Issues in Management Accounting - Literature review Example

Issues in Management Accounting Management accounting innovation is one of the core themes that drive modern organisations because innovations are understood to enable organisations to successfully become accustomed to and survive unpredictable business environments (Emsley, 2005). Basically, the role of management accounting is to avail an information system that can enable managers and people throughout an organisation to make informed decisions, to be more effective at their work, and to improve the organisation’s performance (Needles, Powers & Crosson, 2010). This means that whatever information the management accounting function of an organisation provides must be up-to-date and must take into consideration the current and future needs of the organisation. Since new decisions must made in critical areas such as resource allocation in research and development, human resource planning and so on, accounting managers must provide information that will help an organisation to continue innovating while cutting unnecessary costs to remain competitive. As Chongruksut (2009) points out, new management accounting techniques are required by managers in areas such as advanced manufacturing to deal with intense global competition. Hence, management accounting innovation remains a critical theme driving modern organisations in order for such organisations to survive the intense competition they face globally. Management accountants have been criticised for the lack of capacity to innovate and the critics point to the considerably low success rate in executing what have been considered new innovations such as the balanced scorecard and ABC (Emsley, 200). This can be attributed to the fact that most of the accounting practices that were in use in the 1980s are those which had been developed in 1925, and for the next 60 years there was a halt or slow-down in management accounting innovation (Drury, 2007). Nonetheless, it is not true management accounting has totally failed to be innovative if one takes a critical look at management accounting literature written after the 1980s. Drury (2007) notes that since the mid-1980s, management accounting academics and practitioners have sought to modify and put into practice new techniques that are relevant to the modern day environment and which will ensure that management accounting recaptures its relevance. By 1994, Kaplan (1994, cited by Dury, 2007), who had been one of the critics of management accounting due its lack of innovation, stated that there had been a management accounting revolution in both theory and practice. He further noted that since then, there was a remarkable speed with which new concepts were becoming widely known, accepted and put into practice (Dury, 2007). In deed, since the 1990s many ideas have been introduced in management accounting. These include Target Costing, Activity Based Management (ABM), Economic Value Added (EVA) and Strategic Cost Management (Ax & Björnenak, 2005). There are also new terms like strategic management accounting as used by Tillmann and Goddard (2008) and Drury (2005).This is evidence that today’s management accountants are actively involved in driving innovation. If they were not, the situation would have remained as it was in the past and specifically in the 1980s. Emsley (2005) suggests that role involvement is supposed to affect innovativeness in regard to (i) knowledge about the aptness of innovations; (ii) recognition of the innovations by business unit administrators; and (iii) motivations to innovate. I agree with this position because Emsley’s (2005) article touches on the relevance of innovations, appreciation of such innovations, and the presence of factors that stimulate management accountants to come up with innovations. This means that management accountants must be motivated to innovate, their innovations have to be suited to the organisation for which they work, and the organisation – through the relevant department managers – must recognise such innovations. In the abstract of the article, Emsley (2005) notes that role involvement pertains to the level to which a management accountant has a business unit whereas innovativeness is assessed in terms of the number of as well as effort devoted to management accounting innovations. Innovativeness can be gauged in terms of the key characteristics of new products as compared to those of competitors, responses from customers as regards their satisfaction with the new features of and attributes of the newly introduced products, and so forth (Drury, 2007). This requires cooperation between unit managers and the management accountants to determine where to innovate and assess the success or failure of any innovations. Thus, it is apparent that for innovations to occur, there must be business units that embrace such innovations and commitment from the relevant managers to develop such innovations. In deed, Emsley (2005) goes further to point out that management accountants whose role involvement is directed towards the business unit will expend most of their time focused on the unit and will have a deeper mutual understanding towards the information requirements of the business unit