RECENT DEVELOPMENTS IN MANAGEMENT ACCOUNTING

Lecture outline:
Management accounting scope The evolution of management accounting Management accounting change The gap between theory and practice

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Management Accounting Scope

Provision of information Manage resources efficiently Decision making
Control Planning Direction setting Change Commitment

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Evolution of the Focus of MA

Stage 4

Ongoing Transformation
Transformation Transformation Transformation Source: IFAC, 1998 Stage 1 Stage 2 Stage 3 Stage 4 Focus
4

3
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Management Accounting Change

Stage 1
Stage 2 Stage 3 Stage 4
Cost determination Financial control Management planning and control Reduction of waste Value creation
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Change in the Profession

Scorekeepers Bean counters

Change

Change

Internal consultant -business partner -business analyst

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Change in the Profession

Accounting is changing. You are no longer sitting behind a desk just working on a computer, just crunching the numbers. You are actually getting to be part of the day-to-day functions of the business. (Abbott Laboratories)

We are looked upon as more business advisors than just accountants, which has a lot to do with the additional analysis and forward-looking goals that we are setting. We spend more of our time analysing and understanding our margins, our prices, and the markets in which we business. People have a sense of purpose, have a sense of I am adding value to the company. (Caterpillar, Inc)
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Change in Profession

The Prior Business Environment

Financial

The Contemporary Business Environment

View

cost Common emphasis on standardisation & Std cost The accountants as functional expert and financial scorekeeper

reporting and

of cost acctg as a tool for the development and implementation of business strategy The accountant as a business partner
Blocher, Chen, Lin

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Change in Profession
Todays management accountants need the following skills:
Solid knowledge of both financial and management accounting Analytical skills Knowledge of how a business functions Ability to work on a team Oral and written communication skills
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WHAT FACTORS DRIVE CHANGE OF MA

External Customer oriented (competition) Technology Globalization
Customer-oriented (competition) Internal

Organizational

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WHAT FACTORS DRIVE CHANGE OF MA External

Focus on customer satisfaction

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WHAT FACTORS DRIVE CHANGE OF MA - Internal

Core competencies and work characteristics of the organisation
Modern production technologies changes in product costing practices IT capital budgeting E-commerce new ways of operating

Design of MA systems
Style of management Existence of TQM programmes
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WHAT FACTORS DRIVE CHANGE OF MA Organizational

Merger and acquisition Organizational restructuring Corporate failures enhanced corporate governance

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The Gap between Theory and Practices

Management accounting practices can be observed at the macro or micro levels (Drury, 2008): Macro refers to concepts and techniques Micro refers to the behavioural patterns of use. Tendency towards globalization at the macro level.

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The Gap between Theory and Practices

Drivers of convergence include:
Global competition Information technology (e.g. ERP systems)

Standardization by transnational companies

Global consultancy Use of global textbooks

At the micro level accounting information may be used in different ways due to influence of different national and local cultures.
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The Gap between Theory and Practices

Professional bodies play an important role to bridge the gap between MA theory and practice. For example, CIMA stated its first objective as to promote and develop the science of management accountancy. CIMA established the Technical Committee to oversee a rigorous technical development agenda.
Review developing practices and highlight whats working and whats not.

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The Gap between Theory and Practices

CIMA also worked with IFAC to develop the concept of enterprise governance, focusing on the balance between regulatory conformance and business performance. In Malaysia, NAfMA awards is introduced by CIMA and MIA to promote best practices of MA. The NAfMA awards recognize the best practices in MA that lead to value creation and excellent business performance based on the MA concepts of IFAC.
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The Gap between Theory and Practices

NAfMA award is a response to the criticism by accounting practitioners and educators on the ground that MA practices had changed little over for almost 60 years (e.g Johnson & Kaplan,1987), despite radical changes in the business environment. The awards also reflects the shift from number cruncher and corporate cop to decision-support specialists and reflects what it takes to compete in todays lean, global, technologically-driven environment.
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