Managerial accounting systems and organizational control: A role perspective

This paper proposes a new way of viewing the relationship between managerial accounting systems and organizational control. This is done to provide a structure around which control processes may be observed and research conducted. In the context of role theory several propositions are advanced in order to explain the relationship. Namely, it is noted that managerial accounting systems are useful in communicating role expectations, are important to motivation, and are useful in communicating organizational climate. Also, several factors concerning managerial style and social context were seen to influence the operativeness of these propositions.     

Financial control, managerial control and accountability: evidence from the British Cotton Industry, 1700–2000

The paper seeks to identify the underlying and long run historical determinants of accounting practices. These practices include the nature and relative importance of management and financial accounting techniques, together with the mediating roles of corporate finance and especially financial markets. To explain historical variation in the application of these techniques the paper introduces an analytical model. The model is based on the principles of historical materialism and hence comprises objective and subjective elements. Definitional categories are borrowed from Marx’s analysis of the workings of capitalism, and extended to include contexts where there is extensive socialization of capital, as manifested by the pooling of investments in liquid financial markets. To examine the detailed implications for accounting change, the model is then applied to a longitudinal case study of the British cotton textile industry. The paper shows that techniques of financial and managerial control and mechanisms of accountability can be explained by the dynamic interaction of capital centralization and capital socialization.     

From comfort to stretch zones: A field study of two multinational companies applying “beyond budgeting” ideas

This paper explores how change in the design principles of management control systems (MCSs) based on implementing the beyond budgeting (BB) ideas has influenced the transition of decision-makers from “comfort” to “stretch” zones and how this transition changed the supply of and demand for managerial information. This paper's starting point is based on the research evidence showing that there are many organizational problems associated with using budgets. Thus, this paper puts forth a previously neglected research context of companies that claim to have abandoned budgeting. In two cases, we illustrate how changes in the design of the MCS can create new management practices based on new ideas of information needed for decision-making. In particular, this paper illustrates how the use of new information provided by the MCS design, which is based on new principles, move decision-makers into the “stretch zone” characterized by new characteristics of decision-makers’ mindset and behavior. We also demonstrate how unbundling target setting, forecasting, and dynamic resource allocation enables better forward-looking and strategy-oriented decisions in situations requiring negotiation and learning.     

基于企业社会责任的管理会计框架重构

企业社会责任(CSR)的概念是不断演进的。无论围绕风险管理关注CSR对企业价值的影响,还是投资者结合社会责任投资(SRI)再造投资管理新模式,以及结合CSR与SRI的相关性来重新定位公司治理的作用等,均需要完善管理会计系统,进而重构管理会计的新框架。当前,从CSR的伦理观考察管理会计的框架结构是一种比较现实的选择。     

Linkages between organizational goals,strategies, and the budget process

This case is ideally suited to integrate organizational goals and strategies with budgeting, feedback, and variance analysis. It demonstrates the interplay between the budget process and organizational goals and strategies. The case is also useful in integrating accounting concepts with concepts which students have studied in management or organizational behavior courses. It suggests that the way that managers respond to variances is affected by the environment in which the firm operates and the product(s) manufactured by the firm. This case is based upon an actual situation in which a firm experienced rapid growth through acquisition. Integration of the budget process with organizational goals and strategies enhances the students' interest and their understanding of the role of budgets in the planning and control process. The case demonstrates that budgets are part of a “big picture,” and can be traced and related to managerial goals and strategies. Further, the case allows students to develop an understanding and appreciation of variance analysis. The case has been used successfully with undergraduate cost accounting students and with participants in a 2-week executive-education program. The students find the case interesting and are eager to participate in the discussion.     

Risk management and calculative cultures

Enterprise risk management (ERM) has recently emerged as a widespread practice in financial institutions. It has been increasingly codified and encrypted into regulatory, corporate governance and organizational management blueprints. A burgeoning literature of regulatory and practitioner texts is indicative of the apparent diversity of ambitions, objectives and techniques that constitute the ERM agenda. Making sense of these developments is a challenge. This paper presents field-based evidence from two large banking organizations suggesting that systematic variations in ERM practices exist in the financial services industry. The cases illustrate four risk management ideal types and show how they form the ‘risk management mix’ in a given organization. Further, drawing on the literature of the roles and uses of management control systems (MCS), the paper explores how ERM achieved organizational significance in the studied settings. The findings are indicative of the current co-existence of alternative models of ERM. In particular, two types of ERM models are postulated: one driven by a strong shareholder value imperative (ERM by the numbers), the other corresponding to the demands of the risk-based internal control imperative (holistic ERM). This paper explains the differences in the two risk management mixes pointing towards alternative logics of calculation [Power, M.K., 2007. Organized Uncertainty—Designing a World of Risk Management. Oxford University Press, Oxford], which I conceptualise and describe as different calculative cultures. The study suggests that calculative cultures, which in these cases shaped managerial predilections towards ERM practices, are relevant, albeit so far neglected, constituents of the fit between MCS and organizational contexts.     