managers. According to the same author, such a condition is highly probable where management accountants officially report to the business unit administrators who may then assess their performance. This elucidates the importance of recognising innovations and offering incentives to spur such innovations. The relationship above can be seen when considering organisations that decide to go beyond AA and ACA level for instance and implement ABC. According to Chapman, Hopwood and Shields (2011), such a case involves a situation whereby the innovations is more of administrative than technical. A management practice like ABC is therefore classified as an administrative innovation because it leads to the development of new administrative policies, procedures and organisational structures. But since the implementation of such practice affect the management accounting system as well as the organisational structure, the involvement of management accountants becomes critical at this point. My view from the article by Emsley (2005) is that to increase innovation, managers should collaborate with the people who need to use the ideas they innovate. From the article by Emsley (2005), it is noted that to meet the ever changing needs of business unit managers, there is need for management accountants to spend less time working within the limits of the accounting function and added time working in business units with the people who use the accounting information. This view arises based on the definition of management accounting itself, which is that management accounting is a profession that encompasses working with others in management decision making, creating planning and performance management systems, and offering expertise in financial control and reporting to help the management in formulating and implementing an organisation’s strategy (Needles, Powers & Crosson, 2010). The keyword in the definition is “working with others” or partnering. That is, for a management accountant to know the problem that exists within an organisation and which requires innovation to solve, he or she must work with others. The same point is emphasised by de Jong and Hulsink (2012), who argues that particular innovations are more likely to require dissimilar patterns of innovation networking and the level of some innovations may provide new insights. Management accountants cannot work in isolation and expect to provide innovative solutions for their organisations. They must work with others in the organisation to identify possible problem areas and hence find the appropriate innovative solutions. Emsley’s (2005) article also points to the significance of role involvement in enhancing the speed of innovation. Role involvement influences innovation in terms of the relevance of innovations, recognition of such innovations and incentives to motivate and this requires involvement of the entire management. In deed, Wong (2013) found out that management involvement has a positive and tremendous impact on all aspects of an innovation. Thus, if management accountants collaborate with management in the innovation process, they are likely to work more swiftly towards achieving the desired innovation. References Ax, C. & Björnenak, T. (2005).Bundling and diffusion of management accounting innovations - The case of the balanced scorecard in Sweden. Management Accounting Research, 16 (1), 1-20. Retrieved 31 March 2013, from http://www.google.co.ke/url?sa=t&rct=j&q=&esrc=s&source=web&cd=8&ved=0CHkQFjAH&url=http%3A%2F%2Fgupea.ub.gu.se%2Fbitstream%2F2077%2F19279%2F4%2Fgupea_2077_19279_4.pdf&ei=sztcUf34A4SvOZLVgaAG&usg=AFQjCNFXqJzhhcq0LzHTdhPltgdQyFjTew&bvm=bv.44697112,d.ZWU Chapman, C. S., Hopwood, A. G., & Shields, M. D. (2011). A review of activity-based costing. Handbooks of Management Accounting Research, Volume 2. London: Elsevier. Chapter 8. Chongruksut, W. (2009). Organizational culture and the use of management accounting innovations in Thailand. RU International Journal, 3 (1), 113 – 126. Retrieved 31 March 2013, from http://www.google.co.ke/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CEoQFjAD&url=http%3A%2F%2Fwww.iis.ru.ac.th%2Fdownload%2FJournal%2Fpdfvol3%281%29%2F7.%2520Wipa%2520Chongruksut.pdf&ei=VxBcUY3OO83ZPJvLgCA&usg=AFQjCNE2IltTyOWE37_6sAu2G5Be5PaP4Q&bvm=bv.44697112,d.ZWU De Jong J. P. J. & Hulsink, W. (2012). Patterns of innovating networking in small firms. European Journal of Innovation Management, 15 (3), 280-297. Drury, C. (2005). Management Accounting for Business Decisions (3rd ed.). New York: Cengage Learning EMEA. Drury, C. (2007). Management and cost accounting (7th ed.). New York: Cengage Learning EMEA. Emsley, D. (2005). Restructuring the management accounting function: A note on the effect of role involvement on innovativeness. Management Accounting Research, 16 (2), 157-177, Retrieved from http://www.sciencedirect.com Needles, B. E., Powers, M., & Crosson, S. V. (2010). Financial and Managerial Accounting (9th ed.). New York: Cengage Learning. Tillmann, K. & Goddard, A. (2008). Strategic management accounting and sense-making in a multinational company. Management Accounting Research, 19, 80–102 Wong, S. K. S. (2013). The role of management involvement in innovation. Management Decision, 51 (4). Read More