Management Accounting Innovation - Example

Running Head: Management Accounting Innovation Management Accounting Innovation Name Course Lecturer Date Introduction Management accounting denotes the classification, quantification, accumulation, evaluation, preparation, elucidation and conveyance of information that is utilized by a firm’s management to schedule, assess and direct within the organization and to ensure that its resources are used appropriately and accountably. In the recent years, there have been some criticisms concerning the lack of effectiveness as well as competence in the conventional management accounting operations. In response to these criticisms, numerous management accounting innovations like target costing, balanced scorecard and activity based costing have been launched. This essay will analyse management accounting innovation as one of the core themes that are driving modern organisations. The analysis will comprise of the current innovations in management accounting, role contribution and appropriateness of innovations and the responsibility that is played by management accountants in accelerating and promoting innovation (Askarany & Smith, 2000). Management accounting innovations A number of management accounting modernisms have been build up and are being used by majority of business organizations. The use of such innovations is accruing so many benefits for the organizations. In contrast, the shortage of concrete facts for supporting this point has provoked critics to consider the innovations as unreliable and disorderly. Most organizations around the globe have either taken up these innovations, are now taking up the innovations or are ascertaining the gross gains that are likely to accrue from adopting the management accounting innovations. In all the above situations, all the organizations have a common feature which is, they are all big organizations (Askarany & Smith, 2000). The most commonly used innovation in management accounting is Activity Based Costing. This type of innovation discerns that, evading production disruptions in a contemporary business organization is of great importance than simply lessening the level of expenditure on raw materials. This idea emphasizes on operations that augment costs like rendering of service or manufacturing of a product constituent while paying little attention to direct labour which it considers, a lesser driver of costs. According to the management control hypothesis, management accounting is considered as a system of management control that gives surveillance inside the enterprise (Bradtke, 2007). The administration and control procedures in an organization are responsible for defining the goals of the organization, gauges development and recompense the performance of the workforce. Management accounting forms a fundamental component of all these procedures. Management accounting should counter the present as well as imminent transformations that are prevalent in the business environment since failure to do so may adversely affect the performance of the organization in question. This comes as a consequence of management insights, conduct and responses to organizational affairs along with discipline constraints. Management actions may be changed in a way that will probably generate a constructive or a negative resolution based on the data that is contained in the management statistics. This can be made possible through the alteration of management accounting data to comprise of both beneficial and irrelevant aspects of a system (Bjoornenaka & Olson, 1999). Conventional management accounting inferences and evaluations had several characteristics. First, a lot of emphasis was laid on the fruitful toil and time of the firm as well as valuation of stock to the extent of omitting management decision requirements. In addition, it considered the value of labour a fundamental determinant of the level of output and capacity exploitation. Moreover, conventional management accounting had a minimum connection to other types of in-house organization performance measurement. These traditional practices were unproductive because major aspects of the firm were discarded and there was no trending of performance drifts to give a lasting control system. As a result, firms are shifting from such misleading practices to adopt management accounting practices that encourage diverse decision making (Drury, 2008). Role contribution and appropriateness of the innovations Different types of innovations in other fields are categorized as technical initiative or administrative. However, innovations in management accounting are grouped as managerial and entirely radical. A big percentage of accounting innovations entail fresh technical as well as managerial components while the execution of certain innovations require taking up of other managerial and technical innovations. Consequently, the analysis of the impact of implementing accounting innovations is seen as a universal package of several components. More so, the execution of these innovations less frequently leads to direct benefits but rather indirect merits like behavioural transformations within the organization. In the long term, implementation of these innovations results in enhanced management accounting data outcomes (Chartered Institute of Management Accountants, 2003). Although the process of innovation is an important element of nearly all business strategies, its execution as well as management has been a very hard task for most firms. From this view, a sophisticated procedure requiring all the members of an organization to take part in it, may prove to be normally challenging and taxing. As a result, the management is forced to take up attractive approaches so as for all members to participate fully if the planned process is to be successful. Incentives which may take the form of objective achievements, rewards along with retraining programs may easily persuade a worker to take part in such a challenging procedure of change. The cooperation among diverse participants in the varied phases of the procedure is very crucial for smooth management of the undertaking. In this perspective, the retraining programs should be carried out together so as to ensure consistency and transferability of expertise to promote unity and hence success (Epstein & Lee, 2010). The data that is obtainable from management accounting presents a platform to the managers for carrying out a summary of the whole internal composition so as to aid the control units within the organization. Management accountants are charged with the provision of a scorecard that can be used by outsiders to rate the general performance of a firm. Moreover, managers use the same scorecard to prepare numerous reports such as reports on the way managers or departments have performed as compared to the preset plans and yardsticks and