Management Accounting Innovation in Modern Organization - Essay Example

Management Accounting Innovation in Modern Organization Name: Professor: Institution: Course: Date: a. Introduction: Does the management accounting innovation of any importance to the modern day organization? The management accounting has been undergoing innovations and inventions that have formed the core themes that drive the operations of the modern organisations. This paper would clearly analyse through which the management accounting innovation have formed the core themes for the operation of the modern day organization. This paper would achieve this through looking at the three most successful management accounting innovations that have for a long time played a crucial role in the modern day organization; the analysis of the activity-based costing (ABC), the analysis of the balanced scorecard (BSC), the economic value added (EVA) and the relationship between the three main types of management accounting innovations (Hopper 2007). This paper would later look at the interface between the management accounting and the informational technology. Information technology has played a very important role in the operation and management of the modern day organizations. Later the paper would look give a summary of the important information covered in this paper in the conclusion part. b. Management Accounting Innovations: Many new models of management accounting have been introduced in the past few years with an intention of making the management of accounting effective and easy. The acronyms that are used in the accounting field to represent the management accounting innovations are; ABC and EVA and sometimes they are referred to by catchy names which attract attention such as intellectual capital and balanced scorecard. The main sources of the management accounting innovations were as a result of search for solution for the existing problems by the modern companies. These new solutions which came as innovations were to be used for planning, organizational control and decision-making purposes (Plasmans, 2006). The research carried out recently provided a reason as to why some innovations spread more successfully than others. Below are the different management accounting innovations that have successfully diffused through the modern world; 1. Activity-Based Costing (ABC): This is a management accounting innovation that was introduced in the late 1980s. The main idea of this innovation was to introduce bases of new allocation of the indirect costs which include drivers that are non-volume related or those costs that are inversely proportional to their volumes. The main reason for the introduction of this rhetoric was to come up with base allocations that were typically different to the traditional allocation which has allocation bases that were directly proportional as they had direct labour and direct material. In the first phase, the selection of the base allocation using this concept was the key design for most organizations. Later on, the concept was further improved to adapt a multidimensional analysis of profitability. Objectives that were more descriptive were introduced which included; segments for consumer market and channels of distribution. These additional parts formed a continuous process which was regarded as a cost hierarchy continuation (Vuskane 2010). An additional development feature was the initiative that aimed at separating the cost of the capacity of the unused from the activities. A best example is whereby the ABC was traditionally regarded as a model of resource usage. Based on the ABC literature, the phrase, “traditional costing” is used to refer to the systems of costing that are unsophisticated. Comparing different concepts related to ABC written in different books revealed that most characteristic designs on ABC were previously discussed in the global literature. Literature materials that are non-volume have spread all over German and Scandinavian literature and had not yet depicted this information in these countries. This might be the sole explanation why the cost practices in these countries seem to be very complex compared to those in other countries like US. The cost hierarchy is a little older in US due to the volume material compared to German where the cost hierarchy seems to more recent. Otherwise, the management accounting of any organization relies highly on the cost hierarchy. Therefore, it is true that the management accounting innovation forms a base for modern day organizations’ operations (Lee, & Epstein, 2011). 2. The Balanced Scorecard (BSC): The balanced scorecard concept in a management accounting innovation that was first introduced in the early 1990s. The balanced scorecard development was purposely introduced to supplement the financial indicators in different organizations. The financial indicators were to be perceived alongside other indicators that were non-financial that were suitable for measuring value creation and performance of the organizations (Choi, 2003). The introduction of the balanced scorecard was on the basis of visiting and describing the financial and non-financial situations of different individual companies. The companies had new experiences with the initially developed concept of the balanced scorecard and the small mistakes were identified from which the changes were made and the concept redesigned under keen studies and researches. The development of BSC concept that was most significant is where it focussed on the causality between different objective strategies and what presently are referred to as a strategy maps. The structure of the BSC is more flexible in French tableau de bord since its main focus is on the non financial indicators. This is a similar structure to that of Europe. The operations of the modern organization rely on this similar management accounting innovation concept. 3. Economic Value Added (EVA): The economic value added (EVA) is a management accounting innovation that was introduced in the early 1990s. The economic value added was the first management accounting innovation to be registered as a trademark (Chapman, Hopwood, & Michael 2007). The economic value added innovation just like the other two management accounting innovations originates from the United States of America. This innovation was not introduced by famous and well-known academics but rather, it was introduced by a consulting company called Stern Stewart & Company. The EVA is based on the conceptual model in which the company’s capital cost which comprises of equity and debt is subtracted from the profit of its operating. After this calculation has been done, the remaining sums up as the company’s economic value added (EVA). The economic value added (EVA) concept has been found in use by the practitioners such as the General Electric as used in the late 1950s and in academics. The concept of EVA can also be seen as a continuation concept of a special version that was used in calculating the residential income. In the tradition of German, for over 100 years, the imputed interest has been considered as a cost (Mackenzie, 2012). This part of the economic value added innovation can only be seen as new to a limited extend. The economic value added (EVA) innovation is defined by different elements based on Stern Stewart that uses theories of finance in coming up with a concept to divide specific costs of capital. The division of specific capital costs were based on the specific factors of the industry and the assessment of the risk. The second changes on the economic value added innovation were in form of a number of adjustments that are done by management accounting specialists to what is known as “distortions introduced by general