect

external dale

user dale

decision makersinformation

external reportingcondition

management dale

activity step