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Accounting

A company has to know whether what they are doing makes money, right? The people who know how to figure this out are the accountants.

In the US, accounting is done according to Generally Accepted Accounting Principles (GAAP). This provides a standard method of accounting so that when one company says they made ‘X’ dollars in profit, if can be compared to the performance of another company.

In order to make sure that everyone is counting the same way, there are several groups that have oversight. The IRS is one. They have their own way of doing accounting, so sometimes companies have different numbers for taxable income that they report to the IRS, and net income that they report to the public (Pratt, 2000, p. 28).

The SEC governs the reporting for publicly traded companies. Auditors also provide a degree of compliance, though their role in enforcement can be questionable. They are paid by the company that they are auditing, so there may be some pressure to approve questionable practices. But since their reputation depends upon keeping companies out of trouble with the law, they can’t get too ‘creative’.

Some of the methods of traditional accounting promote behaviors that are not always in line with Lean goals. The most commonly mentioned examples is the way Lean initially bleeds off inventory, affecting balance sheets, and the way standard costs are determined. In both cases, practicing Lean, despite its positive impact on the bottom line, creates negative looking traditional accounting situations.

As a result, there is a rising form of accounting-Lean accounting, to accommodate the way Lean companies run their businesses.

 

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