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Outline
Professor Wilson
and his team have raised a number of serious and profound challenges
to the role of accounting information systems and also to the ability
of the producers of such information, that is accountants, to relate
to their 'customers'.
However, whilst
accepting some of the sentiments of the prosecution witnesses, the
defence will seek to demonstrate, that accounting, as a subset of
the overall process of knowledge acquisition and management, has
indeed a significant contribution to make. The process of recording,
interpreting and presenting financial and non-financial information
to management, that is both relevant and timely, is central to organisational
management and development. Thus accounting has an important role
to play in creating shareholder value.
Indeed, during
the course of our evidence, we will suggest that in the 1990s the
ability to make ever faster decisions, in conditions of greater
uncertainty, will become the defining criteria for corporate performance
and essential for survival.
As British business seeks to compete in the global market place
there is a need to embrace the new business paradigms. The new corporation
is knowledge-based, that is it comprises of intellectual rather
than physical capital. As the internet is helping to create the
cyber-connected virtual organisation, the successful companies of
tomorrow will probably be those that can make sense of chaos better
than their competitors.
In short, we
will prove that accounting information systems have never been more
relevant to British industry.back
Accountants
and the Wealth League
The prosecution's
suggestion that the UK's lowly position in 'Wealth League' is somehow
due to the large numbers of accountants in the UK, is neither proven,
nor I might add scarcely believable. In fact, we would suggest that
members of the jury should be minded to consider the case of America,
a country that is near the top of the league and, it should be noted,
has an accounting profession that is structured in a similar manner
to the UK. In fact, the defence contends that the opposite proposition
is true, that the rise in Gross Domestic Product is actually due
to the increased application of accounting systems and hence the
rising numbers of accountants.back
Aspects
of accounting
Before calling
upon the other witnesses for the defence, it may be helpful to the
court if I was to first explain the various aspects of accounting
practice. Members of the jury will thus appreciate that the role
of the modern accountant is not in fact straightforward, and frequently
encompasses a number of conflicting perspectives, well beyond the
somewhat stereotypical view thus far presented by the prosecution
Firstly, let
me deal with the term 'accounting'. This actually consists of two
related, but distinct entities: financial accounting and management
accounting.
Of these, financial
accounting is the more familiar to the public and I shall deal with
this first. back
Financial
accounting
Financial accounting,
can be defined as the periodic, external reporting of accounting
information, as required by statute for shareholders, government
agencies (most notably the Inland Revenue) and other parties external
to the business. As such, various rules and conventions are necessary
to ensure consistency between sets of accounts. Financial accounting
is predominately based upon past transactions and events. There
is a requirement for companies to prepare 3 financial statements
each year, a Profit and Loss account, a balance sheet and a cash
flow statement. Between them, these statements reveal the monetary
performance and value of the company. This limited view may be quite
satisfactory for the stewardship of smaller owner managed businesses.
But as a business grows, and needs further funds for expansion,
accounting takes on a new significance. This is because without
quantifiable, and verifiable, performance indicators there can be
no efficient stock market or banking system; from which investment
capital might be raised.
A subset of
financial accounting is auditing. The process of ensuring that year-end
accounts present a true and fair view of the company's position,
and comply with the various regulations. My co-defendant Neil Gray
will subsequently explain this aspect in greater detail. back
Management
accounting
By contrast,
management accounting, which is my own area of expertise, seeks
to support people within the organisation, directors, managers,
and individual work teams, helping them to make decisions, to plan
ahead and to ensure that these plans are met. It is concerned with
the past, the present and the future. Information is required in
both detail and in summary.
A depiction
of these different dimensions is shown in the bundle as exhibit
1.
The functions
of management accounting can be summarised as analysis, decision
making, planning and of course control. A schematic diagram of these
activities can be seen as exhibit 2, which can be found at the rear
of the bundle. Shown around these key processes are examples of
some of the techniques that may be appropriate at each stage.
There are indeed
many more techniques in the armoury of the modern accountant, A
selection of them are shown in exhibit 3. Members of the jury will
note that I have distinguished between traditional, objective orientated
techniques, such as product costing, break even analysis, budgeting
etc. and more contemporary techniques requiring people-centred skills.
Such interpersonal skills are now essential to support team working,
empowerment processes and furthering the concept of the learning
organisation.
Management accounting seeks to optimise economy, efficiency and
effectiveness. But even here the situation is not straight-forward.
Whilst each of these aspects are desirable pursuits on their own,
they can often conflict.
Management
accounting has a number of facets, from simple operational control
(maximising efficiency) to strategic management accounting (maximising
the effective acquisition and deployment of resources) Again an
illustration of these constituent parts may be seen in the bundle
ref. 4.back
Role
conflict
We are starting
to see how the subject of accounting is becoming more complex. Conflict
between the roles already identified is perhaps not surprising therefore,
particularly in smaller companies where the accounting function
consists of a single person. Let me take this question of role conflict
a stage further.
