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ASSIGNMENT OF MANAGERIAL ACCOUNTING

Drivers of and barriers to management accounting change

Submitted by Zohaib Ahmed

Roll number 11032120-055


Section AS BBA-7th

Drivers of and barriers to management accounting change


Felix Schwarzea
Kim Wllenweberb
Andreas Hackethalc
November-2007 (2.0)
Summary

Introduction:
Banks were appeared with the challenge of implementing "Innovative"
performance measures supported economic profit rather than accounting
earnings. The ultimate objective was to require risk-adequate costs prices of
equity into account. Banks refused to adopt these innovative measures. This
confirms that the difference of management accounting strategies isn't
continually rational which management accounting has got to be recognized
as organization rules and routines whose design depends on amendment
processes. This paper addresses the question of that factors initiate banks to
or impede them from adopting refined performance measures. Managers
responsible of management accounting play a crucial role once evaluating
amendments: As catalysts they initiated the change method, however while
not their leadership role the amendment method might have faltered within
the face of the barriers. We so expressly analyze drivers of and barriers to
management accounting amendment. Specifically, we tend to aim to
investigate the impact of drivers and barriers on the perspective of
managers and their temperament to adopt subtle accounting strategies.
Thus, our initial analysis question is: what's the impact of drivers and barriers
on a manager's intention to use subtle strategies in management
accounting?
Previous studies have differentiated between the adoption of financial and
non-financial measures in management accounting.
Therefore during this paper we tend to address our second analysis question:
How does the impact of drivers and barriers on a managers intention to use
sophisticated methods in management accounting differ between banks
which focus on sophisticated financial or non-financial measures?
We are able to make five contributions:
1. Board expectations, transparency, profitability, agency issues,
information quality, IT application support, and private incentives
completely influence managers' attitudes towards the adoption of
refined ways.
2. Organizational modification negatively impacts managers' attitudes
towards the adoption of refined ways.
3. Managers', attitudes towards the adoption of refined ways, managers',
activity management, and environmental factors have a big impact on
the intention to adopt refined ways.

4. Profitability, board expectations, and private incentives have a bigger


positive impactfor those adopting stronger refined financial accounting
measures.
5. Transparency incorporates a bigger positive, and structure modification
a bigger negative impact for those adopting stronger refined nonfinancial measures.

Literature review

Previous analysis on management accounting amendment Since Hopwood


asked for any analysis into accounting amendment there are many studies
that analyze aspects of management accounting amendment. Libby and
Waterhouse detected that little is understood regarding the forces that
induce or act to impede management accounting systems amendment.
One of the primary evidence-based studies was printed by Innes and
Mitchell, who known in seven case studies, factors that cause management
accounting amendment. Missed the thought of barriers-factors that hinder or
forestall amendment and thus developed an accounting change model
supported a case study of a bank. Overall the processes of amendment are
forced by a mix of random, systematic and internal factors. In our study we
tend to check drivers and barriers that influence management accounting
amendment. We concentrate on one business, owing to the actual fact that
one business analysis has well higher internal validity than a cross-sectional
analysis. Williams and Seaman found that the determinants of management
accounting amendment can not be generalized from the producing and
industrial sectors to the service sector.There are some earlier studies
regarding management accounting style that additionally centered on the
banking system. Luther and Longden showed that motives for management
accounting amendment can disagree from country to country.
Intention to change
Our analysis model relies on the intention to change management
accounting as a variable quantity. In the change literature we discover
completely different approaches to the analysis of dependent variables: one
risk is to look at the factors of some specific changes enforced, that is
commonly worn out case study analysis.
These approaches are restricted as they do not mirror however the decision
process that led to vary was formed. As mentioned above, we would like to
investigate drivers of and barriers to management accounting modification
from a managerial perspective to require account of the vital role of leaders
in modification method.
The individual's attitude towards management accounting modification plays
a serious role within the analysis of the drivers of and barriers to change.
Only if the antecedents of attitude are analyzed in larger detail is more
analysis onprocess from an activity perspective possible so as to understand
the ultimate decision for/against management accounting modification.
Use the respondent manager's intention to vary a system as a dependent
variable