reports intended to give timely and regular major indicators’ updates such as order backlog, orders received and sales (Epstein & Lee, 2010). Management accounting forms a key element of the management structure of any organization hence an enhanced comprehension of the field or failure has a likelihood of immensely affecting the running and efficiency of the company. All in all, prior to participating in whichever management accounting arrangement or control, it is crucial for accountants to be aware that, the contemporary business settings which are normally dynamic, complex and unstable affect accounting data. Thus, accounting systems should be planned in a manner that will allow them to endure those environmental conditions (Chapman, 2005). Management accountants in accelerating innovations In speeding up the innovation process, a very important role is played by management accountants through gauging and presenting financial as well as non-financial data that is required by managers in the making of decisions. The efforts of the accountants ought to be associated with the vital activity that is geared towards the attainment of organizations’ objectives. In this view, the role that is assigned to their positions eventually contributes to a fast achievement of these objectives (Sisaye, 2006). Nowadays, management accountants have multiple links to an organization and thus their roles and conduct are perceptive in today’s businesses. The first relationship is that, they operate as strategic associates and suppliers of decision oriented financial and functional information. Secondly, the accountants are assigned the duty of controlling the business team alongside reporting relationships and roles to the organization’s finance department. Therefore, the activities that are carried out by management accountants are; projection and planning, checking and reviewing costs as well as variance analysis inherent in the organization. Such responsibilities form the grounds for double accountability to the business group along with the finance division. However, answerability to the business team is highly important as compared to the finance unit because the team is charged with core business activities such as new product development, score carding of sales management, operations research and assessment of customer profitability. Accordingly, the finance division will gain in regulatory reporting, preparing financial reports and data reconciliation to source structures and risk because it is responsible for the collection of financial data from each and every part of the business organization. It is thus extensively supposed that, financial accounting acts as a catalyst to management accounting. Hence, a big percentage of organizations are shifting from laying emphasis on financial accounting since it is more concerned with conformity to take on management accounting because it deals with creation of value and enhancing achievement in the corporation (Balakrishnan, Sivaramakrishnan, & Sprinkle, 2009). Position of management accountants in promoting innovation In the context of management accounting, innovations are viewed as thoughts, goals or practices that are new to the corporation that is taking up the innovations. The basic insight here is that, each innovation entails change. The function of management accountants in speeding up innovation has been considered as insufficient in organization based on the findings of the research that has been carried out in this field. A research to ascertain the Chief Financial Officer’s role in adopting and executing management accounting innovations established key findings. To start with, survey of managers of public sectors showed that, implementation of such innovations in the sectors was highly controlled by the government. In addition, personal disparities among Chief Financial Officers direct the use of management accounting innovation in the organization (Naranjo-Gil, Maas, & Hartmann, 2008). In the recent years, accounting professionals have been attempting to alter the outmoded accounting practices as well as calling for an active and innovative move towards management accounting. The contemporary accounting practice view cost accounting as the core technique while in traditional accounting, variance analysis was used as the core method. Though variance analysis is still applied in a number of organizations, it is combined with innovative methods like activity based costing since the latter is intended to suit particular features of the contemporary business environment (Naranjo-Gil, Maas, & Hartmann, 2008). Conclusion Management accounting provides all the necessary information that is required by the management of an organization to direct its business activities. Activity based costing is the most commonly used managerial accounting innovation. Introduction of several innovations has led to the adoption of these innovations by most modern organizations. Several benefits accrue from the use of accounting innovations though the benefits are more indirect like behavioural change in the organization. Management accountants play a vital role in accelerating innovation through giving managers the needed information to make decisions. The role of management accountants in promoting innovation in organization is limited. From the above, it is clear that, management accounting innovation forms one of the central themes driving contemporary organizations because of its many benefits. References Askarany, D., & Smith, M. (2000). A critical evaluation of the diffusion of cost and management accounting innovations. Management of Innovation and Technology, 2000. ICMIT 2000. Proceedings of the 2000 IEEE International Conference , 1, 59 - 64. Balakrishnan, R., Sivaramakrishnan, K., & Sprinkle, G. B. (2009). Managerial accounting. Hoboken, NJ : John Wiley & Sons. Bjoornenaka, T., & Olson, O. (1999). Unbundling management accounting innovations. Management Accounting Research , 10 (4), 325–338. Bradtke, D. (2007). Activity-Based-Costing. München GRIN Verlag GmbH . Chapman, C. S. (2005). Controlling strategy : management, accounting, and performance measurement. Oxford : Oxford Univ. Press. Chartered Institute of Management Accountants. (2003). Management Accounting Research. Elsevier Science. Drury, C. (2008). Management and cost accounting. London : Cengage Learning EMEA. Epstein, M., & Lee, J. Y. (2010). Advances in Management Accounting. Bingley : Emerald Group Publishing Limited. Naranjo-Gil, D., Maas, V. S., & Hartmann, F. G. (2008). How CFO's Determine Management Accounting Innovation: An Examination of Direct and Indirect Effects. European Accounting Review , 18 (4), 667-695. Sisaye, S. (2006). The ecology of management accounting and control systems : implications for managing teams and work groups in complex organizations. Westport, CT : Praeger Publishers. Read More