Mine accounting: financial history or performance control?

"This paper reviews the traditional mine accounting systems, including ""custodial accounting"" and unit costing, and then suggests that the use of flexible budgets represents a more suitable method of reporting costs in order to assist the mine manager in improving productivity. Examples of various applications are given to show that the result is a clear reporting structure.Custodial Accounting is Emphasized in Traditional SystemsTraditional mine accounting has been mainly concerned with the accuracy of financial reporting to ""head office"" for the use of the directors and the company's bankers and shareholders. This is often called custodial accounting and it represented the main purpose of accounting when first developed in Europe hundreds of years ago. This important development permitted the establishment of enterprises which were separated from their owners because they could rely on accurate financial reports of management's stewardship.As custodial accounting is fairly broad and historical in nature, it is often not very useful to the mine manager for ongoing monitoring of performance of mining, milling, maintenance, and other support and staff groups. In spite of the considerable investment in accounting staff and computer support, many accounting systems have not been upgraded so that they accurately reflect workplace performance on a weekly or monthly basis.Budgets are Often FixedMany mines today also still emphasize fixed budgets. Thus, the mine plan which is set in the fall of one year is converted to a monthly tonnage and detailed dollar budget for periods of up to sixteen months in the future. The only certainty in this plan is that actual events will differ; timing, mix of mining methods and production volumes will differ on a monthly basis.Unfortunately, the fixed budget has no capability to reflect these operational changes. It is frozen for the full year. The result is that actual results will inevitably be compared to an outdated target."