The Organisational Context of Management Accounting
In the contemporary business environment, organisations play vital roles in satisfying the demand of the stakeholders. One of the methods employed to satisfy the stakeholders is to implement efficient organisational accountability. Typically, accountability is vital to business setting. Systems of accountability and accounting system are critical to management efficiencies. One of the essential tools that can lead to the transformation of an organisation is to implement effective organisational accountability and accounting practice. Some of the elegant contributors to accounting literatures are Roberts and Scapens, (1985) who argued that “accounting involves the binding of organisational space in the very real sense in which one of the most important boundaries of an organisation is defined by the boundaries of its system of accountability. To be part of an organisation is to be subject to that organisation’s system of accountability.’ (pp 443-456 ).
The objective of this paper is to critically evaluate and discuss the statement made by Roberts and Scapens (1985).
Evaluation of the above statement requiring examining the role of accountant and accounting practice in the contemporary organisations.
Role of Accounting and Accounting Practice in managing contemporary organisations
In the contemporary business environment, accountability is critical to the success and settings of organisations. However, accountability in an organisational context requires the application of accounting practice in order achieve organisational efficiency. Typically, systems of accountability and accounting system are critical tools for the management control systems. In the public organisation, accountability involves the system of implementing stricter financial controls, and achievement of fiscal prudence.
Structuration theory has been very useful in drawing the linkages between accounting systems and accountability. The theory pointed out that the system of accountability in an organisational context shows that financial accounting is very crucial to accountability. It is essential to realise that accounting information is very critical in the organisation to enhance control and regulatory process. Typically, in the private organisation, financial accounting is a dominant structure that regulates the concepts of accounting practice. Through application of financial accounting, there could be appropriate implementation of accountability, and it will be possible to exercise power and hold others accountable. Accounting practices through the application of financial accounting make business organisations to be obliged to report their financial activities to external parties such as analysts, creditors, owners and other stakeholders. (Conrad, 2005).
Accounting in itself refers to the set of concepts and techniques that are employed to report and measure the financial information with reference to economic units. Different parties are interested in the information provided in the organisational accounting system. This includes financial analysts, employees, manager, government units, and creditor. It is essential to realise that external stakeholders rarely have ability to have access to information about management activities within an organisations. Thus, external stakeholders normally rely on the financial reporting through the implementation of financial accounting to analyse the activities of an organisation. This will help the stakeholders to provide objective judgment on the organisational performances and the information aids the external users to evaluate the standard setting of an organisation with objectivity, and the information make the external stakeholders to hold management accountable if required. Clearly, accounting information provide valuable role in providing moral accountability.
Hanpuwadal, & Ussahawanitchakit (2010) defined accounting practice as the process to collect, report, process, transform and disseminate reporting financial information to users. One of the importances of accounting practice is that accounting practice is an efficient resource that aids organisation to make appropriate decision making for organisation efficiencies. Typically, accounting practice provides critical roles for an organisation. Accounting practice provides efficient methods by which an organisation establishes financial records and accounting information that help internal and external users to assess the financial status and financial performances of an organisation. With the implementation of accounting practice, an organisation will be able to control various operational units such as assets values, taxation expenses, and incomes.
Hoggett, Edwards, & Medlin (2006) argued that accounting practice is critical tool to achieve decision-making. Typically, the accounting practice has evolved in response to societal needs to help society to make economic decisions. Accounting practice employs process of measuring, identifying, communicating and recoding economic information to enhance informed judgement to make economic decisions.
Thus, accounting practice provides information for organisation to make informed decision about the resources allocation. It essential to realise that accounting practice provides information with regard to economic activities. The economic activities such as business, government agencies, non-profit organisations, and families employ accounting practice to make economic decision. In order to make objective economic decision, financial information is required before an economic decision could be made.
Thus, accounting practice is essentially tool to efficiently administer resources efficiently as well as supporting strategic planning, performance evaluation, and processing improvement. Hall (2009) supported this argument by pointing out that accounting practice has been able to provide the needs of executive by providing information to support manager in implementing efficient managerial work.
On the other hand, Skærbæka, & Tryggestadb (2010) takes a different dimension by arguing that accounting practice provides a tool to achieve corporate strategy because accounting practice provides systematic method of information, and integration for the purpose of planning, improvement, resource allocation, and making decision related to tax management. Essentially, tax management is very important for organisational effectiveness. Decision making on tax management is very important for the organisational to solve tax problem. Adequate financial information helps management to make effective decision relating to tax management, and this lead to performance enhancement. Besides employing accounting practice for tax management, accounting practice helps organisation to allocate organisational resources efficiently. Efficient allocation of human and cost resources is very important for organisational efficiency. With accounting information, organisation will be able to effectively coordinating organisational resources to achieve organisational goals and future planning. (Hanpuwadal & Ussahawanitchakit , 2010).
However, Moilanen(2008) argued that accounting practice is an integral part of the management control systems. The use of accounting practice helps an organisation to keep discipline and control. The author argued that financial accounting has become an integral part of management because the changes in the accounting practice. Typically, the implementation of both financial accounting and management accounting has become an important in management control and this has helped in the improvement of firm performances.
Typically, Moilanen(2008) highlighted the role of accounting practice with regard to multinational organisations. It is essential to realise that MNC decentralise their operations, and MNCs always implement merger and acquisitions. Thus, the accounting practice helps in balancing roles between centralise and decentralise operations of MNC. and ensure the process of merging and acquisition of firms are implemented successfully.
