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.     

Budgetary change at a university: A narrative inquiry

This paper reports the results of a qualitative case study of an Australian University's implementation of a new budget model. To inform our research, we developed a theoretical framework by drawing from neo-institutional sociology, old institutional economics and technical-rational choice. A narrative inquiry was employed to elicit the stories of participants' experiences of the budgetary change in its socio-political and institutional contexts. Through this narrative inquiry, we depart from prior institutional management accounting change studies which have presented change steered by external pressures for conformity and/or legitimacy. Our study shows how budgeting, as a management accounting tool, can be viewed as a rational myth conferring social legitimacy upon organisational participants and their actions. Further, we demonstrate that the emergence of a new management accounting practice is attributed to the demands of technical-rational imperatives, and the existence of internal rationalised dynamics and norms. We highlight and analyse the role and ability of organisational actors to create budgetary change in an institutionalised higher education environment.     

The influence of funding source and legislative requirements on government cost accounting practices

This paper provides preliminary evidence on the determinants of cost accounting practices in government agencies. Drawing on institutional and contingency theories of management accounting choice, we examine two potential influences on the design and use of government cost systems: legal requirements to be self-funding and mandated requirements for cost accounting data. We test these hypotheses using survey data from the U.S. General Accounting Office. The empirical evidence indicates that organizations using cost system output to satisfy external requirements tend to implement more “elaborate” cost accounting systems than units without external requirements, but are no more likely to use cost system data for internal purposes. In contrast, government organizations that are required to “pay their own way” by fully recovering costs through revenues or fees not only implement more elaborate systems than units funded by appropriated budgets or reimbursement of expenses by other government units, but also tend to make more extensive use of cost system output for a wide variety of internal purposes ranging from pricing to management control.     

Understanding management accounting practices: A personal journey

This paper reviews the changes which have taken place in management accounting research over the last 35 years. It traces the author's personal journey as a management accounting researcher and emphasises the shift which has taken place in what it means to understand management accounting practices. It argues that to make sense of diversity in management accounting practices we need to understand the complex mish-mash of inter-related influences which shape practices in individual organisations. It outlines the contribution which institutional theories can make to understanding this mish-mash of complexity. In particular, it reviews the achievements of the Burns and Scapens framework (2000) for studying management accounting change and describes some of its limitations and extensions; viz., the interplay of internal and external institutions; the importance of trust in accountants; the impact of circuits of power; and the need to study the role of agency in institutional change. It concludes that research in recent years has provided a much clearer understanding of the processes which shape management accounting practices; but the challenge for the future is to use this theoretically informed understanding to provide relevant and useful insights for management accounting practitioners.     

The power of accounting: a field study of local financial management in a police force

This paper describes the introduction of management accounting change in the form of local financial management in a police force, West Mercia Constabulary, using an ethnographic study. The study applies institutional theory to understand the context, process and consequences of the introduction of devolved budgeting systems to the organization.The field study explains how the devolution of budgets in West Mercia was accompanied by a shift in power that helped to reconcile the interests of those pursuing a legitimating accountability with those who prioritized operational policing.This paper makes two contributions to institutional theory. First, is the development of understanding of relations of power, particularly where interests coincide and shifts in power are a by-product of legitimating processes. Second, is an explanation of how loose coupling can take place through accounting, in which a devolved budget can satisfy both institutional and technical demands.     

