Roles of Management Accountants after the Global Financial Crisis



In this article we discuss the roles management accountant after the global financial crisis in 2008 to 2009. We first, trace the effects of global financial crisis on business environment. We then discuss the ways that management accounting can help organizations cope with the changes in business environment. Then the paper will discuss the roles of management accountants after global financial crisis.

The Effects of Global Financial Crisis on Business Environment

The recent global financial crisis since 2007 is a systematic financial crisis, triggered by a liquidity shortfall in the United States banking system. The bankrupt of Lehman Brothers Holding, the Bank of America takeover Merrill Lynch, and AIG's credit ratings downgraded below 'AA' level and other precipitate accidents shocked America. The abuse of financial derivate instruments by Wall Street and the effects of American monetary policy caused American financial crisis. Unfortunately, this crisis spread to sustainable economy and finally leaded to the global financial crisis.

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One major impact of this global financial crisis on business environment is it accelerates the speed of national relationship barycenter move from the Atlantic to the Pacific. One important mark is the replacement of Group 7 by Group 20. In the third G20 financial summit, the Leadersr statement emphasized the G20 is the main platform of international economic cooperation. Nowadays, the economic aggregate of big emerging countries is half of the worlds' total amount. The other major impact is the crisis strengthens international cooperation, although various protectionism still existing.

Most of us do not like financial crisis, but it does brings both positive and negative effects to organisations. This crisis apparently is a risk, however, it contribute to industry reshuffling and surial of the fittest.

On one hand, the financial crisis has negative effects on corporate environment. The crisis brought market sluggish and development slow down. Banks, as the main group for corporate finance, faced money squeeze in the crisis, and as a result impact organisations gaining capital. Bank not only enhanced financing standards and costs, but also declined lines of credit. For external organisation, financing difficulty impedes market promotion, new product development and brand publicity; for internal organisation, it affects staff salary and welfare. Furthermore, oversea sustainable economy brings foreign trade impacts. The crisis slows developments of European and American developed countries, some countries even facing negative growths. In this situation, their import demand for Australian products will shrink dramatically. Third, the change of income and psychology of consumers will directly impact organizations' sales volume. In consequences, consumers' income level decreased, while commodities prices increased due to the enhancement of raw material costs, thus consumers' purchase power significantly fell. In this circumstance, consumers cut their expenditure, which affect organisation's sales and new products development, and lead to drop in corporate production capacity and serious impediment in organizations' survival and development. Forth, under the global economy downturn background, entrepreneurs' confidence deficiencies will shake the whole industry's cash flows.

On the other hand, this crisis presents opportunities along with above challenges. Although the global economy is facing a downturn, Australian market still retains brisk demand. First, potential opportunities brought by international market increased Australian organizations' comparative competitiveness. Because under the crisis, oversea organisations faced financial strain, income declined and other disadvantages, meanwhile Australian economy remains stable, and internal organisations comparatively faced less stress. Moreover, with unstable domestic environments, international organisations would slow down their entrance to Australian market. Thus, Australian organisations gain more competitive opportunities. Second, industry merger and acquisition aggregate, the powerhouse will become stronger while the weak will disappear. Big organisation with monopolize resource superiority, brand and resource will be more welcome, while small and medium enterprises with limited resources and less market shares and those still plan to sustain might face collapse. This is the irresistible rule of survival of the fittest. Furthermore, the level of both market concentration and competition will be increased. Third, industry regrouping will happen again. When the investment demand slackened and organisations faced relatively high pressure, organisations might choose using new technology to increase development in order to decrease costs. This might stimulate organizations' need for product technology and lead to industrial regrouping.

Needs of Management Accountants during business environment changing

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As defined by the Chartered Institute of Management Accountants (CIMA), management accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resource" (CIMA Official Terminology). The objectives of strategy management accounting are to direct managerial effort towards markets, collect information on competitors, customers and suppliers, and ascertain the organization's relative cost position. Generally, strategy management accounting contains three stages: strategy formulation, implementation and evaluation.

Strategy Formulation

In the first stage, management accountant analyse organisation's operating environment by identify critical success factors and threats. Either SWOT analysis or PEST analysis can be used. By SOWT internal and external factors that are favourable and unfavourable to the organization will be identified, while in PEST external macro-environmental factors that influence an organisation will be identified. Furthermore, organisations' objectives will be established, which required to be specific, realistic, qualified, achievable and time-related. Then management accountants will formulate strategic plan of which action is based on operating environment and objectives.

Affected by the financial crisis, organisations might decline new product development, impede new market development, and concentrate on beating competitors. Therefore, the competitors among organisations will be fiercer, original competitive advantage of an organisation may be caught up and even overhauled by its competitor in short term, and its disadvantage might capitalized by its opponents. Consequently, whether an organisation can gain competitive advantages is the key to its success under the crisis. Organisations can use management accounting to integrate external and internal information, formulate competition strategies in increase both their competitive advantages and differentiation.

The crisis last for short term, while management accounting focus more on organisation's sustainable development, management accountant should provide more outward-looking information, and set a strategy that is long term, view interest as a whole strategy, and take emergencies into account.

Strategy Implementation

In the second stage, management accountant establish appropriate organisational structure, assign responsibilities to individuals, allocate organisational resources and manage business processes.

Strategy Evaluation

In the last stage, consequences of implementing an organisational strategy will be assessed include both financial and non-financial performance. Organisations should build effective an information transformation and feedback system, and strengthen process control in order to provide evaluation basis. A well established evaluation system not only helps strategy implemented according to an organisation's goal, but also effectively guides managers' decision making. Traditional accounting calculates income in short term, it easily gives rise to short term decision making, and it lacks for control during strategy implementation. However, managing accounting use both financial and non-financial indexes to help organisations evaluate their operations in a higher level and broader way. Actually, in fierce competition environment, non-financial indexes such as market share, technical innovation, customer satisfaction, level of services, quality of products, are better evaluation criteria for organisations' operation and performance measure. If organisations only look into their return on investment, their strategies will mislead operations.

The Roles of Management Accountants after Global Financial Crisis

According to the definition provided by ICMA, management accountant 'applies their professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking' (ICMA).

Distinguish from traditional financial accountant, management accountant act as internal constructor in organisations. They normally responsible for designing and managing internal financial system, monitoring, reporting and predicting organisation operations, collecting, analysing and integrating corporate information, evaluating overall performance, executing and controlling corporate management. All these responsibilities make them take part in making strategy decision in organisation development.

As the financial crisis accelerate the changing in global environment, corporate decision makers hanker for high quality information about internal control and finance, and this result in management accountant play an much more essential role than ever before. In recent days, more and more organisations and companies all over the world depend on professional accountants that have been approved by ICMA, not just because they are professional in finance, accounting and management, but also they have professional skills to support in making strategies to improve organizations' operation under the background of economy changing dramatically.

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Refer to the president of CIMA Joachim presented in earlier article, 'the financial crisis has highlighted the need for finance to assume a broader role: not only supporting a business but also using professional objectivity to ensure that risk and performance are managed in the long-term interests of all shareholders'. Thus organisations need management accountants to survive in the turbulent waves of recession. As management accountants can combine financial expertise with commercial knowledge. They are the 'only professionals with a complete financial toolkit which includes the ability to provide a longer-term planning framework to ensure strong governance at board level and more informative external reporting'. Management accountant can also play a key role in 'assessing the data available and filtering information to inform all stakeholders'. (Joachim, 2010)

Thus, accountants play a huge role in managing the overall finance of the organizations. They support managers to improve risk management and guide organisations in any future economic storms.