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 Professor
RICHARD M .S .WILSON
This article
originally appeared in the journal of the International Federation
of Accountants. IFAC
ABSTRACT.
The changes that need to be made by 2004 if managerial accounting
is to better serve the needs of organizational decision-makers include:
a revision
of the role of the management accountant, away from that of "watchdog"
toward that of a participating member of the decision-making group
who is able to supply relevant information;
a change in
the design of managerial accounting systems that emphasizes organizational
processes and strategic considerations, rather than the traditional
subservience to financial accounting and a reliance on outdated
assumptions relating to the origins of managerial accounting in
manufacturing organizations.
Introduction
This paper
argues for managerial accounting to be viewed in the context
of organizational control rather than as some collection of
free-standing technical tools.
Contemporary
developments have embraced a range of different frameworks for considering
the nature and role of managerial accounting as well as the design
of managerial accounting systems.
These developments
include contingency theory, information economics, agency theory,
human information processing, expert systems, and strategic management
accounting.
For the future,
attention needs to be:
1. focused
on the problems of designing and implementing new systems,
2. understanding
the organizational context of managerial accounting,
3. concentrating
more on external linkages, and
4. investing
more heavily in research that generates closer links between practitioners
and those who carry out research, since there is an alarming lack
of awareness of managerial accounting practices.
Whether or
not changes in either the role of management accountants or the
design of managerial accounting systems are beneficial will be reflected
in the contribution that each makes to the effectiveness of the
organizations in which they are located. Thus context is crucially
important. back
The
Current State of Managerial Accounting
The current
state of managerial accounting is not reflected in a unified
theory or a coherent set of practices.
Perhaps the
ultimate test of the managerial accounting system is whether
or not it motivates and assists managers in achieving organizational
control.
In general,
among the various approaches that have guided practitioners in the
design of managerial accounting systems, a concern for organizational
control per se has not been paramount.
Moreover, there
has been a lack of balance between managerial accounting research
and practice. This may be due to the fact that academic research
is simply not relevant to practice or that research has moved away
from rather than being ahead of practice. Explanations for these
differences might include:
1) the tendency
for academics to investigate "respectable" topics rather
than useful ones;
2) the absence
of a unifying conceptual framework;
3) the dearth
of empirically oriented research (cf. medicine or engineering);
and
4) the absence
of documented case histories etc. written by practitioners - with
the result that there is a limited awareness among practitioners
themselves as well as between academics and practitioners as to
the state of current managerial accounting practice.
A partial view
of managerial accounting systems (in so far as they only include
financial information) is at variance with the need to understand
more fully the factors that are critical to the effectiveness of
organizations. To this end, the design of managerial accounting
systems needs to facilitate the production of a broader range of
performance indicators to cover such matters as:
-productivity;
-quality;
-manufacturing
flexibility; and
-delivery
performance.
back
Contemporary
Developments
Since the 1970s,
several approaches have been developed that seek to provide broader
conceptual frameworks for the development of managerial accounting.
These include:
1) the contingency
theory approach, which seeks to define specific aspects of an
accounting system's design that are appropriate to a given set of
circumstances.
Such theories
aim to be both descriptive (in explaining why organizations have
the accounting systems that are in operation) and prescriptive (in
recommending the design of accounting systems that ought to be operated
in order that desired ends might be achieved).
A critical
weakness of work to date lies in the tendency of contingency theorists
to overlook the fact that accounting systems design is but one part
of the design of an overall organizational control system, and this
inhibits the prescriptive potential of contingency theory. here
is a risk with this approach in that the central tenets of a contingency
theory of managerial accounting.
(i.e., that
there should be a matching of an organisation's accounting system
with its context and that there is no single, universally applicable
design for an accounting system) are likely to be a statement of
the obvious to the average practitioner who devotes much of his
effort to ensuring that this is so.
2) the information
economics approach, which sees information as a commodity that
can be bought and sold. As with other commodities, information has
costs associated with it (stemming from its generation) and value
to potential users.
In principle,
it is correct to take cognizance of the cost of producing (or acquiring)
information of a specified quality relative to the value of that
information to the user. Up to the present time, however, it has
not proved possible to develop operationally useful means of incorporating
the cost benefit analysis of information into the design of managerial
accounting systems.
3) the agency
theory approach, which stems from the recognition that the act
of measuring and reporting an individual's actions affects those
actions. This, in turn, locates the accounting system within a larger
system of accountability in which the manager (or agent) is seen
as being accountable to his principle for the effective use of the
latter's resources.