Accounting practices and professional power dynamics during a crisis

This paper examines how changes in accounting practices during a crisis can affect organisational dynamics between hospital managers and clinicians. Our theoretical framework applies a multi-dimensional concept of power (Hardy, 1996) – which distinguishes power over resources, processes and meaning – to a longitudinal case study of a public university hospital during a budgetary crisis. Based on interviews with managers and clinicians, three successive time intervals with distinct power constellations are identified. Initially, we identify a pre-crisis phase where management formally controls resources, which seems to have limited effects on clinician dominance because managers lack ‘processual power’ and ‘power of meaning’. Next, an implantation phase emerges whereby the introduction of mandated budget cuts triggers shifts in the distribution of power, such that managers acquire power by securing the collaboration of clinicians – a phenomenon which has tangible benefits in terms of enabling budget compliance and increased service provision. Finally, the third phase may be conceptualized as a fiscal pressure regimen whereby, when budgetary pressures intensify further, management's newly gained ‘power of meaning’ is eroded because management are now seen to pursue unrealistic demands. Drawing on research insights gleaned during each phase, our analysis contributes to extant literature in at least three ways. First, we present novel findings regarding the impact of crises-related applications of accounting practices on intra-organisational power constellations. Second, our work highlights how accounting practices help shape the understanding of crisis, which, in turn, impacts the distribution of organizational power and influences intra-organizational patterns of collaboration. Third, we find that awareness of the meaning power of accounting practices can help shape strategic action in crisis situations.     

Anticipating the Impact of IFRS on the Management of German Manufacturing Companies: Some Observations from a British Perspective

The introduction of International Financial Reporting Standards (IFRS) in 2005 marked a significant departure from Germany's traditional financial accounting practices. This paper questions whether this change may have consequential effects on the distinctive traditional management accounting practices in the field of Controlling. We examine the possible impact on manufacturing companies drawing upon perceptions and expectations of managers in three Bavarian companies and two management consultancy firms. We consider whether financial accounting will assume an increased importance within firms, and whether this may lead to abandonment of some traditional management accounting practices and the adoption of different techniques in internal reporting compatible with the new IFRS regime for external reporting. This prompts consideration of whether such changes would lead to financial accounting domination of management accounting in Germany analogous to that argued by Johnson and Kaplan in 1987 in their ‘Relevance Lost’ thesis. We conclude that, at this juncture in the development of their information systems, German managers face an important choice between integrating external and internal reporting in ways that might fundamentally change established Controlling practices, or of continuing to operate dual accounting systems in much the same way as in the past so that adoption of IFRS is restricted to external reporting.     

Institutional changes in university accounting education in post-revolutionary China: From political orientation to internationalization

Since the formation of the Peoples’ Republic of China (PRC) in 1949, the broad field of accounting education in China has undergone many changes in the context of a dramatically changing sociopolitical environment. The institutional mechanisms in Chinese university accounting education are examined in this paper, principally through a re-reading of the historical experience since 1949. We utilize an institutional theory frame to examine how action in the regulative, normative, and cultural-cognitive pillars have shaped accounting education from its heavily political orientation in the early years of the PRC to a more internationalized university accounting education system that has begun to take shape in contemporary China. We seek to contribute a contextualized understanding of contemporary China's accounting education, while adapting and extending the role of institutional theory in explaining education changes more broadly.     

Strategy,political regulation and management control in the public sector: Institutional and critical perspectives

This paper mobilizes institutional and critical theories in examining how evolving management control practices, inspired by the balanced scorecard, mediated the process of strategy formation in a Swedish central government agency. Particular attention is paid to how this process was conditioned by external, political regulation of the organization. Contrary to popular conceptions of strategy and strategic management as emerging alternatives to political regulation in the public sector, the study shows how the meaning of the notion of strategy became intricately intertwined with government regulation. Whilst this affirms the tendency of organizations to comply with institutional pressures exerted by dominant constituencies, the analysis also shows how the unfolding strategy discourse gradually narrowed the meaning of the notion of strategy permeating the organization. The extension of an institutional perspective to incorporate more critical insights highlights how this process fostered some “unintended” consequences with a detrimental impact on organizational practices aimed at achieving broader social objectives. In so doing, I draw attention to how the unobtrusive power of evolving strategy discourses conditions conceptions of organizational performance and relevant constituent interests. The implications for future management accounting research combining institutional and critical theories are discussed.     

