Summary by Corinne Rakocy
Master of Accountancy Program
University of South Florida, Summer 2003
Quality is one of the most important issues in the business world, but it is one of the most neglected subjects for accountants. Over the past few years, some interest in quality management has sparked the interest of the accounting world. Systems like cost of quality (COQ), a system that classifies quality into one two classes: cost of conformance and cost of non-conformance, have become hits with accountants interested in developing and using financial instruments to facilitate quality management decisions. The real question is, does the rest of the business world agree with the use of accounting systems as aids for quality management.
The Use of Accounting Information for Quality Improvement
A survey was conducted to ascertain if practitioners really use accounting information for quality management decisions. Only the electronics industry was used to give a more homogenous sample to simplify the findings even though the results will not be as general as they would be with a more diverse sample pool. Also, a broad definition of COQ encompassing “any attempt to measure and attach financial information to quality data” was used for the survey so that more companies would be able to participate. To gather the needed information the survey focus was on three main issues.
Issue 1: Flagging Quality Problems - Do Financial Measures Play Role?
This section of the survey showed that most companies used physical information rather than financial information for quality decisions. Many companies showed interest is using financial variables if they were available, but financial information in and of itself was not timely enough to be useful in the decision making process.
Issue 2: Selecting and Prioritizing Quality Information Projects - Do Financial Measures Play a Role?
Customer satisfaction was found to be the number one factor in prioritizing quality improvements. Financial impact and defect frequency came in second. However, when determining the financial impact, formal financial analysis is rarely ever used. The only time a significant amount of financial analysis was used was when there was little top management support for quality management. Then the financial information was used to prove the need for quality management measures. This indicates that financial information may not have much operational usefulness, but does have an impact of plant environment.
Issue 3: Is Financial Information Useful for Choosing Corrective Action?
The survey showed that although financial information may not be as important in determining what the quality problem was, it could be important in correcting the problem. Many of the problems that were discovered thorough quality improvement projects were discovered to be relatively small fixes in financial measurement terms, therefore, making financial information highly important in determining the corrective action of the quality problems.
The survey found that although financial information may not be frequently used in discovering quality problems within a company, it is very important in determining the actions taken after the problems are found. However, the survey also showed that quality managers would like to incorporate more financial data into the decision making process involved in quality management.
Additional Evidence for the Field
Discussions and interviews with quality managers and practitioners have shown that system limitations are the main problem. Also the complexity and interaction of the different categories of quality costs cause issues with the COQ system. However, it has also been discovered that there are two themes that have developed within companies that do use COQ. These companies did not just start using COQ, they implemented a new system such as the ISO 9000 and incorporated the use of COQ with the new system. Also, many of these companies began using COQ when they wanted to motivate stakeholders to different behavior. In other words, companies would use COQ to justify major expenditures dealing with quality management.
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