The Cambridge Container Company: managing customer-centric information integration

This case illustrates the efforts of the Cambridge Container Company, a fictitious manufacturer of plastic containers, as they consider methods for moving organizational decision-making toward a more customer-centric focus. Cambridge has four independent manufacturing units, each of which currently bases all operational decisions on internally generated cost and profitability information.¹ In 2000, Cambridge established a special enterprise level division to consider best practices for collecting qualitative product and service feedback from customers and to subsequently consider how to best integrate such nontraditional, nonfinancial information into their own operational decision models.This realistic scenario gives students an opportunity to consider the financial and managerial implications of moving to customer-centric operational decision-making. Business articles on the advantages of customer centricity abound, but few sources consider the financial and managerial consequences beyond increased customer loyalty and satisfaction. In actuality, this current business trend requires significant reengineering of information systems and management practices. Consequently, accounting methods must be re-evaluated for accuracy and fit with new systems and management practices.At the heart of this case is an opportunity for students to consider the appropriate balance of traditional financial and customer-driven nonfinancial information in management decision models for optimal profitability of the company and its individual units. In addition, the instructor can delve into a number of internal control and political issues related to information sharing. There is also opportunity for students to consider at a high level the complexities of balancing open information sharing and information security. Several alternative questions and suggested solutions are provided for the instructor at the end of the case. We suggest that instructors select only three or four of the questions so students can spend more time on each selected issue. This case is adaptable for use in managerial accounting, accounting systems or management systems courses at the undergraduate or graduate levels.     

Mutual fund activism and corporate innovation: Evidence from China

This paper examines whether and how mutual fund activism affects corporate innovation. Using a patent-based innovation dataset from 2006 to 2017, our finding, which is inconsistent with the managerial myopia hypothesis, reveals that mutual fund intervention is associated with corporate innovation. We propose that mutual fund intervention promotes corporate innovation, proxied by invention patents. In addition, the effect of mutual fund intervention on corporate innovation is more pronounced for non-state-owned enterprises (non-SOEs) than for state-owned enterprises (SOEs), and that mutual fund intervention is likely to increase firms' portfolio R&D expenditures. Finally, we offer robustness checks and address possible endogeneity concerns.     

Accounting,professions and regulation: Locating the sites of professionalization

This review paper argues that the institutions and sites of professionalization projects and regulatory processes matter. The institutions and locations where regulation takes place affect both the outcome of the regulatory process and the legitimacy of the rules and practices produced. Changes in regulatory processes affect opportunities for democratic control and legitimacy. A common position in the accounting literature is to examine both the process of professionalization and accounting and audit regulation within and around professional associations and related organizations, such as standard setting bodies and regulatory agencies. We argue that professional firms are increasingly important in professionalization and regulatory processes and have not received the attention that they warrant: an examination of the multi-national professional service firms (currently known as the Big 4) can enhance an understanding of professionalization and professional regulation. We suggest that these are important sites where accounting practices are themselves standardized and regulated, where accounting rules and standards are translated into practice, where professional identities are mediated, formed and transformed, and where important conceptions of personal, professional and corporate governance and management are transmitted.     

An institutional analysis of accounting growth and regulation in the United States

The accounting profession in the United States has experienced rapid growth in the past two decades, and growth is likely to continue in the foreseeable future. Although the U.S. Securities and Exchange Commission possesses explicit statutory authority to regulate accounting and financial reporting, the profession is largely self-regulated, an arrangement widely supported by the corporate business community. Yet no single current accounting theory provides a full understanding of these two very basic phenomena. This paper examines organizational models based on contractualism (agency theory and transaction cost analysis), hierarchy (radical) and Fligstein's “organizational fields” conception, and evaluates their application to the accounting process. It is proposed that institutions are central to an understanding of accounting growth and regulation. The essay then offers a theoretical critique based on the internal and external aspects of economic organizations.     

Financial reporting quality in international settings: A comparative study of the USA, Japan, Thailand, France and Germany

The purpose of this study is to show the importance of the business contexts of individual countries to understand corporate accounting practices in international settings. Using data from five countries, we show that while agency theory constructs are effective in explaining accounting practices in corporate settings that have a strong agency orientation, such as that of the United States, it is necessary to go beyond such constructs to understand accounting practices in other corporate settings. Given the variety of international business settings, we use a generic theory, institutional theory. To conduct this examination into cross-country accounting practices, we focus on an earnings quality measure based on accrual accounting practices, the abnormal accruals component of accounting earnings. We provide evidence to support the view that with varying business settings we are likely to see diversity in accounting practices that result in different levels of accruals or accruals based earnings quality.     

Ownership, managerial control and the governance of companies listed on the Brussels stock exchange

This paper examines how corporate control is exerted in companies listed on the Brussels Stock Exchange. There are several alternative corporate governance mechanisms which may play a role in disciplining poorly performing management: blockholders (holding companies, industrial companies, families and institutions), the market for partial control, debt policy, and board composition. Even if there is redundancy of substitute forms of discipline, some mechanisms may dominate. We find that top managerial turnover is strongly related to poor performance measured by stock returns, accounting earnings in relation to industry peers and dividend cuts and omissions. Tobit models reveal that there is little relation between ownership and managerial replacement, although industrial companies resort to disciplinary actions when performance is poor. When industrial companies increase their share stake or acquire a new stake in a poorly performing company, there is evidence of an increase in executive board turnover, which suggests a partial market for control. There is little relation between changes in ownership concentration held by institutions and holding companies, and disciplining. Still, high leverage and decreasing solvency and liquidity variables are also followed by increased disciplining, as are a high proportion of non-executive directors and the separation of the functions of CEO and chairman.     