Capital Allowances and the Incentive to Invest

In recent years many organisations have moved towards a total quality management (TQM) path in their quest for quality. Accounting researchers have become interested in understanding how accounting systems are implicated within a TQM environment. This paper reports on a case study of TQM adoption and changes in management accounting systems (MAS) within a New Zealand construction company. It evaluates organizational approaches to implement TQM as a strategic option and the subsequent change in MAS. The paper suggests that an organisation may initiate TQM practices to promote ‘institutional’ and ‘quality’ culture rather than for purely technical reasons. It also suggests that when an organisation adopts new management practices such as TQM, it may lead to changes in the organisation's internal control mechanisms, such as management accounting and reporting processes.     

Accounting as an engine for the re‐creation of strategy at a university

This paper examines the role of accounting in the strategy re‐creation of a university. Drawing on Donald MacKenzie's theoretical notion of performative engines, our field study of an Australian university reveals how accounting, through various calculative practices, fuelled change and steered people into strategic action, leading to the formation of a new strategic plan. We contribute to the existing accounting and higher education literature on university strategising by illustrating how accounting, when convincing and accepted by decision‐makers, can function as an engine for the transformation and financialisation of universities’ strategies.     

Corporate Reporting Practices in Poland and Romania – An Ex-ante Study to the New Non-financial Reporting European Directive

The European Directive 2014/95/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups is applicable by European Union-based entities starting with the financial year commencing on 1 January 2017. Central and Eastern European (CEE) countries are reported to face difficulties when implementing new European or global accounting regulations and models. We investigate the quality of non-financial disclosures in Poland and Romania, the biggest CEE countries, prior to the European Directive’s adoption and explain the diffusion of this type of reporting through the lens of the institutional pressures. We find that prior regulation, local institutional characteristics, ownership, industry and auditors have an impact on the quality of disclosures. Poland experienced a higher extent of voluntary reporting, but Romania faced prior regulatory demands for non-financial reporting (NFR). We find that the overall disclosure score is higher for Romania, which provides support for the importance of regulations to strengthen the spread and quality of NFR. The research findings are relevant to practice and policy. This ex-ante evaluation of reporting practices and of their determinants is useful to understand how change occurs in practice and how companies react to regulatory and other institutional demands.     

The Main Determinants of the Use of the Cost Accounting System in Portuguese Local Government

Abstract: This paper explores the main determinants of the use of the cost accounting system (CAS) in Portuguese local government (PLG). Regression analysis is used to study the fit of a model of accounting changes in PLG, focused on cost accounting systems oriented to activities and outputs. Based on survey data gathered from PLG, we have found that the use of information in decision‐making and external reporting is still a mirage. We obtain evidence about the influence of the internal organizational context (especially the lack of support and difficulties in the CAS implementation) in the use for internal purposes, while the institutional environment (like external pressures to implement the CAS) appears to be more deterministic of the external use. Results strengthen the function of external reporting to legitimate the organization's activities to external stakeholders. On the other hand, some control variables (like political competition, usefulness and experience) also evidence some explanatory power in the model. Some mixed results were found that appeal to further research in the future. Our empirical results contribute to understand the importance of interconnecting the contingency and institutional approaches to gain a clear picture of cost accounting changes in the public sector.     

Managing Multiple Institutional Logics and the Use of Accounting: Insights from a German Higher Education Institution

This paper examines the use of accounting in managing the co-existence of different institutional logics in a German higher education institution (HEI), and its impact on the HEI. The study is of particular interest as the HEI analyzed pursued its own corporatization through a re-organization from a state into a foundation university. We show that this corporatization through the adoption of new public management related ideas leads to institutional complexity arising from the co-existence of extant state and emergent business logics. Our study suggests that HEIs may deploy particular accounting practices shaped by business logic only superficially, so as to satisfy stakeholders such as governmental authorities in order to enhance their legitimacy following a self-imposed reform, while the operation of the HEI remains rooted in state logic. Specifically, the findings suggest that in the case of actual changes to the budgetary process arising through the corporatization and an emergent logic, failure to replace abandoned accounting practices shaped by a previously dominant logic with equivalent practices adhering to either extant or emerging logic(s), may put the organization at risk. Overall, our study contributes to a better understanding of the dangers of an organizational response to institutional complexity, referred to as reactive decoupling, in the management of institutional complexity and points to its negative impact on organizations' hybridization capability.     

