DUE DILIGENCE IFSL 8
specialist or consultant who specializes in the setup of ABC and provides training to the
accounting staff. Also, the process of data collection and entry requires substantial resources,
thus making it expensive and time consuming. Likewise, the application of ABC can result in
misinterpretation of information and cost data. The ABC data contains a wide variety of
information, including product margins which vary from the reports in the traditional costing
techniques (Goektuerk, 2007).
Some of the activity-based costs may be irrelevant, and thus cannot be utilized in the decision-
making process. Also, ABC does not conform to any accounting standards, thus limiting its
scope and application. It cannot be used in external reporting, and the complexity of the data can
increase confusion, thus making decision-making poor (Goektuerk, 2007). Similarly, firms using
the ABC approach have to maintain two cost systems and accounting books, one for external
use, filings, and statutory compliance, and another for internal use. This can be considered as a
duplication of efforts which is unnecessary. Also, this system has ‘cost leaks' since it fails to
consider various aspects such as the time taken by employees in training, attending seminars, and
team building. Also, employees rarely devote 100% of their efforts in productive activities, and
not all activities will add value to the corporation. Additionally, overemphasis on detail and
control of costs may obscure the bigger picture, thus making the firm lose sight of strategic
objectives (Scheid, 2011).
Recommendations
The review of the benefits and shortcomings of the ABC technique indicates that although it has
many uses the application of other lean accounting approaches such as Economic Value Added
(EVA) and Balanced Scorecards can be of equal benefit. These techniques will enhance precise
accounting control and measure all the systems without complexity and cost inefficiency such as
