IntroductionAccounting has lost its relevance, its connection with reality. There is an urgent need to reconsider the basic (but unfortunately largely unsolved) problems of accounting in a new and critical light, using modern scientific theory and modern information technology. There is also an urgent need to draw up new, up-to-date management accounting systems for use in practice. This is the basic message of a book published in 1987 and written by H. Thomas Johnson and Robert S. Kaplan, two American professors of accounting (the latter at the prestigious Harvard Business School).
Johnson and Kaplan's book is about the problems of modern accounting, thereby influencing the expectations of readers. It is called Relevance Lost. The Rise and Fall of Management Accounting. It is interesting that the authors have thought up this unusual and highly descriptive title, which uses two familiar descriptions of huge problems and processes to describe the world of accounting. Most people regard accounting as being necessary for modern society, but also as being unfortunately complicated, bound by tradition, with an authoritarian and dogmatic image, bone-dry, closed, lifeless, extremely boring and thus of absolutely no interest to anyone other than those who practice it.
In an article published in 1984 entitled "The Evolution of Management Accounting, " Robert S. Kaplan (1984) points out that the world of accounting is rigid, stagnant and barren, and he underlines this state of affairs in the following statement: "Virtually all of the practices employed by firms today and explicated in leading cost accounting textbooks had been developed by 1925." In 1925 almost all data processing was done manually. There were a few primitive mechanical calculators and typewriters, but these machines were relatively expensive, and few could afford them.
Modern data processing techniques lay far in the future. Most people were forced to depend on the mathematical and writing skills of trusted individuals. Punch card machines had been invented in the United States before the turn of the century, but the development of these machines took a long time, using the primitive technology available at the time. So in 1925 punch card machines were only used by the very few, and the electronic data processing and data communication that would develop in the second half of the twentieth century were naturally quite unknown.
Most readers will surely agree that it is preferable that accounting specialists (i. e., accounts managers or accountants) be good at counting and writing. After all, the very word "accounting" is derived from the verb "to count. " But the theories of accounting--the foundations on which the subject is based--have remained largely unaffected by the revolutionary developments in information technology witnessed during the past 40 to 50 years. These developments, and the new opportunities they have brought to the world of accounting, could well mean that the old, traditional theories of accounting are now outdated.
In many companies the financial accounting and production functions have very little contact, and the managerial accounting function is weak or nonexistent. The accounting department is concerned about gathering sufficient information to prepare financial statements. Operations may develop a series of its own performance measures to guide its actions. The two do not relate, and the functions ignore each other. About the only integrating factor in many organizations is the standard cost system.