The central
question posed by agency theory is one that is relevant to the management
accountant since it is fundamental to organizational control: how
can a superior (principal) who has imperfect information about the
running of an organization (or division) motivate his subordinate
(agent) to act in the organization's best interests.
4) human
information processing (HIP) studies, which focus on the process
of individual decision-making and are based on theories derived
from psychology. The main problem has been the trade-off between
methodological rigour and the usefulness of the findings: the emphasis
on methodological issues has tended to limit the research studies
undertaken to the less significant aspects of managerial accounting.
In addition,
few HIP studies have examined individuals in organizational settings.
A recent development from HIP is that of expert systems. Useful
models of simple, repetitive decisions have been built to help individuals
with their decision-making, and there is logic in seeking to extend
this approach and to build models based on more complex decisions
requiring expert knowledge. This line of work is likely to be prominent
in future developments.
5) managerial
accounting as a social and organizational phenomenon, which
involves a shift from the psychological and social psychological
approaches underlying HIP, for example, to approaches representing
sociological and anthropological points of view.
One can contrast
the conventional view that managerial accounting exists as a set
of techniques for collecting and processing useful facts about organizational
life in a supposedly objective way (i.e., untainted by social values
or ideology) with the view that sees managerial accounting as being
both social and political in itsey.
Thus, the
information that is produced by managerial accounting systems is
itself a social product that only has meaning in the context of
the culture in which it is produced.
6) the linking
of managerial accounting with competitive and strategic considerations
(although further work is needed to develop a satisfactory framework
for strategic management accounting).
The case has
been well made for the design of managerial accounting systems that
are explicitly directed at the various stages of the strategic management
process and which combine elements of financial analysis, value
chain analysis, strategic positioning analysis, and cost driver
analysis. The adoption of a shift in perspective - from inward and
backward to outward and forward.
Contemporary
developments can be linked to one of two distinct avenues:
· the
construction of qualitative decision-making or decision support
techniques;
· the
development of behavioral and organizational insights into the functioning
of managerial accounting systems. back
Prospects
for the Future
British researchers
have raised basic questions that will need to be answered by the
year 2004. For example, we need to address:
1) the problems
of implementing the quantitative techniques that are being developed.
In particular, more attention needs to be given to: · estimation
of the necessary information in a world characterized by uncertainty,
of the costs of data collection and analysis;
2) the organizational
context of managerial accounting, including, for example, the
clarification of the purposes that managerial accounting might serve,
and the characteristics of the techniques that are likely to be
adopted in practice;
3) individual
decision-making and information processing, with a view to producing
less naive models than those derived from neo-classical economics;
4) the greater
concentration on external linkages (e.g., dealing with environmental
issues, competitive position, etc.);
5) the wider
use of corporate modelling (and, in particular, greater use
of scenario writing in the planning field);
6) an increasing
recognition that managerial accounting is but one part of organizational
life, which has reciprocal interdependencies with other
parts. Thus, accounting controls are merely a subset of an organization's
range of controls and should be studied in context;
7) a closer
link between practitioners and researchers, given the widespread
lack of awareness that exists regarding the state of managerial
accounting practice.
Researchers
need to spend more time in organizations working with practitioners
in order to observe and document what is happening. This should
help to ensure that issues such as the implementation and effectiveness
in operation of accounting systems are given proper consideration
as well as the design aspects;
8) a particular
example of the point made in 7) above concerns our limited knowledge
regarding the process of change in management accounting
at the level of the individual enterprise..
It would be
helpful to know more about the mechanics and the consequences
of change in design of managerial accounting systems in addition
to improved understanding of how and why change comes about at particular
times within particular organizations. back
Conclusion
Perhaps we
should reflect on the principal criterion against which any developments
in management accounting might be gauged: since the object of improving
managerial accounting systems is to enhance the effectiveness of
organizations employing such systems, the test of any "improvement"
should lie in the additional help given to managers in using those
systems to improve their performance.
In order to
properly underpin the redesign of managerial accounting systems
it will be necessary for much more descriptive work to be undertaken,
since there is very little empirical awareness of the actual design
and operation of managerial accounting systems within organizations.
As a consequence,
theoretical developments are often (if not usually) unrelated
to actual practice, hence the need exists to bring these
two aspects of managerial accounting closer together as a matter
of priority.
Such evidence
as is available suggests that managerial accounting is a discipline
in transition. Many of the deficiencies in managerial accounting
practice appear to be due to the shadow of financial accounting
requirements.
At the very
least, by 2004 it is to be hoped that managerial accounting will
have developed in a way that throws off the shackles of this heritage.
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