What can Financial Accounting Do for Projects?
After searching this web site for information on project cost accounting, Anibal Miranda sent us this Email on 6/28/12:
"Max- I have been reading the articles [on your web site], which are very interesting, namely in the area of Project Cost Accounting. I would like to know whether you have produce some documentation around best practices and what support Financial Accounting can give to the project cost accountant in a big organization? There are items such as accruals, management information reporting and transfer pricing, which are standardized across businesses, budget holders and project managers.
However, this is not enough so I am looking to have something that gives me the roadmap to excellence in terms of project cost control and accounting in liaison with financial accounting. Any help, or paper you might have written, will be great. I might buy some documents if they are relevant to my question.
Many thanks, Anibal"
After some thought, we replied:
"Hi Anibal, Thank you for your Email.
I am afraid that I cannot be very helpful here. Almost all the documentation that I have of my own is already published on my web site, and to this point I have not come across any books devoted to the best practices you have in mind.
However, I can offer some comments based on my experience. First off, I don't believe in "best practices" -- I think that is just a catchy phrase invented by consultants to beguile unsuspecting clients. That's because as soon as you find a "best practice" someone will come out with a better one!
More important is to find solutions that best fit your own organization.
There have been many attempts to meld Financial Accounting systems with Project Accounting systems and some have claimed to work. However, I have never come across any that do. And the reasons are several, largely because the objectives, timeframes, reporting objectives and level of details are all different. For example, Financial Accounting systems are designed to record actual historical costs to the nearest penny. For project work, you are much more interested in future forecast costs, including as yet unspent commitments, estimated to the nearest 1%.
It's a case of apples and oranges.
Obviously, I do not know your particular circumstances, but frankly, I think you would be best off to obtain an independent system that serves your particular requirements and reconcile these records periodically with your financial accounting records. Bear in mind also that the requirements that I just mentioned would vary according to whether you are accounting at the project level, the program level or at a project portfolio level. The requirements for each of these three are not the same.
One final thought, when the Financial Accounting department is under pressure, such as at year-end or during budget formulation, their priorities are such that you can expect next to no service so far as Project Accounting is concerned. That means that without an independent system, you are left hanging out to dry.
Hope that helps,
R. Max Wideman,
Vancouver, BC, Canada"