The Goal Is In-sight Essay, Research Paper

The June issue of Strategic Finance Magazine has an interesting article called,

“Provide Insight or Face Extinction,” by Noah P. Barsky and Anthony H. Catanach

Jr. The main theory is the traditional accounting equation, and how it should be

changed to provide information for decision making. For five centuries its focus

has been on accumulating, processing and reporting the results of economic

activity for many types of organizations. Recently, due to increased competition

and advances in industry, it has been suggested that we reconsider the

usefulness of this equation.

Managers have always recognized that in order to make good business decisions

they need proficient information. Information however, can only be gathered by

assessing collected data, and adding personal insight, if it is to assist the

decision making process. Raw data is of little help to managers, so this

thinking leads us to a new equation, which is more suited to today’s competitive

workplace:

Data + Insight = Information

If firms consider using this updated accounting equation they must understand

that it is most effective when data processing technologies and creative

thinking are used together. This supports the reasoning behind firms beginning

to seek financial consultants rather than accountants because they can provide

added insight to the data. Data that hasn’t been evaluated has much less value

to management because it can’t be utilized as effectively in decision making.

Computer software packages can now perform a broad range of traditional

accounting functions making it easier for businesses to generate financial

statements or leases using very little human involvement. Still, those programs

can only produce data and are not able to create information because they cannot

provide any insight. Insight requires value-adding human qualities to deliver

analysis and interpretation and can’t be found in any computer program.

If they don’t want to be made redundant by computers, accountants should realize

that they are no longer expected to just prepare financial statements that

simply comply with the minimum standards and requirements of the past. Companies

and clients are now expecting reports to be dealt with strategically to provide

them with insight into how the data effects their business processes. Senior

executives should therefore seek individuals who can provide them with

information, and not just routine data-creation.

Decision-making is perhaps the most important role of management, and without

useful information provided by accountants, it would be difficult to make a

choice among alternative business strategies. We have learnt that providing

information for decision making is the first objective of managerial accounting

activity and stresses that accountant’s work together with management to

formulate plans based on their data. As long as this is the case, the new

accounting equation is more suitable because it encourages employers to draw on

their vast employee knowledge base, to provide insight for any business problem.