A study on management accounting


This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Management Accounting, in the modern post industrial society has had to move far beyond its original remit of reporting the score, indeed now it needs to influence the score. In the work by Johnson and Kaplan,' Relevance Lost; the rise and fall of management accounting', the challenge for the discipline was brought home to academics and practitioners alike. The neo classical model of the firm and its information and control requirements were exploded and a new paradigm took hold. Puxty in his work on society and accounting places the role of the management accountant firmly within a new strategic paradigm where information needs to be generated and presented in ways upon which managers and other stakeholders can make informed strategic decisions about the future direction of the company. Indeed there is a dearth of theoretical literature which has not only produced ever increasingly sophisticated techniques of manipulating data, the new techniques centred around Activity based Management or Balanced Scorecard methodology, but there is an increasing awareness, especially in the work of Broadbent and Scapens that there is an increasing gap in the role of academia and practice. Many commentators suggest that far from providing the firm with strategic advantage, management accounting is moving to a point of super specialisation and is poorly understood y management and non specialists, therefore some have even considered modern management accounting akin to the emperor's new clothes (Lord, 1996). Others, however point out that management accounting is the discipline which is best placed to embrace the modern information age and that accountants should not only be the recorders of information, but guardians of it, ensuring that information is decision relevant and in a sense decoded for managers and non specialists (foster & Young, 1997, Bourguiguon, A, 2005). This paper examines briefly the rise of ABC/M and the use of non financial data in the Balanced Scorecard approach and asks whether or not management accounting techniques and practitioners add as much value as they claim in the modern world.

The historical backdrop and external environment has had enormous impact on the direction and rate of management accounting change (Dent, 1991). Since the decline of the heavy industries in the West a new service culture has emerged, the rise of new public management has transformed the way the public sector is managed and outcomes are reported and information has become the currency of power and advantage (Burns, 2000). This change has seen the long held neo classical model of the firm replaced with Institutional economics, the view that the firm and society are inextricably linked. Institutionalism underpins much of the modern thought on strategic management and its approach is to look beyond simplistic forms of information typified by Cost, Volume and Profit (CVP) accounting (Ribeiro & Scapens, 2006). The change has not been only of management accounting, grey drew similar conclusions with his work on the financial accounting and regulatory regimes, but where the stated aim of the IAS is to harmonize these ideals of society to produce a framework of standards, management accounting has no such aims. There is no overarching theoretical framework within which management accounting must find itself to conform, it is an ongoing evolution of ideas, often from academics, which find themselves diffused into the practical arena and either succeeed and fail, often both. Indeed the way in which management accounting techniques find themselves utilised is increasingly an area of study where academics are attempting to understand the typology of change (Lucas & Rafferty, 2008).

What then are the major theoretical advances utilised today in search of the ever elusive strategic advantage? Two major developments, directly from the exponents of paradigm shift, Cooper, Johnson and Kaplan, are the Balanced Scorecard and Activity based management and costing. Both techniques attempt to place existing information within a theoretical framework which exceeds the limitations of CVP (Neo Classical), and make it relevant to the external and internal environments in different ways. ABM/C attempts to understand costs as a result of activities within the firm by assigning drivers of costs. The work is largely based on the idea of kaizen, of the Toyota Production System developed by amongst others Taiichi Ohno. Ohno was the first person to associate costs with waste rather than with overheads, eliminate waste and one eliminates costs, thus controlling costs in a more fundamental way. This is the driving idea behind ABC/M and it forms an important part of lean manufacturing philosophy (As does JIT inventory management which is again lifted almost wholesale from the TPS system of Kanban, Ohno, 1995) Early studies of ABC/M often cited the slow take up, problems of implementation which occurred with implementation (Drury et al, 1996, Malmi, 1997), but ABC/M has become standard in many manufacturing and even some service industries (Innes & Mitchel, 1997, McGuire, 1998). Modern thought on ABC/M would seem to suggest that it has become almost standard in many sectors from banking industry, even through to SME's (Hughes, 2005) and the public sector (Lui, 2008). Similarly the rise of the Balanced Scorecard as a way of defining the performance and controlling the outputs of the entity in relation to its external environment has proven to e a popular methodology. BSC attempts to take financial and non financial information, usually the Key Performance Indicators identified by management in Financial and non financial areas and to turn these into metrics which both monitor performance and reinforce activities suitable to the company's strategic direction (Kaplan, 1992). BSC has proven to be enormously popular in the public sector. The rise in the Uk of the Labour Government and its predilection for public sector performance measurement has seen the implementation of many value for money initiatives designed to ensure that Tax money is justifiable spent in the pursuit of public service excellence (Frigo, 1999). There are criticisms of the methodology, most notably the objectiveness of the metric setting process and the chance of goal incongruence, but on the whole it has become another staple technique for measuring performance. Similarly in performance measurement the use of economic value added and residual value have become more popular in looking at divisional performance in particular (Wisner, 1991, Roztocki, 2001).

Despite the often posative academic reviews of these techniques there are a number of fundamental criticisms of the institutional model. It is largely subjective in how it determins cost drivers, or metrics, and without significant care cost can increase rather than decrease. Perhaps fundamentally the lasting criticism of these technique is a often quoted but unatrributed mixim of manaagement accounting; 'often we do not measure all that we acheive, nor acheive all that we measure'. The use of increasingly sophisticated techniques often means that the practitioner becomes isolated in terms of his specialisation. Indeed one of the major criticisms of Relevance Lost and the early work which began (or so it is supposed) the revolution management accouinting techniques is that the work read like a management consultancy brochure (Noreen, 1987). Could it be that the increasing specialisation of management accounting serves only to ensure the palce of the management accountant in favour over other business professionals, such as MBA holders. There is an important point to make about academia's role in the research of management accounting and the diffusion of new ideas, that the researchers neeed to find new techniques because their research grants depend upon it. Regardless of these particular criticsisms there is no doubt that ther has been a shift in the paradigm, and that shift is in line with the wider business enviroment shift. As the future becomes the present ever more quickly in these days of significant technological, social and enviromental changes so too will management accounting need to increase the pace with which it implements and refines techniques to model information for the strategic managers. Managmetn accountants no longer report the score, they truly can influence it.

Writing Services

Essay Writing

Find out how the very best essay writing service can help you accomplish more and achieve higher marks today.

Assignment Writing Service

From complicated assignments to tricky tasks, our experts can tackle virtually any question thrown at them.

Dissertation Writing Service

A dissertation (also known as a thesis or research project) is probably the most important piece of work for any student! From full dissertations to individual chapters, we’re on hand to support you.

Coursework Writing Service

Our expert qualified writers can help you get your coursework right first time, every time.

Dissertation Proposal Service

The first step to completing a dissertation is to create a proposal that talks about what you wish to do. Our experts can design suitable methodologies - perfect to help you get started with a dissertation.

Report Writing

Reports for any audience. Perfectly structured, professionally written, and tailored to suit your exact requirements.

Essay Skeleton Answer Service

If you’re just looking for some help to get started on an essay, our outline service provides you with a perfect essay plan.

Marking & Proofreading Service

Not sure if your work is hitting the mark? Struggling to get feedback from your lecturer? Our premium marking service was created just for you - get the feedback you deserve now.

Exam Revision

Exams can be one of the most stressful experiences you’ll ever have! Revision is key, and we’re here to help. With custom created revision notes and exam answers, you’ll never feel underprepared again.