accepted accounting principles (GAAP)” (Hopper 2007). The list of these adjustments that is complete is the secret preserved by Stern Stewart. This innovation later became every modern organization’s concentration and focus in order to enhance their management accounting systems. c. The relationship between the three management accounting innovations: The three management accounting innovations that have been discussed above are the most successful innovations of management accounting. Below are short descriptions of the relationship between the three management accounting innovations above; i. All the three management innovations have characteristic designs that are found in the previous models that are recorded in literature material. ii. All the three management accounting innovations have a similar origin which is the United States of America whereby two of them (ABC and BSC) were introduced by an academic institution in the community whereas the third one (EVA) was introduced by a consulting firm in the community. iii. The perception whether any of the three management accounting innovations is a new thing or not varies from country to country because each of them is related to the traditional concepts. iv. Each of the three management accounting innovations is made up of combining different characteristic designs and elements that are rhetorical and define that particular innovation. v. The innovation and presentation manner of each of the three management accounting innovations is rooted deeply in hypothetical life cases and examples (Chapman, Hopwood, & Michael 2007). d. Management Accounting and Information Technology: The information technology refers to all technologies that are used by modern businesses in the creation, storage, exchange and use of modified ways of information transfer in an organization. Many organizations were facing difficulties in communication enhancement, internet advancement and data input for the use by the organizational employees. Therefore, the organizations had to enhance these systems in their management accounting systems in order to make organizational operations effective and efficient (Rich, 2010). The main reason for the innovations that led to development of information technology was to be used for management accounting purposes. There was a dire need to develop new applications in the management accounting of organizations based on the need of the consumers and the businesses of the organizations. Modern organizations created such infrastructures as software, hardware and data transmissions networks in order to enhance the operations of the organizations  Christian (Brütsch & Lehmkuhl, 2007). Information technology focuses at connecting the users of the management accounting materials with the accounting documents through requirement analysis, project management and system building. Despite the fact that accounting and information technology are distinct areas, they are linked by the roles they play in the management accounting. The main interest of It in business has been to enhance the e-business in organizations (Lee, & Epstein, 2011). The faster evolution that is taking place in the informational technology has made it useful in the management accounting since it plays a crucial role in distributing accounting data faster, effectively and securely within the firm. It has reached a time when IT has become more integrated to a point whereby the ledger systems are replaced by the ERP systems. Modern information technologies if at all are to be measured from their comprehensiveness and number of integrative functions they perform in organization, they are complex. The IT perspective aims at promoting the structure of meta-data, configure the transaction process and matching the responsibility structure of the managerial team of organizations (Maree & Chalmers, 2007). The innovation based on the organizational implementation of enterprise resource planning (ERP) system requires organizations to go through the following stages; have a phase planning, develop a blueprint of the business, design of the organizational configuration, conduct a testing that is final, and then lastly undertake continuous maintenance. The new information technologies have been the main cause of the management accounting innovations that form the core for the modern organization operations. e. Conclusion: There are three most successful management accounting innovations based on this paper. These three management accounting innovations are; the activity-based costing (ABC), the balanced scorecard (BSC) and the economic value added (EVA). All of these three innovations originate from the United States of America. Many modern organizations have formed operational and management systems based on the three most successful innovations of management accounting. Therefore, it is true to declare that the management accounting innovation has been one of the core themes driving modern organisations. The application of the management accounting innovation could not operate independently without information technology. The new informational technologies inventories and inventions have greatly changed the role and focus of the managerial systems of modern organizations. The main role of the management system of organizations was to control accounting reports, budgets and the organization’s variance analysis but after the implementation of the new technologies, everything changed (Hopper 2007). The main concern of the modern organizations’ management control systems is to control the new technologies such as enterprise resource planning. The integrated technologies have brought about problems in the management control since they have enabled the production of some information to be automated and the other calculations to be done locally. Therefore, the new technologies have mobilised issues and problems in places that are organizationally diverse. The management control has become concerned more with the of technology that aims at informs the various References: Hopper et al (2007). Issues in Management Accounting. New York, Elsevier Science Lee, J, Y & Epstein, M, J (2011) Advances in Management Accounting, Volume 19, Advances in Management Accounting, Washington DC, Emerald Group Publishing. Chapman, C, S, Hopwood, A, G & Michael D. Shields, M, D, (2007) Handbook of Management Accounting Research, Volume2, Handbook of Management Accounting Research, Michael D. Shields, ISBN 0080453406, 9780080453408, New York, Elsevier.   J. E. J. Plasmans (2006) Dynamic Modelling of Monetary And Fiscal Cooperation Among Nations Dordrecht: Springer .Jay S. Rich (2010) Cornerstones of Financial & Managerial Accounting: Current Trends Update Natorp Boulevard Mason: Cengage Learning  Linda Vuskane (2010). The Adoption of International Accounting Standards in Germany Norderstedt: Grin Verlag  Jayne Maree Godfrey, Keryn Chalmers (2007) Globalization of Accounting Standards Massachusetts: Edward Elgar Publishing. Frederick D. S. Choi (2003). International Finance and Accounting Handbook. 3rd Edition New Jersey: John Wiley & Sons, Inc. Kathleen L. Casey (2010) Continuing Oversight on International Cooperation to Modernize Financial Diane Publishing Company. Bruce Mackenzie (2012) Wiley IFRS 2012: Interpretation and Application of International Financial. New Jersey: John Wiley & Sons, Inc.  Christian Brütsch, Dirk Lehmkuhl (2007) Law and legalization in transnational relations New York: Routledge.  Abbas A. Mirza, Graham Holt, Magnus Orrell (2010) International Financial Reporting Standards (IFRS) Workbook and Guide. New Jersey: John Wiley & Sons, Inc. Jay S. Rich, (2010) Cornerstones of Financial & Managerial Accounting. 2nd Edition, Cengage Learning. Read More