Research model
Research model supported the speculation of reasoned action, we tend to
analyze management accounting literature to spot factors that influence
perspective and intention. In the following we tend to discuss these factors
and justify however they need impact on the perspective and/or intention of
management accounting modification.
Staf
Using case studies, previous analysis has known accounting workers as a
supporter that influences the potential for accounting modification. In field
studies the role of accounting workers was tested as an element determinant
accounting modification. The availability of workers as a determinant
consider management accounting modification will be remarked as a
resource based mostly view:
Hypothesis 1: The bigger the provision of qualified workers, the a lot of
positive the perspective to rising management accounting.
Cost
The manager's call to enhance a system depends not only on the
advantages however additionally on the price of innovation. Yakhou and
Dorweiler known implementation price and value of operative as a barrier to
the adoption of latest accounting techniques. Because an accounting
modification is rejected if it's too pricey, we tend to check the subsequent
hypothesis:
Hypothesis 2: The lower the expected prices of the modification, the a lot of
positive the perspective to up management accounting
Transparency
Williams and Seaman outlined the providing of knowledge for managerial
decision making and evaluation as one of 3 basic components of
management accounting. Laitinen additionally found that a 'need for
exacerbating financial control' is an acceleration issue for change-oriented
firms, wherever management accounting amendment happens quickly.
Williams and Seaman found that management accounting amendment
brings concerning a rise in perceived management-relevant data. The
general conclusion to be deduced from this proof is that it shows that
management accounting amendment will exist aboard a rise in transparency.
Hypothesis 3: The better the chance of increased transparency, the
morepositive the attitude towards improving management accounting
Profitability
Another basic component of management accounting is that the intention to
boost an organization's outcomes at the operative level. Earlier empirical
papers tested or known the request for better financial performance as an
acceleration
issue
for
management
accounting
modification.
We summarize the goal of enhancing profitableness within the following
hypothesis: Hypothesis 4: the higher the possibility of enhancing
profitableness, the additional positive the attitude towards rising
management accounting.

Board expectation
An amendment in the information needs of the management or a
amendment in leaders was known by Laitinen as an acceleration issue for
dissatisfaction, which might impact management accounting amendment
quickly. The discontentedness of high management with existing accounting
dissatisfaction was known by Innes and Mitchell as a spur to change.
Hypothesis 5: The higher the expectations of the board, the more positive
theattitude towards improving management accounting.
Personal incentives
Agency theory predicts that incentives can influence managers' attitudes.
Described the leaders as facilitators and crucial factors in management
accounting modification. Because of this we have a tendency to check for
private incentives for managers which might facilitate the accounting
change:
Hypothesis 6: The stronger the private incentives for the manager to boost
management accounting, the lot of positive attitude towards improving
management accounting.
Agency issue
In our study agency issues will seem as a result of the analyzed management
accounting changes regard measures of business units. While business units'
managers will inform top management concerning great business success
management accountants will see deficits in economic gain or that business
units' success doesn't match with overall business goals.
Hypothesis 7: The greater the awareness of agency problems, the more
positivethe attitude towards improving management accounting.
IT application
Since the majority banking merchandise are digitally handled using IT
applications, these systems are valuable sources for management
accounting. In earlier analysis it's been shown to cause management
accounting modification.
Hypothesis 8: the higher the IT support, the lot of positive the perspective
towards top management accounting.
Data Quality
Data quality As outlined above, using IT applications is important for bank
management
accounting.
Bank management data systems maintain and turn out the data utilized by
banks to arrange, evaluate, and diagnose financial data.
The need for knowledge as a resource for management accounting leads
United States to the subsequent hypothesis: Hypothesis 9: the higher the
info quality, the additional positive the attitude towards improving
management accounting
Organizational change
Case studies have presented the restructuring of theorganizational structure
as a facilitator for management accounting amendment.Because altering org
anizational structure needs managementabilities andis also examined by cha