It is essential to realise that management desire the detailed accounting information in order to function effectively. The stakeholders within an organisation also require accounting information in order to function efficiently. Through, management accounting information aid in formulating strategic planning that could benefit organisational growth. It is essential to realise that organisations require planning to stimulate growth. Planning is critical for organisations in order to achieve financial goals. The implementation of accounting practice provides avenue for organisations to position itself to achieve organisational goals.
Miller (1998) argued that application of cost concepts of accountancy is for the elaboration of economic reasoning. The economic theory pointed out the function of cost accounting helps in determining the satisfactory price for goods. Typically, cost accounting detects the efficiencies of production.
It is imperative for managers and directors to have costs information for all the activities of an organisation. To induce organisational growth, a manager needs to understand the methods costs to assign to goods and services. Typically, through the application of cost accounting, it will be possible to understand the collection, assignment and interpretation of costs with related to good and services. Typically, the accounting practice through the implementation of cost accounting helps management to understand the ideal products to produce.
Through the application of cost accounting, management will be able to understand the product and service to produce at minimum costs. The cost accounting helps managers to assigned costs to goods and services at minimal costs, which help organisation to achieve profitability.
Despite the application of accounting practice and its importance in ensuring the proper accountability and achieving organisational changes, there is still shortcoming in accounting practice. Conrad (2005) argued that application of accountability within private and public organisation is problematic. Conflicts between regulators and shareholders normally arise with issue of accountability. Typically, management pursues their roles to improve the wealth of shareholders, which is obvious to the public. In case of underperformance due to national economic crisis, shareholders may not be able to hold management accountable. This may pose problems in the private sectors to hold management accountable. In addition, accounting structure has shortcoming in many public organisations. Many public holders especially in underdeveloped counties misuse the public funds and still many of these public holders are not being held accountable. (Conrad & Sherer, 2001).
Meanwhile, the roles of accountant in accounting practice because the role of accounting practice is not complete without the role of accountant in the implementation of accounting practice.
Role of Accountant.
Accountants play major roles in shaping organisation and society. An accountant is a trained professional who measures and report financial information and non-financial information that help management to make effective decision making with regard to organisational goals. The duties of an accountant are to implement skills and experience to maintain the accurate financial records for private or public organisations. To achieve organisational goals and societal goals, an accountant plays critical roles in reporting the financial statements of an organisation to external users. All organisations; whether private organisations or public organisations, require the assistant of an accountant to achieve organisational financial efficiencies.
To provide greater understanding on the role of accountant, it is essential to analyse the concept of accountants according to the role they play in the society and organisation.
A public accountant provides auditing, tax functions and consulting to the public. Auditing is one of the critical roles of public accountants because an auditor provides the impartial financial statement about an organisation to the public. “Auditing involves the examination of transactions and systems that underlie an organization’s financial reports, with the ultimate goal of providing an independent report on the appropriateness of financial statements”. (Walther, 2010).
Typically, internal auditor accountant plays a crucial role in sustenance an organisation. The auditor whether an internal or external auditor helps organisations to affirmed its objectives. Internal auditor accountant utilises a systematic methodology “to scrutinize the various business procedures, processes, as well as activities in order to pinpoint the problematic areas and then helping them by providing solutions”. (Accountant Search 2010 p 2).
A public accountant also provides broad range of services such as taxation advice, auditing and consulting services for clients that may be private organisations, governments or non-government organisations. For example, some public accountant specialise on tax matters by advising organisations to achieve tax advantages. Accountant plays a major role to help public or private organisations achieve tax objectives. Typically, the tax accountant helps private organisation to eliminate the unnecessary invasion of taxation. Tax accountant provides necessary financial accounting skills that could help an organisation to save cost that might have been arisen from paying unnecessary taxation. Alex (2006 argued that the use of tax accountant to file tax return could help an organisation to pay smaller fee. Typically, tax accountant is very important for business purpose. Tax accountants are very critical when filing a tax return. A tax accountant could help organisations to find deductions in taxations they never aware that exists. Moreover, the use of tax accountant helps an organisation to understand the methods to maximise finance to achieve organisational objectives.
Accountants also provide the roles of providing the advising roles with regard to employee healthcare benefits, or compensation.
In addition, some accountants provide the role of forensic accounting, which involves in the investigation of white-collar crimes such as
“securities fraud and embezzlement, bankruptcies and contract disputes, and other complex and possibly criminal financial transactions, including money laundering by organized criminals. Forensic accountants combine their knowledge of accounting and finance with law and investigative techniques to determine whether an activity is illegal. Many forensic accountants work closely with law enforcement personnel and lawyers during investigations and often appear as expert witnesses during trials”.(Bureau of Labour Statistics, 2010 p 4).
The essay evaluates the statement of Roberts and Scapens, (1985) who stated that “accounting involves the binding of organizational space in the very real sense in which one of the most important boundaries of an organization is defined by the boundaries of its system of accountability. To be part of an organization is to be subject to that organisation’s system of accountability.” (pp 515). In evaluating the statement, it is revealed that accounting practice plays important roles in the implementation of the accountability for proper financial record. The paper reveals that financial accounting helps an organisation to provide effective financial information to the public in order to aid the stakeholders to make decision about the extent organisations have bean able to implement efficient performances.
The paper also examines the management accounting that is concerned with providing information to management in order to aid management to carry out the effective planning, controlling and decision making for the growth of an organisation.
The paper also provides the role of accountant to society and organisation. The paper has been able to argue that for an individual to be part of an organisation, the person needs to be ready to be subjected to system of accountability. The discussion from the paper has revealed that all accounting practices involve accountability. The provision of financial accounting practice helps the external stakeholders to hold management accountable for the method they conduct affair of an organisation. Moreover, with the management accounting practice, the management could also be held accountable if they are not able to provide effective planning for organisational growth.
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