Application of Anglo-American Principles of Consolidation to Corporate Financial Disclosure in Japan

The adoption by Japan of consolidated corporate reporting in 1977 may be viewed as an instance of the international transfer of Anglo-American practices of corporate reporting, and as a step towards international harmonization of accounting. Consolidation practices in Anglo-American nations are based on assumptions about the nature of corporate group associations. This paper examines the applicability of these assumptions to the corporate context in Japan. Personal interviews and analyses of group associations of listed Japanese corporations support three principal findings: (i) that historical and cultural determinants provide significant contrasts between corporate group associations in Japan and Anglo-American nations; (ii) that Anglo-American methods of consolidation fail to reflect adequately the nature of corporate group associations in Japan; and (iii) that the adoption of consolidation in Japan represented a response to situation-specific change stimuli rather than a general acceptance of the intrinsic merit of consolidation. The findings have implications for international accounting.     

Management accounting and corporate governance: An institutional interpretation of the agency problem

Challenging the dominant economic agency theory of corporate governance with a new discourse drawn from institutional theory, the paper analyses how management accounting is implicated in corporate governance. The proposed institutional theory of agency links the micro-institutions of the organization that are informed by the practices of management accounting with external institutional players and stakeholders. The paper identifies emerging narratives in which the management accounting profession has recognised a distinctive, post-Enron set of sensibilities. Although techniques drawn from strategic management accounting can be adapted to embed better corporate governance practices, the institutional theory of agency identifies tensions between the heroic CEO narrative and the routinization of strategy implicit in strategic management accounting.     

The Development of Accounting and Reporting in Ghana

In this paper, we examine the economic, political, and legal systems as well as the institutional factors that influence the accounting and disclosure practices in Ghana. The impact of International Financial Reporting Standards (IFRS) on disclosure is also investigated, as Ghana has recently completed full adoption. We find that the accounting and reporting practices are significantly influenced by legal, political, institutional, and economic factors and that the regulatory environment is neither effective nor efficient due to the weak monitoring and enforcement of compliance. Although there has been some recent progress, the Companies' Code, which is the corporate legal framework of Ghana, must be updated to reflect the dynamic nature of world operations. This study advances the course of standards setters, regulators, accounting practitioners, and policymakers to improve the corporate reporting and accounting practices. Urgent measures need to be undertaken to reform and build the capacities of institutions charged with the responsibility of regulating and monitoring Ghanaian accounting and reporting practices to ensure best practices and build investors' confidence.     

Corporate Governance and the Prediction of the Impact of AIFRS Adoption

This study examines whether a firm's corporate governance system, particularly with respect to the characteristics of the board of directors and senior management, affects how accurately the impact of accounting changes is reported to shareholders. We concentrate on the relation between corporate governance measures and accounting forecast errors that arise with adoption of the International Financial Reporting Standards by listed Australian firms. Evidence reveals that corporate governance mechanisms are associated with the likelihood and magnitude of managerial forecast errors.     

A LONGITUDINAL CASE STUDY OF PROFITABILITY REPORTING IN A BANK

This project involved a seven-year longitudinal case study of a Bank monitoring over time the changes in profit measurement and overhead allocation, product group profitability, benchmarking, customer profitability, budgeting and profitability/performance measures such as return on risk adjusted capital. The overall finding is that the Bank’s profitability reporting (particularly its product group and customer profitability) changed considerably during this seven-year period. The main factors that accountants and managers identified as influencing such changes were four external factors and two internal factors. The four external factors were changes in technology (computers and telecommunications), regulatory change, increasingly competitive global markets and a greater difficulty in attracting customers. The two internal factors were the development of new products leading to a wider product range and a changing management accounting culture. The historical and organizational context of the Bank was also critical in this process of change, and a dynamic contingency model is proposed. This longitudinal case study indicates that more changes are occurring in management accounting practices (such as profitability reporting) than the current evidence from questionnaire surveys and ‘snapshot’ case studies reveals. An area for future research that this study highlights is that although accountants and managers talk in terms of long-term planning and control, the norm is short-term management accounting solutions and managerial reaction to new external developments.     

Human information processing and its relevance to accounting: A laboratory study

The purpose of this research was to empirically test emerging behavioral science theories which have import in our understanding of the complex information processing and decision-making behavior of users of accounting information. A multi-stage laboratory experiment which utilized accounting students as decision-makers was used to test several research hypotheses. In the experimental tasks, the subjects knew the nature of the decision and had the opportunity to seek information at a cost to aid them in deciding on an alternative. The findings are supportive to the applicability of general and idiosyncratic information processing theories to managerial environments.