Most cost information accountants generate and present is based on financial reporting standards and generally accepted accounting practices (GAAP). It is “truthful” to those standards. But is it “truthful” for other uses? RCA follows the IMA’s Conceptual Framework for Managerial Costing to create information that is “truthful” for internal decision making. How can both be truthful and different? This is truly a question the accounting profession needs to do a much better job of addressing. Many accountants are hesitant to leave the well-defined safety of their accounting standards and rules.
Truth has five major theories, according to Wikipedia:
Correspondence Theory – Truth corresponds to facts.
Coherence Theory – Proper fit of elements within a whole system.
Constructivist Theory – Constructed by social processes
Consensus Theory – Whatever is agreed upon
Pragmatic Theory – Putting concepts into practice
Only the Correspondence Theory is relevant to science and the scientific method. All the other contain social/human compromises. What type of “truth” do you want to use for decision making? Unless, you are only looking at a quarterly bonus tied to financial statement results, you want to use the Correspondence theory to make long term value creating decisions. And that “truth” is what the IMA’s Conceptual Framework for Managerial Costing and RCA use for modeling operations and cost for internal decision support. The Correspondence Theory of truth is what your operational systems use to help you optimize operations. (Not many operational systems are beholden to a group of people like the five accountants in Norwalk, CT to define standards for its “truth”, i.e. Financial Accounting Standards Board for the US.)
Cost and operational information for internal decision making needs to reflect the “Laws of Nature”, or factual reality. Accounting standards for financial reporting are clearly “Laws of Men”, resulting from a social consensus process. Fortunately, this is not an “either/or” choice. You can, and should, have both operating in your organization.