Accountants
produce information for the people who pay their wages. Traditionally,
management have hired accountants to act merely as the financial
conscience of business, to play devil's advocate to creative suggestions
and to provide justifications for decisions already taken. It suits
sometimes to say, "Great idea Fred. Really liked it. Unfortunately
I can't get it past the finance people at the moment. You know how
it is. Probably next year eh?". Little wonder then that accountants
are cast in a negative and ultimately self-fulfilling image. We
also have mortgages you know.
Then we have
the question of stakeholder conflict. You know the scene. "Can
we have 2 sets of accounts please. A good (accurate set of course)
for the shareholders and the bonus scheme calculations, but then
a more honest set for the tax man and the employees. Don't want
that lot thinking we're rich and demanding more money!
Stakeholders also include the directors, the managers, customers,
suppliers and the public at large. Each has different needs. Accountants
are thus in the unfortunate position of being all things to all
men! (and women).back
Accounting
perspectives
We have also
heard from the defence that accountants suffer from some curious
medical sounding condition called retrospective/introspection. Sounds
very nasty. The truth is that a backward looking view from accountants
outside the company was all that directors required in days gone
by. Senior management preferred to operate in an almost militaristic
command and control mode. They expected accounting information to
reinforce their position. The graveyard of British manufacturing
industry in the 1980s, bears witness to such ill-conceived ideology.
We have heard
the defence asking, by inference, what accountants actually do.
I have thus far suggested what they have the skills to do. Their
actual duties can often be less altruistic and tend to be driven
by what management want them to do. Managers who, as we shall here
later, have often a very much shorter time horizon. In a research
paper published earlier this year, Betty Vanderbosch suggested that
in terms of rationalising the utility of accounting information
to management, the following activities could be observed:
- scorekeeping,
- problem solving,
- focusing organisational attention and learning, and
- legitimising decisions.
A reference to this is given in exhibit 5.
If the last
category seems rather curious, allow me to shed a little light.
Put simply, it means that accounting
information is often used to justify commercial decisions that have
already been taken. In short that means
that accountants are often just wasting their time!
Whilst it is
clear that some of those shortcomings have been laid historically
at the door of accountants, I'm pleased to say that the situation
today is much different. This progression is perhaps best appreciated
by turning to the diagram, exhibit 6 in the bundle.
This shows
on the horizontal axis two time dimensions the past and the future,
vertically is depicted the perspective of those who operate outside
the organisation and those inside the company. David Allen, a past
president of CIMA suggests that the direction of the profession
is moving from the bottom left to the top right of the matrix and
I think you will agree that this is indeed so. Accounting is justifiably
becoming an integral part of the management process of each business.
There has been
reference to the role of accountants within the organisation. The
role of accounting is moving from being a part of the command-and-control
function towards being a support function supplying specialist help
and advice to management. There is some evidence that accountants
are increasingly transferring into line management positions. A
diagram depicting this process is shown in exhibit 7. This is loosely
based upon the work of Henri Mintzberg.
This new, enlightened,
approach on the part of management accountants is further illustrated
in exhibit 8.back
Knowledge
management 
The significance
of this new orientation is that it underpins the separate but linked
concepts of knowledge management and the learning organisation.
Accountants can play their part in the collection, processing and
presentation of knowledge, but knowledge is a noun, it is passive.
For it to become a verb, to become active, for it to become an organisational
learning experience, requires participation and involvement from
everyone. Learning is about doing and reflecting. This is the new
territory of business
I referred
initially to the new knowledge based companies. Those who are more
about people and less about bricks and mortar. The virtual organisation
of the next millennium. These are the new information-rich people
centred businesses. The empowered companies. The companies who,
as my final exhibit number 9, illustrates are moving from the old
factory style to the creative empowered future.
We would contend
that for too long accountants have been stymied not by their own
outlook but by their employers the management of British business.back
Concluding
remarks
Members of
the jury I have outlined the skills and techniques that accountants
possess. I have described a vision of the future for business. Accountants
know what is expected of them. They are ready to play a full part
in British business. Give them the opportunity. They are relishing
the challenge. They are indeed capable of adding much value to British
business
My colleagues
will add further weight to these views.back
References
Doyle, P (1994),
Marketing Management and Strategy, London: Prentice-Hall.
Hayes, R H
& W J Abernathy (1980), 'Managing Our Way to Economic Decline',
Harvard Business Review, Vol.58, No.4, July-August.
Hope, J &
R Fraser (1999), Beyond Budgeting White Paper, Poole: CAM-I.
Johnson, H
T & Kaplan R S (1987), Relevance Lost: The Rise and Fall of
Management Accounting, Boston, Mass: Harvard Business School Press.
Kaplan, R S
& D P Norton (1996), The Balanced Scorecard, Boston, Mass:
Harvard Business School Press.
Wilson, R M
S (1999), Accounting for Marketing, London: ITBP/CIMA.
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