The Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) has released a new International Good Practice Guidance publication, Evaluating and Improving Costing in Organisations, which establishes six fundamental principles that can help professional accountants and their organisations to evaluate and improve their approach to costing. The guidance recognises the importance of distinguishing between the purposes and information needs of cost accounting to meet the demands of external reporting, cost measurement, and reporting for internal decision support. A companion document, Costing Levels Maturity Model, has also been published to help professional accountants decide what level of costing sophistication to use given organisational requirements and the needs of managers and employees.

Roger Tabor, Chair of the PAIB Committee says: “Professional accountants have a significant role to play in ensuring that they, and the costing models and systems they use, provide relevant information and analysis to support performance evaluation and planning and management decisions. Good costing information is essential to interpret and analyse past performance. And it can be used predictively to guide decisions about many aspects of an organisation’s future operations. These activities are different, and the guidance is designed to help professional accountants provide valuable information to their management customers.”

This IFAC guidance is targeted to professionals working in commerce and industry, as well as the public sector, education, and the not-for-profit sector. It recognises that, when used effectively, costing can provide clear and timely information. The guidance cautions, however, that all cost information is not created equal: Highly aggregated cost information, for example, which is compiled for external reporting purposes, may not reflect such relationships closely enough to support future strategic and operational decisions.

The new Costing Levels Maturity Model can also help professional accountants exercise professional judgment to assess their organization’s existing costing capability for supporting internal managerial analysis and decisions. The PAIB Committee seeks comments from professional accountants and IFAC member bodies on the model to help its continued development.