nged priorities, we see in these changes a barrier tomanagement accounting


change.
Hypothesis 10: The less important an organizational change in the bank, the
more positive the attitude towards refining management accounting.
Environment
Contingency theory specifies that a more complex environment demands
more complex organizational structures. Some described how (major)
external changes can cause revolutionary management accounting changes.
There is a relationship between the intensity of the competitive environment
and more sophisticated cost systems. The analyses of some studies showed
that changes and competitive factors were positively but not significantly
correlated. Innes and Mitchell (1990) recognized several changes in the
external environment (e.g.globalization, lower operating costs for
competitors) as motivators for management accounting change
We combine these findings in the following hypothesis:
Hypothesis 11: The higher the pressure of the environment, the stronger the
Intention to improve management accounting.
Behavioral control
Theory of reasoned action says behavioral control measures a persons
perception of the ease or difficulty entailed by behaving in a certain way.
As mentioned above, leaders play a crucial role in management accounting
change processes .The leaders have to be convinced that the management
accounting enhancement is advantageous and must involve themselves in
the change. Thus, we follow the theory of reasoned action by testing whether
the responsible manager for management accounting has the behavioral
control to enforce the change.
Hypothesis 12: The better the appreciation of behavioral control, the
stronger the intention to improve management accounting.
Attitude
According to the theory of reasoned action attitude is an important
contributor to the actual decision to change, when this is the intention of the
manager.
So we hypothesize:
Hypothesis 13: The more positive the attitude towards improving
management accounting, the stronger the intention to improve management
accounting.
Theoretical framework

Methodology and data collection

We used causal models to explain the causes of management accounting


systems implementation and proposed structure equitation models for
empirical testing. This type of methodology allows the cross-evaluation of
the factors and the analysis of which factors have a significant influence. We
also used mean value analysis factor analysis or regressions to examine
management accounting change. We also used a structure equation model
for the analysis. We adapt this methodology because it allows us to focus on
multiple measures as well as to analyze latent variables and it therefore
provides more reliable measurement. The data basis of this work is a written
survey among all German, Austrian and Swiss banks with total assets of over
one billion Euros (based on the end of 2005). Following this criterion we
selected 636 banks (Germany: 499, Austria: 68, Switzerland: 69) and
conducted the survey in fall 2006. The highest ranking managers responsible
for company group financial controlling were asked to answer a total of 40
open and closed questions, some of which requested additional details. In
the run-up to this survey the questionnaire was validated extensively in
expert workshops and by pre-tests. Six weeks after the questionnaires were
sent out each non-responsive bank was contacted by telephone. At the end
of the survey phase, 161 completed questionnaires had been returned, which
equals a response rate of 25.3 %.
Conclusion

In this paper we tend to present an analysis of management accounting modification in German,


Austrian and Swiss banks. Supported survey results from 161 banks we tend to take a look at the
impact of many hypotheses on managers intentions to implement management accounting
modification. Our analysis model is an adaptation of the idea of planned behavior and reasoned
action .we use a causal model to clarify the causes of management accounting systems
implementation and apply structure equation models for empirical testing. We tend to
demonstrate that management accounting modification is primarily driven by behavioral
management and board expectations. Moreover, we tend to demonstrate a major positive
influence of transparency, profit, personal incentives, surroundings, agency issues, knowledge
quality, and application support on the managers intention to adopt subtle management
accounting strategies. Our results also show that organizational change is that the main barrier to
accounting modification. we tend to introduce personal incentives and agency issues as drivers
that didn't play a very important role in previous studies of management accounting
modification. once organizational modification happens an accounting modification is additional
probably to be hindered in QM-banks. The results show that modification factors may be
heterogeneous inside the business and rely upon the planning of existing management
accounting. The results of this paper square measure of explicit interest for follow as a result of
they determine critical factors for management accounting modification processes in banks. Our
results should facilitate to style management accounting modification processes in banks. the
information reveal that each one system enhancements want robust support by prime
management which managers shouldn't initiate modification processes once there square
measure structure changes coming. Future studies ought to analyze more barriers that hinder
management accounting modification. Specifically, case study analysis on delayed or failing
modification processes may give attention-grabbing insights. additionally, interactions between
various factors impacting on management accounting modification, e.g. between board
expectations and profitability, should be thought of, as a number of the drivers and barriers may
decrease the result of others on the intention for modification. Finally, different cluster variables
ought to be of interest in accounting for various context settings.
.

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