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.     

The sociology of enterprise, accounting and budget rules: Implications for organizational theory

The sociology of organizations has ignored the evolution of and variation in enterprise rules, budget systems and accounting rules. This paper takes a broad approach to accounting rules, arguing that they are related to large variations in enterprise forms and in industry problems. The rule making and enforcement apparatus of modern society is described. Both external and internal aspects of accounting rules and budget systems are explored.     

The societal relevance of management accounting innovations: economic value added and institutional work in the fields of Chinese and Thai state-owned enterprises

This paper contributes to the ongoing debate about the relevance of management accounting. In doing so, we widen the definition of ‘relevance’ from the largely managerialist focus dominating this debate to examine how management accounting innovations get imbued with a broader range of societal interests and how actors representing vested interests go about entrenching and resisting such innovations. We explore these issues with reference to the institutionalisation of Economic Value Added (EVA?) as a governance mechanism for Chinese and Thai state-owned enterprises. Adopting a comparative, institutional field perspective, we theorise our observations through the conceptual lens of institutional work, or the human agency involved in creating, maintaining and disrupting institutions. We extend extant research on institutional work by exploring how the evolution of such work was conditioned by differences in field cohesiveness, defined in terms of how consistent and tightly coordinated key interests clustered around EVA? are. Our analysis also draws attention to how different types of institutional work support and detract from each other in the process of upholding such cohesiveness. We discuss the implications for future research on the societal relevance of management accounting innovations and institutional work.     

Strengthening causal inferences in positivist field studies

This essay discusses how incorporating qualitative analyses and insight in positivist field studies can strengthen researchers’ ability to draw causal inferences. Specifically, I review how the rich institutional knowledge available in field settings can be used to increase internal validity by improving the specification of empirical models and tests and by providing greater insight into statistical results, particularly through the investigation of the causal processes linking the accounting practices and outcomes.     

‘Agents-in-focus’ and ‘Agents-in-context’: The strong structuration analysis of central government accounting practices and reforms in Nepal

Drawing on Stones’ (2005) strong structuration theory, the paper unfolds why and how the key stakeholders of central government accounting in Nepal are involved in the reproduction of routinised accounting practices, resisting the externally-propagated changes. Government accountants (the agents-in-focus) through their capability to control the budget routines have enjoyed a powerful social position in their position–practice relations with the agents-in-context, i.e. professional accountants and international consultants, higher-level officers and administrators, auditors, and politicians. Social position along with historically-imbued dispositions and their conduct and context analysis have enabled government accountants to strategically exercise their agency. Government accountants have articulated duality and a dialectic relation with the agents-in-context, which have resulted in the reproduction of everyday accounting practice and the resistance to the World Bank-led reforms, such as accrual accounting and, more recently, the Cash-Basis IPSAS.     

Committed to professionalism: Organizational responses of mid-tier accounting firms to conflicting institutional logics

We study how mid-tier accounting firms deal with changes in their institutional environment that resulted in a shift in emphasis from the trustee logic to the commercial logic. We find that these mid-tier firms selectively adopt practices related to the commercial logic, while retaining a principal commitment to the trustee logic. Interviews with high level informants in these firms show how specific strategic choice opportunities serve as independent critical events framing practice-adoption decisions. Main strategic issues for the mid-tier firms relate to the changing role of the accountant and changes in organizational structure and practices. As these issues fundamentally challenge characteristics of their professional identity, there is internal resistance against this transformation. Non-partnered accountants mainly challenge new roles that upset their extant work routines, whereas partners resist changes affecting their autonomy. These types of resistance directly impact the strategic organizational responses of the accounting firms to institutional pressures.